One aspect of the present invention relates to a reporter system for detection of protein-protein interactions in the periplasm of a prokaryotic host cell. The reporter system includes a first expression system which has a nucleic acid molecule encoding a first fragment of a reporter protein molecule, a nucleic acid molecule encoding a first signal sequence, and a nucleic acid molecule encoding a first member of a putative binding pair, where the nucleic acid molecule encoding the first fragment, the nucleic acid molecule encoding the first signal sequence, and the nucleic acid molecule encoding the first member of the putative binding pair are operatively coupled to permit their expression in a prokaryotic host cell as a first fusion protein. The reporter system also includes a second expression system which has a nucleic acid molecule encoding a second fragment of the reporter protein molecule, a nucleic acid molecule encoding a second signal sequence, and a nucleic acid molecule encoding a second member of the putative binding pair, where the nucleic acid molecule encoding the second fragment, the nucleic acid molecule encoding the second signal sequence, and the nucleic acid molecule encoding the second member of the putative binding pair are operatively coupled to permit their expression in a prokaryotic host cell as a second fusion protein, where, when expressed in a prokaryotic host cell, at least one of the first and the second fusion proteins are co-translationally transported to the periplasm where, when present, the first and second members of the putative binding pair bind together and the first and second fragments of the reporter protein molecule are reconstituted, thereby producing an active reporter protein. The reporter system may be used to carry out methods of identifying candidate compounds which bind to a target protein, identifying a candidate gene which modulates binding between a first protein and second protein, and identifying a candidate compound which modulates binding between a first protein and second protein.