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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. [ABSTRACT FROM AUTHOR]