The folding of cutinase, an enzyme displaying lipolytic activity, has been studied in the presence of trehalose. Equilibrium unfolding data show that trehalose increases the free energy change between folded and unfolded states. Unfolding kinetics reveal the presence of an intermediate which is ca. 60% folded in terms of solvent exposure. Trehalose stabilizes this intermediate relative to the folded state. In contrast, the intermediate revealed by folding kinetics is more compact than the transition state, as shown by the positive slope observed at low denaturant concentration in the chevron plot, as well as the decrease in the observable rate constant for folding with the increase in trehalose concentration. This intermediate displays more than 50% of area buried from the solvent (relative to the native state) compared to around 40% for the transition state for folding and therefore appears to be off the folding pathway. Trehalose stabilizes and guanidine hydrochloride destabilizes this compact intermediate. Both unfolding and folding kinetics show that compact conformational states are stabilized by trehalose, in agreement with current models on the effect of compatible solutes. This effect occurs even for compact states that decelerate the folding as in the case of the intermediate revealed by folding kinetics.