Serotonin (5-hydroxytryptamine, 5-HT) and brain-derived neurotrophic factor (BDNF) are two signaling molecules that have important regulatory roles in the development and plasticity of neural circuits that are known to be altered in depression. However, the mechanism by which 5-HT regulates BDNF signaling is unknown. In the present study, we found that 5-HT treatment increases BDNF receptor, TrkB (tropomyosin related kinase B), levels in mouse primary cortical neurons via a Rac1 (RAS-related C3 botulinum toxin substrate 1)-dependent mechanism. Significant increases in the levels of type-2 transglutaminase (TG2, which is implicated in transamidation of 5-HT to Rac1) are observed in the mouse prefrontal cortex (PFC) following chronic exposure to stress. We also found that TG2 levels are increased in the post-mortem PFC of depressed suicide subjects relative to matched controls. Moreover, in mice, neuronal overexpression of TG2 resulted in the atrophy of neurons and reduced levels of TrkB in the PFC as well as a depressive-like phenotype. Overexpression of TG2 in mouse cortical neurons reduced TrkB levels as a result of impaired endocytosis of TrkB. TG2 inhibition by either a viral particle or pharmacological approach attenuated behavioral deficits caused by chronic unpredictable stress. Moreover, the overexpression of TrkB in the mouse PFC ameliorated the depressive-like phenotype of TG2-overexpressed mice. Taken together, these post-mortem and preclinical findings identify TG2 as a critical mediator of the altered TrkB expression and depressive-like behaviors associated with chronic exposure to stress and suggest that TG2 may represent a novel therapeutic target in depression.