Previously we presented evidence that phosphatidylethanolamine (PE) acts as a molecular chaperone in the folding of the polytopic membrane protein lactose permease (LacY) of Escherichia coli. Here we provide more definitive evidence supporting the chaperone properties of PE. Membrane insertion of LacY prevents its irreversible aggregation, and PE participates in a late step of conformational maturation. The temporal requirement for PE was demonstrated in vitro using a coupled translation-membrane insertion assay that allowed the separation of membrane insertion from phospholipid-assisted folding. LacY was folded properly, as assessed by recognition with conformation-specific monoclonal antibodies, when synthesized in the presence of PE-containing inside-out membrane vesicles (IOVs) or in the presence of IOVs initially lacking PE but supplemented with PE synthesized in vitro either co- or post-translationally. The presence of IOVs lacking PE and containing anionic phospholipids or no addition of IOVs resulted in misfolded or aggregated LacY, respectively. Therefore, critical folding steps occur after membrane insertion dependent on the interaction of LacY with PE to prevent illicit interactions which lead to misfolding of LacY.