Literature on the effects of microbial transglutaminase on various dairy-based systems is discussed. Beginning with a short synopsis on the development of microbial transglutaminase as a functional tool for modifying foods, the principles of reactions catalyzed by transglutaminase and their structural implications, as well as the mechanisms of formation and cleavage of isopeptide bonds are reviewed. After summarizing the present knowledge on the specificity of microbial transglutaminase towards milk proteins, including reactions determined by individual lysine and glutamine residues, emphasis is placed on the effects of enzymatic cross-linking on physicochemical properties in foods and, particularly, dairy-based systems. Discussed are implications of cross-linking on acidified milk gels including yogurt and effects on single milk protein fractions, with respect to several physicochemical properties including rheology and mechanical properties of these systems, but also syneresis, and emulsification behaviour.