The 64-residue protein chymotrypsin inhibitor 2 (CI2) is a single module of structure. It folds and unfolds as a single co-operative unit by simple two-state kinetics via a single rate determining transition state. This transition state has been characterized at the level of individual residues by analysis of the rates and equilibria of folding of some 100 mutants strategically distributed at 45 sites throughout the protein. Only one residue, a helical residue (Ala16) buried in the hydrophobic core, has its full native interaction energy in the transition state. The only region of structure which is well developed in the transition state is the alpha-helix (residues 12 to 24). But, the interactions within it are weakened, especially at the C-terminal region. The rest of the protein has varying degrees of weakly formed structure. Thus, secondary and tertiary interactions appear to form concurrently. These data, reinforced by studies on the structures of peptide fragments, fit a "nucleation-condensation" model in which the overall structure condenses around an element of structure, the nucleus, that itself consolidates during the condensation. The high energy transition state is composed of the whole of the molecule making a variety of weak interactions, the nucleus being those residues that make the strongest interactions. The nucleus here is part of the alpha-helix and some distant residues in the sequence with which it makes contacts. The remainder of the protein has to be sufficiently ordered that it provides the necessary interactions to stabilize the nucleus. The nucleus is only weakly formed in the denatured state but develops in the transition state. The onrush of stability as the nucleus consolidates its local and long range interactions is so rapid that it is not yet fully formed in the transition state. The formation of the nucleus is thus coupled with the condensation. These results are consistent with a recent simulation of the folding of a computer model protein on a lattice which is found to proceed by a nucleation-growth mechanism. We suggest that the mechanism of folding of CI2 may be a common theme in protein folding whereby fundamental folding units of larger proteins, which are modelled by the folding of CI2, form by nucleation-condensation events and coalesce, perhaps in a hierarchical manner.