Annulin, a protein whose general stage- and position-specific expression pattern in the grasshopper embryo is described in the companion paper, is expressed in epithelial annuli in developing limbs. Here, we show that these annuli comprise narrow circumferential bands of epithelial cells at the boundaries of limb segments. At most boundaries, expression of annulin precedes the first morphological signs of segmentation. The most distal cells in a band underlie the boundary invagination. Bands arise in a stereotyped order and, within a band, expression occurs in an ordered circumferential progression. Annulin has a molecular weight of about 97 kDa and appears to be intracellular and peripherally associated with the inner leaflet of the cell membrane. Using the monoclonal antibody 7H7, two overlapping cDNA clones encoding this protein were isolated from an embryonic Schistocerca cDNA expression library. The nucleotide and deduced amino acid sequences indicate that the annulin protein does not contain either a signal sequence or a transmembrane domain. By sequence comparison, annulin appears to be a transglutaminase, one of a family of enzymes that have protein cross-linking activity. Its expression pattern within the limb and the embryo is associated with areas undergoing morphogenetic rearrangements, movements, or rapid cell division. It may stabilize cells under mechanical stress or participate in some other way in these morphogenetic activities.