Covalent posttranslational protein modifications by eukaryotic transglutaminases proceed by a kinetic pathway of acylation and deacylation. Ammonia is released as the acylenzyme is formed, whereas the cross-linked product is released later in the deacylation step. Superposition of the active sites of transglutaminase type 2 (TG2) and the structurally related cysteine protease, papain, indicates that in the formation of tetrahedral intermediates, the backbone nitrogen of the catalytic Cys-277 and the N1 nitrogen of Trp-241 of TG2 could contribute to transition-state stabilization. The importance of this Trp-241 side chain was demonstrated by examining the kinetics of dansylcadaverine incorporation into a model peptide. Although substitution of the Trp-241 side chain with Ala or Gly had only a small effect on the Michaelis constant Km (1.5-fold increase), it caused a >300-fold lowering of the catalytic rate constant kcat. The wild-type and mutant TG2-catalyzed release of ammonia showed kinetics similar to the kinetics for the formation of cross-linked product, indicating that transition-state stabilization in the acylation step was rate-limiting. In papain, a Gln residue is at the position of TG2-Trp-241. The conservation of Trp-241 in all eukaryotic transglutaminases and the finding that W241Q-TG2 had a much lower kcat than wild-type enzyme suggest evolutionary specialization in the use of the indole group. This notion is further supported by the observation that transition-state-stabilizing side chains of Tyr and His that operate in some serine and metalloproteases only partially substituted for Trp.