Extracellular storage of thyroglobulin (TG) is a prerequisite for maintaining constant levels of thyroid hormones in vertebrates. Storage of TG within the follicle lumen is achieved by compactation and by the formation of covalent cross-links between TG molecules. In bovine thyroids, approximately 75% of the cross-links are other than disulfide bonds (J. Cell Biol. 180, 1071-1081). We have now shown that polymeric TG contains a large number of N(epsilon)(gamma-glutamyl)lysine cross-links and that only traces of these can be found in the soluble form of TG. Because such isopeptide bridges are generated usually by the action of a transglutaminase, it is reasonable to propose that the covalent polymerization of TG in the globules is under the control of this enzyme. Soluble TG was shown to be a substrate for transglutaminase in vitro; moreover, the presence of transglutaminase was demonstrated by immunofluorescence and by immunoblotting in freshly isolated bovine thyroid globules. With immunoelectron microscopy, transglutaminase was detected in the cytoplasm of thyrocytes, but not in compartments of the secretory pathway. Only one messenger RNA for transglutaminase was found by Northern blotting. Sequencing of the cloned gene failed to reveal a secretory signal, which supports the notion that the thyroid transglutaminase is the cytosolic type. Apparently, the enzyme reaches the lumen of the follicle by an as yet unknown pathway to catalyze the covalent cross-linking of thyroid globules in this extracellular compartment.