In contrast to molecular chaperones that couple protein folding to ATP hydrolysis, protein disulfide-isomerase (PDI) catalyzes protein folding coupled to formation of disulfide bonds (oxidative folding). However, we do not know how PDI distinguishes folded, partly-folded and unfolded protein substrates. As a model intermediate in an oxidative folding pathway, we prepared a two-disulfide mutant of basic pancreatic trypsin inhibitor (BPTI) and showed by NMR that it is partly-folded and highly dynamic. NMR studies show that it binds to PDI at the same site that binds peptide ligands, with rapid binding and dissociation kinetics; surface plasmon resonance shows its interaction with PDI has a Kd of ca. 10(-5) M. For comparison, we characterized the interactions of PDI with native BPTI and fully-unfolded BPTI. Interestingly, PDI does bind native BPTI, but binding is quantitatively weaker than with partly-folded and unfolded BPTI. Hence PDI recognizes and binds substrates via permanently or transiently unfolded regions. This is the first study of PDI's interaction with a partly-folded protein, and the first to analyze this folding catalyst's changing interactions with substrates along an oxidative folding pathway. We have identified key features that make PDI an effective catalyst of oxidative protein folding - differential affinity, rapid ligand exchange and conformational flexibility.