A pro-Lie group is a projective limit of a family of finite-dimensional Lie groups. In this paper we show that a pro-Lie group G is a Lie group in the sense that its topology is compatible with a smooth manifold structure for which the group operations are smooth if and only if G is locally contractible. We also characterize the corresponding pro-Lie algebras in various ways. Furthermore, we characterize those pro-Lie groups which are locally exponential, that is, they are Lie groups with a smooth exponential function which maps a zero neighbourhood in the Lie algebra diffeomorphically onto an open identity neighbourhood of the group.