Tazarotene-induced gene 3 (TIG3) regulates keratinocyte terminal differentiation by activating type I transglutaminase (TG1). TIG3 consists of an amino-terminal (N-terminal) segment, that encodes several conserved motifs, and a carboxy-terminal (C-terminal) membrane-anchoring domain. By producing a series of truncation mutants that remove segments of the N-terminal region, and monitoring the ability of each mutant to co-precipitate TG1, function as a TG1 substrate, or functionally localize with TG1 in cells, we show that the TIG3 domain that interacts with TG1 is located within a TIG3 segment spanning amino acids 112-164. Although they bind TG1, TIG3 mutants lacking the conserved N-terminal region drive apoptosis-like cell death characterized by cell rounding, membrane blebbing, cytochrome c release, procaspase-3 and poly(ADP-ribose)polymerase (PARP) cleavage, and reduced p53 and p21 levels. Compared with TIG3, these truncated mutants have an increased tendency to associate with membranes. A mutant lacking the C-terminal membrane-anchoring domain is inactive. These findings suggest that TIG3 interaction with TG1 does not require the N-terminal conserved domains, that the TIG3 N-terminal region is required for TIG3-dependent keratinocyte differentiation, that its removal converts TIG3 into a proapoptotic protein, and that this change in action of TIG3 is associated with an intracellular redistribution.