Earlier, we found that three protein disulfide isomerases (PDI) from Giardia lamblia (gPDI) also have transglutaminase (TGase) activity in vitro. We now show that differentiating Giardia cells contain isopeptide bonds (epsilon(gamma-glutamyl)lysine), the biological product of TGase activity that results in irreversible crosslinking of proteins in vivo. HPLC analyses showed the highest isopeptide bond content in cells encysting for 21 h, indicating an important role for TGase early in encystation. We were not able to detect isopeptide bonds in water-resistant cysts, possibly because they could not be extracted. One of the hallmarks of early encystation is the formation of encystation secretory vesicles (ESV) that transport nascent cyst wall proteins (CWPs) to the outer cell surface. ImmunoEM and live-cell immunofluorescence assays of encysting parasites revealed that gPDIs 1-3 are located in ESV and that gPDI-2 is also novel in that it is localized on the cell surface. Cystamine, a widely used TGase inhibitor, caused a dose-dependent inhibition of ESV formation by 21 h, thereby preventing development of trophozoites into cysts. Since cystamine (0.5-1 mM) inhibited the TGase activity of recombinant gPDIs 1-3 in vitro, PDIs appear to be the physiologic targets of cystamine. We found that when parasites were treated with cystamine, CWPs were not processed normally. These data suggest that TGase-catalyzed reactions may be needed for either the machinery that processes CWP precursors or their recruitment to ESV.