We server our content in http://www.domain.com/folder which is bookmarked by user and has to stay that way.
Out next iteration will be http://www.domain.com/folder2.
We intend to use url rewriting to keep the url http://www.domain.com/folder, but serve the content from http://www.domain.com/folder2.
What are the SEO implication, will Google penalize us?
A user agent makes a request to a URI and gets a response. The End.
What happens behind the scenes is invisible and irrelevant to the client.
You will not get a penalty for this because Google (or any other agent/user) wont know it is a rewrite rule.
Just make sure if you change your content to be carefull with all the SEO stuff (title, keywords, alt, ...).
Will http://www.domain.com/folder2 also be accessible and serve the same content as http://www.domain.com/folder? If so, then you would likely pick up a Google penalty if both urls are indexed serving the same content.