Transglutaminase 2 (TG2) is a multifunctional mammalian protein with transamidase and signaling properties. Using selective TG2 inhibitors and tagged nucleophilic amine substrates, we show that the majority of extracellular TG2 is inactive under normal physiological conditions in cell culture and in vivo. However, abundant TG2 activity was detected around the wound in a standard cultured fibroblast scratch assay. To demonstrate wounding-induced activation of TG2 in vivo, the toll-like receptor 3 ligand, polyinosinic-polycytidylic acid (poly(I:C)), was injected in mice to trigger small intestinal injury. Although no TG2 activity was detected in vehicle-treated mice, acute poly(I:C) injury resulted in rapid TG2 activation in the small intestinal mucosa. Our findings provide a new basis for understanding the role of TG2 in physiology and disease.