We have observed a marked increase in the activity of transglutaminase (EC 220.127.116.11) in rat vaginal epithelial cells in a time-dependent manner during estradiol-induced terminal differentiation. The increased transglutaminase activity facilitates a post-translational modification, transamidation of keratins by the formation of an isopeptide sigma (tau-glutamyl) lysine. This isopeptide was recovered from the urea-soluble and -insoluble fractions of keratins. The formation of sigma (tau-glutamyl) lysine was significantly reduced in rats primed with progesterone or tamoxifen-estradiol. These in vivo experiments were further confirmed by in vitro studies using the reconstituted keratin filaments, which demonstrated a remarkable acceleration in the formation of covalent cross-links mediated by vaginal epithelial cell transglutaminase obtained from rats primed with estradiol. By specifically modifying the lysine residues of the keratins with 2,4-pentanedione the aggregation of keratin filaments was inhibited. These findings reflect that the vaginal epithelial cell transglutaminase obtained from rats which is regulated by estradiol plays a key role in the process of terminal differentiation of rat vaginal epithelial cells.