In fibrotic conditions increases in TG2 activity has been linked to an increase in the deposition of extracellular matrix proteins. Using TG2 transfected Swiss 3T3 fibroblasts expressing TG2 under the control of the tetracycline-regulated inducible promoter, we demonstrate that induction of TG2 not only stimulates an increase in collagen and fibronectin deposition but also an increase in the expression of these proteins. Increased TG2 expression in these fibroblasts led to NF-κB activation, resulting in the increased expression of transforming growth factor (TGF) β<sub>1</sub>. In addition, cells overexpressing TG2 demonstrated an increase in biologically active TGFβ<sub>1</sub> in the extracellular environment. A specific site-directed inhibitor of TG abolished the NF-κB and TGFβ1 activation and the subsequent elevation in the synthesis and deposition of extracellular matrix proteins, confirming that this process depends on the induction of transglutaminase activity. Treatment of TG2-induced fibroblasts with nontoxic doses of nitric oxide donor <i>S</i>-nitroso-<i>N</i>-acetylpenicillamine resulted in decreased TG2 activity and apprehension of the inactive enzyme on the cell surface. This was paralleled by a reduction in activation of NF-κB and TGFβ<sub>1</sub> production with a subsequent decrease in collagen expression and deposition. These findings support a role for NO in the regulation of TG2 function in the extracellular environment.