The GroEL/GroES chaperonin system of Escherichia coli forms a nano-cage allowing single protein molecules to fold in isolation. However, as the chaperonin can also mediate folding independently of substrate encapsulation, it remained unclear whether the folding cage is essential in vivo. To address this question, we replaced wild-type GroEL with mutants of GroEL having either a reduced cage volume or altered charge properties of the cage wall. A stepwise reduction in cage size resulted in a gradual loss of cell viability, although the mutants bound non-native protein efficiently. Strikingly, a mild reduction in cage size increased the yield and the apparent rate of green fluorescent protein folding, consistent with the view that an effect of steric confinement can accelerate folding. As shown in vitro, the observed acceleration of folding was dependent on protein encapsulation by GroES but independent of GroES cycling regulated by the GroEL ATPase. Altering the net-negative charge of the GroEL cage wall also strongly affected chaperonin function. Based on these findings, the GroEL/GroES compartment is essential for protein folding in vivo.