Many proteins populate collapsed intermediate states during folding. In order to elucidate the nature and importance of these species, we have mapped the structure of the on-pathway intermediate of the four-helix protein, Im7, together with the conformational changes it undergoes as it folds to the native state. Kinetic data for 29 Im7 point mutants show that the intermediate contains three of the four helices found in the native structure, packed around a specific hydrophobic core. However, the intermediate contains many non-native interactions; as a result, hydrophobic interactions become disrupted in the rate-limiting transition state before the final helix docks onto the developing structure. The results of this study support a hierarchical mechanism of protein folding and explain why the misfolding of Im7 occurs. The data also demonstrate that non-native interactions can play a significant role in folding, even for small proteins with simple topologies.