Retinoic acid (RA) and 12-O-tetradecanoyl-phorbol-13-acetate (TPA) induced differentiation of a human monocytic leukemia cell line, THP-1. RA- or TPA-treated cells stopped proliferating, became adherent to plastic surfaces, and acquired the ability to phagocytose yeast cells, plain sheep RBCs, and IgG-coated sheep RBCs. The morphological and functional changes, induced by RA or TPA, were associated with a 20-50-fold increase in cellular transglutaminase activity. This increase in enzyme activity was found to be due to the induction of a specific intracellular transglutaminase, tissue transglutaminase. The induction of tissue transglutaminase was a specific response of THP-1 cells to differentiation and was not observed with agents that did not induce their morphological or functional differentiation. Dibutyryl cyclic AMP potentiated the RA-induced expression of tissue transglutaminase. A 15-min exposure to TPA was sufficient to induce differentiation and expression of tissue transglutaminase in THP-1 cells. In contrast, RA required a continuous exposure (48 h) to induce similar changes in morphology or enzyme activity. These results support the view that differentiation of cells of the monocytic lineage is associated with an induction and accumulation of the protein cross-linking enzyme tissue transglutaminase.