Treatment of skins of newborn mice with the neutral protease Dispase in order to separate dermis and epidermis causes pronounced changes in the levels of transglutaminase activity in the epidermis. Two soluble transglutaminases, one anionic enzyme and one cationic enzyme, of Mr approximately 90,000 and approximately 50,000, respectively, are extracted from epidermis; and the activities of both enzymes increase as a function of the time of Dispase treatment of skin. When the anionic Mr approximately 90,000 enzyme is incubated with Dispase after its chromatographic isolation from epidermal extracts, it is converted to a lower molecular weight enzyme. Hair follicles isolated from dermis prepared by a 12-h Dispase treatment of the skin of newborn mice contain two soluble cationic transglutaminases, one of which is indistinguishable from that of epidermis and the other which is not seen in epidermis. Both of these hair follicle enzymes are of Mr approximately 50,000 and appear to exist in monomeric form. They have been partially purified. Based upon these findings, we suggest that transglutaminase processing and control occur during normal differentiation of keratinocytes in epidermis and of hair follicle epidermal cells in dermis and that production of the proper forms of the enzyme may be essential to the formation of mature cornified envelopes and hair shafts, respectively.