Membrane protein folding has suffered from a lack of detailed kinetic studies, particularly with regard to the insertion of denatured protein into lipid bilayers. We present a detailed in vitro kinetic study of the association of a denatured, transmembrane alpha helical protein with lipid vesicles. The mechanism of folding of Escherichia coli diacylglycerol kinase from a partially denatured state in urea has been investigated. The protein associates with lipid vesicles to give a protein, vesicle complex with an apparent association constant of 2 x 10(6) M(-1) s(-1). This association rate approaches the diffusion limit of the protein, vesicle reaction. The association of the protein with lipid vesicles is followed by a slower process occurring at observed rate of 0.031 s(-1), involving insertion into the bilayer and generation of a functional oligomer of diacylglycerol kinase. Protein aggregation competes with vesicle insertion. The urea-denatured protein monomers begin to aggregate as soon as the urea is diluted. This aggregation is faster than the association of the protein with vesicles so that most protein aggregates before it inserts into a vesicle. Increasing the vesicle concentration favours insertion of protein monomers, but at high vesicle concentrations monomers are primarily in separate vesicles and do not associate to form functional oligomers. Irreversible aggregation limits the yield of functional protein, while the data also suggest that lipid vesicles can reverse another aggregation reaction, leading to the recovery of correctly folded protein.