Ankyrin repeat proteins are found in all three kingdoms of life. Fundamentally, these proteins are involved in protein-protein interaction in order to activate or suppress biological processes. The basic architecture of these proteins comprises repeating modules forming elongated structures. Due to the lack of long-range interactions, a graded stability among the repeats is the generic properties of this protein family determining both protein folding and biological function. Protein folding intermediates were frequently found to be key for the biological functions of repeat proteins. In this review, we discuss most recent findings addressing this close relation for ankyrin repeat proteins including DARPins, Notch receptor ankyrin repeat domain, IκBα inhibitor of NFκB, and CDK inhibitor p19INK4d. The role of local folding and unfolding and gradual stability of individual repeats will be discussed during protein folding, protein-protein interactions, and post-translational modifications. The conformational changes of these repeats function as molecular switches for biological regulation, a versatile property for modern drug discovery.