Dihydrolipoamide dehydrogenase (E3) from Escherichia coli, an FAD-linked homodimer, can be fully reconstituted in vitro following denaturation in 6 m guanidinium chloride. Complete restoration of activity occurs within 1-2 h in the presence of FAD, dithiothreitol, and bovine serum albumin. In the absence of FAD, the dihydrolipoamide dehydrogenase monomer forms a stable folding intermediate, which is incapable of dimerization. This intermediate displays a similar tryptic resistance to the native enzyme but is less heat-stable, because its ability to form native E3 is lost after incubation at 65 degrees C for 15 min. The presence of FAD promotes slow, additional conformational rearrangements of the E3 subunit as observed by cofactor-dependent decreases in intrinsic tryptophan fluorescence. However, after 2 h, the tryptophan fluorescence spectrum and far UV CD spectrum of E3, refolded in the absence of FAD, are similar to that of the native enzyme, and full activity can still be recovered on addition of FAD. Cross-linking studies show that FAD insertion is necessary for the monomeric folding intermediate to attain an assembly competent state leading to dimerization. Thus cofactor insertion represents a key step in the assembly of this enzyme, although its initial presence appears not to be required to promote the correct folding pathway.