At least three transglutaminases are involved in terminal differentiation events in the epidermis and its derivatives, such as the hair follicle, presumably in cross-linking structural proteins and in the formation of the cornified cell envelope. Of these, only the transglutaminase 3 is a proenzyme, requiring activation by proteolytic cleavage, and is the least understood. Using oligonucleotides designed from the amino acid sequences of peptides of the guinea pig enzyme, we amplified mRNA and deduced the complete amino acid sequences of the mouse and human protransglutaminase 3 enzymes. Both proteins contain 692 amino acids of molecular mass about 77 kDa. Following expression in yeast, the proenzymes encoded by the full-length cDNA clones are active enzymes and can be further activated 15-fold on treatment with dispase. Although these proteins share 38-53% identity to other members of the transglutaminase family, surprisingly, the mouse, human, and guinea pig enzymes have not been highly conserved and show only 50-75% identity to each other. Much of the sequence variation occurs in the vicinity of the proteolytic activation site which lies at the most flexible and hydrophilic region of the molecule and is flanked by a sequence of 12 residues that are absent from other transglutaminases. We suggest that cleavage of this exposed flexible hinge region promotes a conformational change in the protein to a more compact form, resulting in activation of the enzyme. Expression of mouse and human protransglutaminase 3 mRNAs is regulated by calcium, as for other late differentiation products of the epidermis, suggesting that this enzyme is responsible for the later stages of cell envelope formation in the epidermis and hair follicle.