Transglutaminase 2 (TGase 2) is a Ca+2-dependent enzyme that catalyzes both intracellular and extracellular cross-linking reactions by transamidation of specific glutamine residues. TGase 2 is known to be involved in the membrane-mediated events required for glucose-stimulated insulin release from the pancreatic beta cells. Here we show that targeted disruption of TGase 2 impairs glucose-stimulated insulin secretion. TGase 2-/- mice show glucose intolerance after intraperitoneal glucose loading. TGase 2-/- mice manifest a tendency to develop hypoglycemia after administration of exogenous insulin as a consequence of enhanced insulin receptor substrate 2 (IRS-2) phosphorylation. We suggest that the increased peripheral sensitivity to insulin partially compensates for the defective secretion in this animal model. TGase 2-/- mouse phenotype resembles that of the maturity-onset diabetes of young (MODY) patients. In the course of screening for human TGase 2 gene in Italian subjects with the clinical features of MODY, we detected a missense mutation (N333S) in the active site of the enzyme. Collectively, these results identify TGase 2 as a potential candidate gene in type 2 diabetes.