Chromosome folding is extensively modulated as cells progress through the cell cycle. During mitosis, condensin complexes fold chromosomes in helically arranged nested loop arrays. In interphase, the cohesin complex generates loops that can be stalled at CTCF sites leading to positioned loops and topologically associating domains (TADs), while a separate process of compartmentalization drives the spatial segregation of active and inactive chromatin domains. We used synchronized cell cultures to determine how the mitotic chromosome conformation is transformed into the interphase state. Using Hi-C, chromatin binding assays, and immunofluorescence we show that by telophase condensin-mediated loops are lost and a transient folding intermediate devoid of most loops forms. By late telophase, cohesin-mediated CTCF-CTCF loops and positions of TADs start to emerge rapidly. Compartment boundaries are also established in telophase, but long-range compartmentalization is a slow process and proceeds for several hours after cells enter G1. Our results reveal the kinetics and order of events by which the interphase chromosome state is formed and identify telophase as a critical transition between condensin and cohesin driven chromosome folding.