PDZ domains are modular protein interaction domains that are present in metazoans and bacteria. These domains possess unique structural features that allow them to interact with the C-terminal residues of their ligands. The Escherichia coli essential periplasmic protein DegP contains two PDZ domains attached to the C-terminal end of the protease domain. In this study we examined the role of each PDZ domain in the protease and chaperone activities of this protein. Specifically, DegP mutants with either one or both PDZ domains deleted were generated and tested to determine their protease and chaperone activities, as well as their abilities to sequester unfolded substrates. We found that the PDZ domains in DegP have different roles; the PDZ1 domain is essential for protease activity and is responsible for recognizing and sequestering unfolded substrates through C-terminal tags, whereas the PDZ2 domain is mostly involved in maintaining the hexameric cage of DegP. Interestingly, neither of the PDZ domains was required for the chaperone activity of DegP. In addition, we found that the loops connecting the protease domain to PDZ1 and connecting PDZ1 to PDZ2 are also essential for the protease activity of the hexameric DegP protein. New insights into the roles of the PDZ domains in the structure and function of DegP are provided. These results imply that DegP recognizes substrate molecules targeted for degradation and substrate molecules targeted for refolding in different manners and suggest that the substrate recognition mechanisms may play a role in the protease-chaperone switch, dictating whether the substrate is degraded or refolded.PDZ domains represent a common protein interaction motif, and their name was derived from the first three proteins in which such domains were identified, namely PSD-95, Drosophila melanogaster Disc large protein, and zonula occludens protein 1. Bacterial PDZ domains are homologous to the metazoan PDZ domains (23,24,26); however, their topology is different (20), and thus they are designated "PDZ-like" domains.PDZ domains are approximately 90 residues long and have a common structure consisting of six -strands and two ␣-helices, which fold in an overall six-stranded -sandwich. The C-terminal ends of a protein substrate (7) usually bind in a groove of the domain formed between one of the ␣-helices and the adjacent -strand, which thus serves as an extra -strand added to the -sheet (8). In this manner, the C-terminal peptide backbone participates in an extensive hydrogen-bonding pattern with the main chain atoms of the PDZ domain -strand. The terminal carboxylate group is also stabilized by a series of hydrogen bonds with the highly conserved "carboxylate-binding loop" (3). However, the side chain of the C-terminal residue and the side chain of the residue at position Ϫ2 are the structures that are most critical for the specificity of substrate recognition by the PDZ domain, rather than the extensive hydrogen bonds with the main chain of the PDZ domain -strand (29). In this context, ...