The assembly of β-barrel proteins into membranes is mediated by an evolutionarily conserved machine. This process is poorly understood because no stable partially folded barrel substrates have been characterized. Here, we slowed the folding of the Escherichia coli β-barrel protein, LptD, with its lipoprotein plug, LptE. We identified a late-stage intermediate in which LptD is folded around LptE, and both components interact with the two essential β-barrel assembly machine (Bam) components, BamA and BamD. We propose a model in which BamA and BamD act in concert to catalyze folding, with the final step in the process involving closure of the ends of the barrel with release from the Bam components. Because BamD and LptE are both soluble proteins, the simplest model consistent with these findings is that barrel folding by the Bam complex begins in the periplasm at the membrane interface.