One isoform of trehalase, TreF, is present in the cytoplasm and a second, TreA, in the periplasm. To study the questions of why one enzyme is exported efficiently and the other is not and whether these proteins can fold in their nonnative cellular compartment, we fused the signal sequence of periplasmic TreA to cytoplasmic TreF. Even though this TreF construct was exported efficiently to the periplasm, it was not active. It was insoluble and degraded by the periplasmic serine protease DegP. To determine why TreF was misfolded in the periplasm, we isolated and characterized Tre+ revertants of periplasmic TreF. To further characterize periplasmic TreF, we used a genetic selection to isolate functional TreA-TreF hybrids, which were analyzed with respect to solubility and function. These data suggested that a domain located between residues 255 and 350 of TreF is sufficient to cause folding problems in the periplasm. In contrast to TreF, periplasmic TreA could fold into the active conformation in its nonnative cellular compartment, the cytoplasm, after removal of its signal sequence.