A separator/folder bag machine for developing individual, folded, plastic bags. A pair of high speed separation rollers, actuated by means of a servo motor driven eccentric linkage, engages a continuous plastic web to separate individual plastic bags formed tin the web. A pair of parallel, wide belts, and a pair of similar, overlying belts, engage both sides of the separated bags and transport the bags to a plurality of folding stations. Air jets at selected locations in the folder/separator controllably direct the bags through pairs of nip rolls to fold the bags along predetermined fold lines. Sensors in the folder/separator sense abnormal conditions and deactivate particular fold stations to reject improperly formed bags. A two speed slowdown mechanism at the discharge end of the separator/folder slows the folded bags to facilitate downstream handling. An optional stacker and indexing conveyor automatically stacks predetermined numbers of folded bags, aligns and compresses the bags to form an easily handled stack, and conveys the formed and compressed stack to downstream apparatus for further handling.