Abstract From equilibrium measurements with urea we found a three-state thermodynamic and kinetic folding behavior for the precursor and mature form of Escherichia coli β-lactamase TEM2. The thermodynamic intermediate H of Escherichia coli β-lactamase and its precursor had no enzymatic activity, and a quenched tryptophan fluorescence intensity, but a native-like wavelength of maximum intensity. State H of mature β-lactamase was 8·7 kcal mol-1 less stable than the native state N and about 4·2 kcal mol-1 more stable than the unfolded state U, extrapolated to absence of urea. In contrast, state H of precursor β-lactamase was even more stable than N by about 0·5 kcal mol-1 and about 6·9 kcal mol-1 more stable than U. Native pre-β-lactamase could be stabilized by lowering the pH value from 7·0 to 5·5, probably by protonating a histidine residue leading to an improved solubility of the signal sequence. Synthetic peptides, containing 23 or 38 N-terminal amino-acid residues of pre-β-lactamase, were unable to compete with pre-β-lactamase for binding to GroEL. However, GroEL prevented the inactivation of mature β-lactamase by p38, consistent with competition between GroEL and mature β-lactamase for binding to p38. The equilibrium constant for dissociation K D of the complex between GroEL and p23, a peptide containing exclusively the signal sequence of pre-β-lactamase, was measured with the BIAcore™ instrument to be in the range 10- 7 to 10- 8 M. Our results are consistent with co-operative binding of GroEL to the mature part and to the signal sequence of pre-β-lactamase. We suggest a thermodynamic partitioning model for hydrophobic binding of polypeptides by GroEL.