The action of tissue Transglutaminase (TGase) on specific protein-bound glutamine residues plays a critical role in numerous biological processes. Here we provide evidence for a new role of this enzyme in the common, HLA-DQ2 (and DQ8) associated enteropathy, celiac disease (CD). The intestinal inflammation in CD is precipitated by exposure to wheat gliadin in the diet and is associated with increased mucosal activity of TGase. This enzyme has also been identified as the main target for CD-associated anti-endomysium autoantibodies, and is known to accept gliadin as one of its few substrates. We have examined the possibility that TGase could be involved in modulating the reactivity of gliadin specific T cells. This could establish a link between previous reports of the role of TGase in CD and the prevailing view of CD as a T-cell mediated disorder. We found a specific effect of TGase on T-cell recognition of gliadin. This effect was limited to gliadin-specific T cells isolated from intestinal CD lesions. We demonstrate that TGase mediates its effect through an ordered and specific deamidation of gliadins. This deamidation creates an epitope that binds efficiently to DQ2 and is recognized by gut-derived T cells. Generation of epitopes by enzymatic modification is a new mechanism that may be relevant for breaking of tolerance and initiation of autoimmune disease.