Project-based business has become more and more important for companies in Germany’s IT industry, but it is also noticeable that many projects suffer or fail. Leadership behaviour plays an important role in project management and effective leadership is desired if projects are to be successful. There are a number of challenges for project leaders, such as projects may be temporary, the project team members possibly do not know each other prior to the project start and the power of project leaders is reduced in many cases compared to managers in line organisations. There is strong empirical evidence in the literature that transformational leadership is a very effective leadership style and it is also recommended in project management by academic as well as project practitioner literature. This study examines the relation of social identity and transformational leadership in project teams within the IT industry in Germany to obtain a deeper understanding of effective leadership processes with the aim of increasing work engagement. Three research questions have been developed and a case study with a qualitative approach has been performed by applying a social constructionist epistemology. Data has been gathered through 20 semi-structured interviews with experienced professionals in the IT industry in Germany. A thematic analysis has been conducted by interpreting data and developing themes. The results provide answers on firstly, how transformational leadership behaviour causes social identity in project teams that leads to increased work engagement; secondly, how governance in projects affects leadership; and thirdly, how leadership effectiveness can be measured and might be improved. Seven behaviours of leadership including useful mediators, and ten facilitating governance measures are identified and discussed. In addition, insights regarding governmentality and governance approaches are presented. Furthermore, governance measures to measure and to improve leadership effectiveness are suggested. The findings have been conceptualised in a leadership framework and contribute with new important insights to theoretical knowledge as well as to project management practice. Furthermore, limitations are indicated and areas for future research have been suggested.