Transglutaminase 2 is a ubiquitous enzyme which catalyzes the crosslinking of proteins via formation of epsilon-(gamma-glutamyl) lysine bonds as well as deamidation of glutamine residues to glutamate in suitable substrates. The activity of Transglutaminase 2 has been implicated in the pathology of several diseases including Celiac Disease and diseases involving protein aggregation such as Huntington's and Parkinson's Disease. We have synthesized a high affinity peptide inhibitor containing the unnatural amino acid 6-diazo-5-oxo-norleucine and have obtained a 2Å crystal structure of the enzyme-inhibitor complex. The peptide inhibitor stabilizes an extended conformation of Transglutaminase 2 in which the active site is exposed. The structure gives insights into enzyme-substrate interactions, has immunological implications for Celiac Disease, and acts as a basis for the rational design of small molecule inhibitors.