Molecular chaperones of the Hsp70 class bind unfolded polypeptide chains and are thought to be involved in the cellular folding pathway of many proteins. DnaK, the Hsp70 protein of Escherichia coli, is regulated by the chaperone protein DnaJ and the cofactor GrpE. To gain a biologically relevant understanding of the mechanism of Hsp70 action, we have analyzed a model reaction in which DnaK, DnaJ, and GrpE mediate the folding of denatured firefly luciferase. The binding and release of substrate protein for folding involves the following ATP hydrolysis-dependent cycle: (i) unfolded luciferase binds initially to DnaJ; (ii) upon interaction with luciferase-DnaJ, DnaK hydrolyzes its bound ATP, resulting in the formation of a stable luciferase-DnaK-DnaJ complex; (iii) GrpE releases ADP from DnaK; and (iv) ATP binding to DnaK triggers the release of substrate protein, thus completing the reaction cycle. A single cycle of binding and release leads to folding of only a fraction of luciferase molecules. Several rounds of ATP-dependent interaction with DnaK and DnaJ are required for fully efficient folding.