The action of tissue Transglutaminase1 (TGase) on specific protein-bound glutamine residues plays a critical role in numerous biological processes2–5. Here we provide evidence for a new role of this enzyme in the common, HLA-DQ2 (and DQ8) associated6 enteropathy, celiac disease (CD). The intestinal inflammation in CD is precipitated by exposure to wheat gliadin in the diet7 and is associated with increased mucosal activity of TGase8. This enzyme has also been identified as the main target for CD-associated anti-endomysium autoantibodies9, and is known to accept gliadin as one of its few substrates10. We have examined the possibility that TCase could be involved in modulating the reactivity of gliadin specific T cells. This could establish a link between previous reports of the role of TCase in CD and the prevailing view of CD as a T-cell mediated disorder7,11,12. 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.