To examine the relationship between folding and aggregation in the periplasm of Escherichia coli, we have analysed the cellular fates of exported proteins fused to either the wild-type maltose-binding protein (MalE) or the aggregation-prone variant MalE31. The propensity of fusion proteins to aggregate in the periplasm was determined by the intrinsic folding characteristics of the upstream protein. When beta-lactamase or alkaline phosphatase was linked to the C-terminus of MalE31, the resultant fusion proteins accumulated in an insoluble form, but retained their catalytic activity. In addition, these protein aggregates induced an extracytoplasmic stress response, similar to unfused MalE31. However, using a fluorescent substrate, we found that alkaline phosphatase activity was present inside periplasmic aggregates. These results suggest that periplasmic inclusion body formation may result in intermolecular interactions between participating proteins without loss of function of the fused enzymes.