The SUMO fusion system is widely used to facilitate recombinant expression and production of difficult-to-express proteins. After purification of the recombinant fusion protein, removal of the SUMO-tag is accomplished by the yeast cysteine protease, SUMO protease 1 (Ulp1), which specifically recognizes the tertiary fold of the SUMO domain. At present, the expression of the catalytic domain, residues 403–621, is used for obtaining soluble and biologically active Ulp1. However, we have observed that the soluble and catalytically active Ulp1403-621 inhibits the growth of E. coli host cells. In the current study, we demonstrate an alternative route for producing active Ulp1 catalytic domain from a His-tagged N-terminally truncated variant, residues 416–621, which is expressed in E. coli inclusion bodies and subsequently refolded. Expressing the insoluble Ulp1416-621 variant is advantageous for achieving higher production yields. Approximately 285 mg of recombinant Ulp1416-621 was recovered from inclusion bodies isolated from 1 L of high cell-density E. coli batch fermentation culture. After Ni2+-affinity purification of inactive and denatured Ulp1416-621 in 7.5 M urea, different refolding conditions with varying L-arginine concentration, pH, and temperature were tested. We have successfully refolded the enzyme in 0.25 M L-arginine and 0.5 M Tris-HCl (pH 7) at room temperature. Approximately 80 mg of active Ulp1416-621 catalytic domain can be produced from 1 L of high cell-density E. coli culture. We discuss the applicability of inclusion body-directed expression and considerations for obtaining high expression yields and efficient refolding conditions to reconstitute the active protein fold.