The mechanism of protein folding is being investigated theoretically by the use of both simplified and all-atom models of the polypeptide chain. Lattice heteropolymer simulations of the folding process have led to proposals for the folding mechanism and for the resolution of the Levinthal paradox. Both stability and rapid folding have been shown in model studies to result from the presence of a pronounced global energy minimum corresponding to the native state. Concomitantly, molecular dynamics simulations with detailed atomic models have been used to analyze the initial stages of protein unfolding. Results concerning possible folding intermediates and the role of water in the unfolding process have been obtained. The two types of theoretical approaches are providing information essential for an understanding of the mechanism of protein folding and are useful for the design of experiments to study the mechanism in different proteins.