We have demonstrated previously that the Myc oncoprotein blocks cancer cell differentiation by forming a novel transcriptional repressor complex with histone deacetylase and inhibiting gene transcription of tissue transglutaminase (TG2). Moreover, induction of TG2 gene transcription and transamidase activity is essential for the differentiating effects of retinoids in cancer cells. Here, we show that two structurally distinct TG2 protein isoforms, the full-length (TG2-L) and the short form (TG2-S), exert opposing effects on cell differentiation. Repression of TG2-L with small interfering RNA, which did not affect TG2-S expression, induced dramatic neuritic differentiation in neuroblastoma cells. In contrast, overexpression of TG2-S or a GTP-binding-deficient mutant of TG2-L (R580A), both of which lack the GTP-binding Arg-580 residue, induced neuroblastoma cell differentiation, which was blocked by an inhibitor of transamidase activity. Whereas N-Myc repressed and retinoid activated both TG2 isoforms, repression of TG2-L, but not simultaneous repression of TG2-L and TG2-S, enhanced neuroblastoma cell differentiation due to N-Myc small interfering RNA or retinoid. Moreover, suppression of vasoactive intestinal peptide (VIP) expression alone induced neuroblastoma cell differentiation, and VIP was up-regulated by TG2-L, but not TG2-S. Taken together, our data indicate that TG2-L and TG2-S exert opposite effects on cell differentiation due to differences in GTP binding and modulation of VIP gene transcription. Our findings highlight the potential importance of repressing the GTP binding activity of TG2-L or activating the transamidase activity of TG2-L or TG2-S for the treatment of neuroblastoma, and possibly also other Myc-induced malignancies, and for enhancing retinoid anticancer effects.