Ab initio simulations of the folding pathways are currently limited to very small proteins. For larger proteins, some approximations or simplifications in protein models need to be introduced. Protein folding and unfolding are among the basic processes in the cell and are very difficult to characterize in detail by experiment or simulation. Chymotrypsin inhibitor 2 (CI2) and barnase are probably the best characterized experimentally in this respect. For these model systems, initial folding stages were simulated by using CA-CB-side chain (CABS), a reduced-space protein-modeling tool. CABS employs knowledge-based potentials that proved to be very successful in protein structure prediction. With the use of isothermal Monte Carlo (MC) dynamics, initiation sites with a residual structure and weak tertiary interactions were identified. Such structures are essential for the initiation of the folding process through a sequential reduction of the protein conformational space, overcoming the Levinthal paradox in this manner. Furthermore, nucleation sites that initiate a tertiary interactions network were located. The MC simulations correspond perfectly to the results of experimental and theoretical research and bring insights into CI2 folding mechanism: unambiguous sequence of folding events was reported as well as cooperative substructures compatible with those obtained in recent molecular dynamics unfolding studies. The correspondence between the simulation and experiment shows that knowledge-based potentials are not only useful in protein structure predictions but are also capable of reproducing the folding pathways. Thus, the results of this work significantly extend the applicability range of reduced models in the theoretical study of proteins.