Oral leukoplakia (OL) is the most common premalignancy in the oral cavity. The objective of this study was to investigate the biological role of transglutaminase 3 (TGM3) in malignant transformation of OL and its clinical value for predicting oral squamous cell carcinoma (OSCC) risk in patients with OL. Immunohistochemistry was used to measure TGM3 expression in OL samples from 98 patients. Patient clinicopathological and follow-up data were analyzed. The TGM3 biological role in OL cells was investigated in gain-of-function and loss-of function assays, and the TGM3 downregulated mechanism in OLs was characterized. TGM3 mRNA and protein expressions were frequently downregulated in OL cells and samples. DNA hypermethylation was a mechanism of TGM3 downregulation. TGM3 overexpression and silencing affected the proliferation, colony formation, and apoptosis of OL cells through apoptosis-related protein dysregulations. Lower TGM3 levels were strongly associated with the grade of epithelial dysplasia and OSCC development. Multivariate analyses showed that TGM3 was the independent predictor for malignant transformation of OL. Collectively, these data indicated that TGM3 played an important role in OL malignant transformation and may serve as a predictor to identify OL with OSCC development.