One of the most vexing problems facing structural genomics efforts and the biotechnology enterprise in general is the inability to efficiently produce functional proteins due to poor folding and insolubility. Additionally, protein misfolding and aggregation has been linked to a number of human diseases, such as Alzheimer's. Thus, a robust cellular assay that allows for direct monitoring, manipulation, and improvement of protein folding could have a profound impact. We report the development and characterization of a genetic selection for protein folding and solubility in living bacterial cells. The basis for this assay is the observation that protein transport through the bacterial twin-arginine translocation (Tat) pathway depends on correct folding of the protein prior to transport. In this system, a test protein is expressed as a tripartite fusion between an N-terminal Tat signal peptide and a C-terminal TEM1 beta-lactamase reporter protein. We demonstrate that survival of Escherichia coli cells on selective medium expressing a Tat-targeted test protein/beta-lactamase fusion correlates with the solubility of the test protein. Using this assay, we isolated solubility-enhanced variants of the Alzheimer's Abeta42 peptide from a large combinatorial library of Abeta42 sequences, thereby confirming that our assay is a highly effective selection tool for soluble proteins. By allowing the bacterial Tat pathway to exert folding quality control on expressed target protein sequences, we have generated a powerful tool for monitoring protein folding and solubility in living cells, for molecular engineering of solubility-enhanced proteins or for the isolation of factors and/or cellular conditions that stabilize aggregation-prone proteins.