The vast majority of mitochondrial proteins are synthesized in the cytosol and transported into the organelle in a largely, if not completely, unfolded state. The proper function of mitochondria thus depends on folding of several hundreds of proteins in the various subcompartments of the organelle. Whereas folding of proteins in the mitochondrial matrix is supported by members of several chaperone families, very little is known about folding of proteins in the intermembrane space (IMS). We targeted dihydrofolate reductase (DHFR) as a model substrate to the IMS of yeast mitochondria and analyzed its folding. DHFR can fold in this compartment, and its aggregation upon heat shock can be prevented in an ATP-dependent manner. Yme1, an AAA (ATPases associated with diverse cellular activities) protease of the IMS, prevented aggregation of DHFR. Analysis of protein aggregates in mitochondria lacking Yme1 revealed the presence of a number of proteins involved in the establishment of mitochondrial ultrastructure, lipid metabolism, protein import, and respiratory growth. These findings explain the pleiotropic effects of deletion of YME1 and suggest an important role for Yme1 as a folding assistant, in addition to its proteolytic function, in the protein homeostasis of mitochondria.