We present the construction and screening of yeast display libraries of post-translationally modified peptides wherein site-selective enzymatic treatment of linear peptides is achieved using bacterial transglutaminase. To this end, we developed two alternative routes, namely (i) yeast display of linear peptides followed by treatment with recombinant transglutaminase in solution; or (ii) intracellular co-expression of linear peptides and transglutaminase to achieve peptide modification in the endoplasmic reticulum prior to yeast surface display. The efficiency of peptide modification was evaluated via orthogonal detection of epitope tags integrated in the yeast-displayed peptides by flow cytometry, and via comparative cleavage of putative cyclic vs. linear peptides by tobacco etch virus (TEV) protease. Subsequently, yeast display libraries of transglutaminase-treated peptides were screened to isolate binders to the N-terminal region of the Yes-Associated Protein (YAP) and its WW domains using magnetic selection and fluorescence activated cell sorting (FACS). The identified peptide cyclo[E-LYLAYPAH-K] featured a KD of 1.75 μM for YAP and 0.68 μM for the WW domains of YAP as well as high binding selectivity against albumin and lysozyme. These results demonstrate the usefulness of enzyme-mediated cyclization in screening combinatorial libraries to identify cyclic peptide binders.