The folding of 8-17 deoxyribozyme was investigated by three-color alternating-laser excitation (3c-ALEX), a new single-molecule fluorescence resonance energy transfer (FRET) method we recently developed. Since 3c-ALEX has the capability of simultaneously sorting fluorescent molecules based on their labeling status and monitoring three interprobe distances of a biomolecule by employing three-color FRET, it is an ideal tool to study folding of multibranched molecules. The 8-17 deoxyribozyme, a DNA enzyme that cleaves a specific RNA substrate, is a good model system for a multibranched molecule, since it has the structure of a three-way DNA junction with a bulge. Labeling all three branches of the 8-17 with different fluorescent probes, we studied its [Mg2+]-dependent folding in a Na+ buffer solution. With the stoichiometric sorting capability of 3c-ALEX, we first selected only the triply labeled 8-17 in a solution of all heterogeneous mixtures and then simultaneously measured all three interprobe distances of the selected species. Our results show that the 8-17 folds into a pyramidal form upon increasing [Mg2+], in a similar way with [Zn2+] as found in an earlier study conducted at the ensemble level. The apparent dissociation constant of Mg2+ was more than 100 times larger than that of Zn2+ and showed considerable variance with buffer concentration. No clear sign of two-step folding was observed for Mg2+, in contrast to the case of Zn2+. Compared with the hammerhead ribozyme, the 8-17 was found to require 10 times higher [Mg2+] to undergo folding. By comparison with the folding of several inactive 8-17 analogues, we found that the two conserved sequences (A and G) of the triad loop of the shortest branch are critical elements for folding, especially for the folding at low [Mg2+]. Our results suggest that the role of the stem loop is to provide a scaffold for the two bases to be properly positioned for the necessary interaction and that the two bases are directly involved in the interaction that plays a critical role in folding. This work demonstrates that 3c-ALEX is a powerful single-molecule method to study the structure and folding of complex and multibranched biomolecules.