The way in which multidomain proteins fold has been a puzzling question for decades. Until now, the mechanisms and functions of domain interactions involved in multidomain protein folding have been obscure. Here, we develop structure-based models to investigate the folding and DNA-binding processes of the multidomain Y-family DNA polymerase IV (DPO4). We uncover shifts in the folding mechanism among ordered domain-wise folding, backtracking folding, and cooperative folding, modulated by interdomain interactions. These lead to ‘U-shaped’ DPO4 folding kinetics. We characterize the effects of interdomain flexibility on the promotion of DPO4–DNA (un)binding, which probably contributes to the ability of DPO4 to bypass DNA lesions, which is a known biological role of Y-family polymerases. We suggest that the native topology of DPO4 leads to a trade-off between fast, stable folding and tight functional DNA binding. Our approach provides an effective way to quantitatively correlate the roles of protein interactions in conformational dynamics at the multidomain level.