1. The thermodynamically reversible unfolding and refolding of penicillinase between the native and fully unfolded states were followed by using guanidinium chloride as denaturant. 2. The equilibria, studied by optical rotation, u.v. absorption, viscosity and enzyme activity, show the presence of a state of intermediate conformation, termed state H, which is stable at 20 degrees C in 0.8 M-guanidinium chloride. 3. The physical properties of this state show that it is slightly expanded with an intrinsic viscosity of 8 ml-g-1, that the 13 tyrosine residues, which are distributed through the primary sequence, are maximally exposed to the solvent and that the helix content is the same as that of the native state. 4. The kinetics of the transition between the native state, state H and the fully unfolded state were followed by u.v. absorption and by optical rotation. They are interpreted as showing that state H lies on the folding pathway between the native and fully unfolded states. 5. The transition between the native state and state H exhibits monophasic unfolding kinetics and biphasic refolding kinetics. This indicates that there must be at least two intermediate states in this process, at least one of which lies on the folding pathway which may also involve cul-de-sac paths. 6. The results are discussed in terms of a mechanism involving rapid stabilization of nucleation regions in a moderately compact but internally solvated structure, with 'native format' [Anfinsen (1973) Science 181, 233-230] secondary structure stabilized by tertiary interaction. The final and rate-limiting step in refolding involves shuffling of these structural elements into the native state. 7. This model is discussed in relation to folding in vivo.