Incorrectly folded states transiently populated during the protein folding process are potentially prone to aggregation and have been implicated in a range of misfolding disorders that include Alzheimer's and Parkinson's diseases. Despite their importance, however, the structures of these states and the mechanism of their formation have largely escaped detailed characterization because of their short-lived nature. Here we present the structures of all the major states involved in the folding process of a PDZ domain, which include an off-pathway misfolded intermediate. By using a combination of kinetic, protein engineering, biophysical and computational techniques, we show that the misfolded intermediate is characterized by an alternative packing of the N-terminal β-hairpin onto an otherwise native-like scaffold. Our results suggest a mechanism of formation of incorrectly folded transient compact states by which misfolded structural elements are assembled together with more extended native-like regions.