Many proteins produced in Escherichia coli accumulate in inclusion bodies. We have systematically evaluated the parameters that affect the refolding and renaturation of enzymatically active molecules from bacterial inclusion bodies containing a recombinant single-chain immunotoxin, B3(Fv)-PE38KDEL. This recombinant molecule is composed of the variable domains of monoclonal antibody B3 (B3(Fv)) fused to a truncated mutant form of Pseudomonas exotoxin A (PE38KDEL). This immunotoxin kills carcinoma cells in vitro, causes tumor regression in animal tumor models, and is being developed as an anti-cancer therapeutic agent (Brinkmann et al., 1991, Proc. Natl. Acad. Sci. USA 88, 8616-8620). Like many other recombinant proteins, B3(Fv)-PE38KDEL is produced in E. coli in inclusion bodies and must be denatured and refolded to become active. This requires correct folding, formation of native disulfide bonds, and the association of different domains. All these steps are strongly dependent on the renaturation conditions used. Optimum conditions of refolding were obtained by the addition of reduced and oxidized thiol reagents to promote disulfide bond formation and the addition of a labilizing agent such as L-arginine. Furthermore, the necessity to reactivate proteins at low protein concentrations due to its tendency to aggregate at high concentrations was overcome by a step-by-step addition of denatured and reduced protein into the refolding solution. This approach should be useful for the production of active forms of other recombinant proteins.