Hybridization-induced conformational changes have been successfully used in biosensors for the transduction of DNA-binding events into readily observable optical or electronic signals. Similar signal transduction has not, however, proven of equal utility in protein-based biosensors. The discrepancy arises because, unlike ssDNA, most proteins do not undergo significant conformational changes upon ligand binding. Here, we describe a solution to this problem. We show that an arbitrarily selected, normally well folded protein can be rationally engineered such that it undergoes ligand-induced folding. The engineered protein responds rapidly (milliseconds) and selectively to its target, and it couples recognition with the largest possible conformational change: folding. These traits suggest that ligand-induced folding could serve as an ideal signal-transduction mechanism. Consistent with this claim, we demonstrate a label-free optical biosensor based on the effect that is sufficiently selective to detect its target even in complex, contaminant-ridden samples such as blood serum.