Arterial calcification is a phenotype of vascular repair in atherosclerosis, diabetes, hyperphosphatemic renal failure, and aging. Arterial calcification is modulated by transition of arterial smooth muscle cells (SMCs) from contractile to chondro–osseous differentiation programmed in response to increases in P_i, bone morphogenetic protein-2, and certain other stimuli. Transglutaminase (TG)2 release modulates tissue repair, partly by transamidation-catalyzed covalent crosslinking of extracellular matrix substrates. TG2 regulates cultured SMC differentiation, resistance artery remodeling to vasoconstriction, and atherosclerotic lesion size. Here, TG2 expression was required for the majority of TG activity in mouse and human aortic SMCs. TG2^-/- SMCs lost the capacity for P_i donor–induced formation of multicellular bone-like nodules and for increased expression of the type III sodium–dependent P_i cotransporter Pit-1 and certain osteoblast and chondrocyte genes (tissue-nonspecific alkaline phosphatase, the osteoblast master transcription factor runx2, and chondrocyte-restricted aggrecan), and for P_i donor– and bone morphogenetic protein-2–induced calcification. Uniquely in TG2^-/- SMCs, P_i donor treatment increased expression of the physiological SMC chondro–osseous differentiation and calcification inhibitors osteoprotegerin, matrix Gla protein, and osteopontin. Conversely, TG2^-/- SMCs, unlike wild-type SMCs, failed to maintain contractile differentiation on laminin. Exogenous catalytically active TG2 augmented calcification by TG2^-/- SMC in response to P_i donor treatment. TG2 expression also drove P_i-stimulated calcification of mouse aortic ring organ cultures, which was suppressed by the TG2 catalytic site-specific inhibitor Boc-DON-Gln-Ile-Val-OMe (10 µmol/L). Our results suggest that TG2 release in injured arteries is critical for programming chondro–osseous SMC differentiation and calcification in response to increased P_i and bone morphogenetic protein-2.