The mechanism by which proteins fold to their native states has been the focus of intense research in recent years. The rate-limiting event in the folding reaction is the formation of a conformation in a set known as the transition-state ensemble. The structural features present within such ensembles have now been analysed for a series of proteins using data from a combination of biochemical and biophysical experiments together with computer-simulation methods. These studies show that the topology of the transition state is determined by a set of interactions involving a small number of key residues and, in addition, that the topology of the transition state is closer to that of the native state than to that of any other fold in the protein universe. Here, we review the evidence for these conclusions and suggest a molecular mechanism that rationalizes these findings by presenting a view of protein folds that is based on the topological features of the polypeptide backbone, rather than the conventional view that depends on the arrangement of different types of secondary-structure elements. By linking the folding process to the organization of the protein structure universe, we propose an explanation for the overwhelming importance of topology in the transition states for protein folding.