Streptomyces transglutaminase (TGase) is an important industrial enzyme that catalyzes cross-linking of proteins. It is secreted as a zymogene and then is activated by proteases under physiological conditions. Although the activation process of TGase has been well investigated, the physiological function of TGase in Streptomyces has not been revealed. In this study, physiological function of TGase from Streptomyces hygroscopicus was found to be involved in differentiation by construction of a TGase gene interruption mutation strain (Delta tg). The mutant Delta tg showed an absence of differentiation compared with the parent strain. Furthermore, the production of TGase was found to be increased with the extending growth arrest phase of mycelium in submerged cultures. Thus, to enhance yield of TGase, the mycelium differentiation of Streptomyces was regulated via low temperature stress in a 3-L stirred-tank fermenter. The production of TGase increased by 39 % through extending the growth arrest phase for 4 h. This study found that TGase is involved in Streptomyces differentiation and proposed an approach to improve TGase production by regulation of mycelium differentiation in submerged cultures.