Possible steps in the folding of bacteriorhodopsin are revealed by studying the refolding and interaction of two fragments of the molecule reconstituted in lipid vesicles. (1) Two denatured bacteriorhodopsin fragments have been purified starting from chymotryptically cleaved bacteriorhodopsin. Cleaved bacteriorhodopsin has been renatured from a mixture of the fragments in Halobacterium lipids/retinal/dodecyl sulfate solution following removal of dodecyl sulfate by precipitation with potassium. The renatured molecules have the same absorption spectrum and extinction coefficient as native cleaved bacteriorhodopsin. They are integrated into small lipid vesicles as a mixture of monomers and aggregates. Extended lattices form during the partial dehydration process used to orient samples for X-ray and neutron crystallography. (2) Correct refolding of cleaved bacterioopsin occurs upon renaturation in the absence of retinal. Regeneration of the chromophore and reformation of the purple membrane lattice are observed following subsequent addition of all-trans retinal. (3) The two chymotryptic fragments have been reinserted separately into lipid vesicles and refolded in the absence of retinal. Circular dichroism spectra of the polypeptide backbone transitions indicate that they have regained a highly alpha-helical structure. The kinetics of chromophore regeneration following reassociation have been studied by absorption spectroscopy. Upon vesicle fusion, the refolded fragments first reassociate, then bind retinal and finally regenerate cleaved bacteriorhodopsin. The complex formed in the absence of retinal is kinetically indistinguishable from cleaved bacterioopsin. The refolded fragments in lipid vesicles are stable for months, both as separate entities and after reassociation. These observations provide further evidence that the native folded structure of bacteriorhodopsin lies at a free energy minimum. They are interpreted in terms of a two-stage folding mechanism for membrane proteins in which stable transmembrane helices are first formed. They subsequently pack without major rearrangement to produce the tertiary structure.