Squamous differentiation of rabbit tracheal epithelial cells is accompanied by an approximately 50-fold increase in the activity of type I (epidermal) transglutaminase, while the levels of type II (tissue) transglutaminase remain almost undetectable. To identify a cDNA encoding type I transglutaminase, we screened a library of cDNA clones prepared from poly(A)⁺ RNA isolated from squamous-differentiated rabbit tracheal epithelial cells. Four overlapping clones (represented by clone pTG-7) which span a range of 2.8 kilobases were identified; partial sequencing of pTG-7 indicated that it encodes a transglutaminaselike protein. pTG-7 hybridized to a 3.6-kilobase mRNA which is distinct from that for type II transglutaminase. pTG-7 mRNA levels were low in proliferative cells, increased dramatically in squamous-differentiated cells, and could be further enhanced by growth of the cells in high concentrations (2 mM) of calcium ions. Retinoic acid, which blocks the expression of the squamous phenotype, prevented this increase in pTG-7 mRNA levels. These changes in levels of pTG-7 mRNA parallel the changes in type I transglutaminase activity observed under similar culture conditions. These data indicate that pTG-7 encodes the mRNA for transglutaminase type I and that expression of this mRNA is negatively regulated by retinoic acid.