Grid-forming (GFM) converters are regarded as the most promising solution for grid-connected converters of renewable energy due to their robustness against weak grids. However, attributable to their voltage source characteristics, GFM converters may experience overcurrent issues during large disturbances. The virtual impedance (VI) method is an effective method to solve this problem. Nevertheless, there exists a contradiction between the demands for VI posed by current limitations and transient stability. Firstly, the analytical equations of virtual impedance for limiting the fault steady-state current of a GFM converter with different depths of grid voltage sag are solved. On that basis, an adaptive method based on virtual impedance is proposed to limit the fault current. Moreover, the analytical equation of the output active power of the converter when using adaptive virtual impedance to limit the fault current is solved. On this basis, the effect of the virtual impedance ratio on the transient stability is investigated. Finally, an adaptive virtual-impedance-based current-limiting method with the functionality of transient stability enhancement for a grid-forming converter is innovatively proposed. The enhancement effect of the method is verified by the equal area criterion method and phase portrait method. Finally, the efficacy of the proposed method in limiting fault currents and enhancing transient stability is validated through hardware-in-the-loop (HIL) experiments.