Folding and cellular localization of many proteins of Gram-negative bacteria rely on a network of chaperones and secretion systems. Among them is the lipase-specific foldase Lif, a membrane-bound steric chaperone that tightly binds (KD = 29 nM) and mediates folding of the lipase LipA, a virulence factor of the pathogenic bacterium P. aeruginosa. Lif consists of five-domains, including a mini domain MD1 essential for LipA folding. However, the molecular mechanism of Lif-assisted LipA folding remains elusive. Here, we show in in vitro experiments using a soluble form of Lif (sLif) that isolated MD1 inhibits sLif-assisted LipA activation. Furthermore, the ability to activate LipA is lost in the variant sLifY99A, in which the evolutionary conserved amino acid Y99 from helix α1 of MD1 is mutated to alanine. This coincides with an approximately three-fold reduced affinity of the variant to LipA together with increased flexibility of sLifY99A in the complex as determined by polarization-resolved fluorescence spectroscopy. We have solved the NMR solution structures of P. aeruginosa MD1 and variant MD1Y99A revealing a similar fold indicating that a structural modification is likely not the reason for the impaired activity of variant sLifY99A. Molecular dynamics simulations of the sLif:LipA complex in connection with rigidity analyses suggest a long-range network of interactions spanning from Y99 of sLif to the active site of LipA, which might be essential for LipA activation. These findings provide important details about the putative mechanism for LipA activation and point to a general mechanism of protein folding by multi-domain steric chaperones.