Diabetic retinopathy is predominantly caused by vascular endothelial growth factor (VEGF)-induced vascular leakage; however, the underlying mechanism is unclear. Here we designed an in vivo transglutaminase (TGase) activity assay in mouse retina and demonstrated that hyperglycemia induced vascular leakage by activating TGase2 in diabetic retina. VEGF elevated TGase2 activity through sequential elevation of intracellular Ca(2+) and reactive oxygen species (ROS) concentrations in endothelial cells. The TGase inhibitors cystamine and monodansylcadaverin or TGase2 small interfering RNA (siRNA) prevented VEGF-induced stress fiber formation and vascular endothelial (VE)-cadherin disruption, which play a critical role in modulating endothelial permeability. Intravitreal injection of two TGase inhibitors or TGase2 siRNA successfully inhibited hyperglycemia-induced TGase activation and microvascular leakage in the retinas of diabetic mice. C-peptide or ROS scavengers also inhibited TGase activation in diabetic mouse retinas. The role of TGase2 in VEGF-induced vascular leakage was further supported using diabetic TGase2(-/-) mice. Thus, our findings suggest that ROS-mediated activation of TGase2 plays a key role in VEGF-induced vascular leakage by stimulating stress fiber formation and VE-cadherin disruption.