Paracrine effect of transforming growth factor-β1 (TGF-β1) on autoimmune insulitis and diabetes was studied by transgenic production of the active form of porcine TGF-β1 (pTGF-β1) in pancreatic islet (islet) α cells in nonobese diabetic (NOD) mice under the control of rat glucagon promoter (RGP) (NOD-RGP-TGF-β1). None of 27 NOD-RGP-TGF-β1 mice developed diabetes by 45 wk of age, in contrast to 40 and 71% in male and female nontransgenic mice, respectively. None of the NOD-RGP-TGF-β1 mice developed diabetes after cyclophosphamide (CY) administration. Adoptive transfer of splenocytes of NOD-RGP-TGF-β1 mice to neonatal NOD mice did not transfer diabetes after CY administration. Adoptive transfer of three types of diabetogenic lymphocytes to NOD-RGP-TGF-β1 and nontransgenic mice after CY administration led to the lower incidence of diabetes in NOD-RGP-TGF-β1 mice versus that in nontransgenic mice: 29 vs. 77% for diabetogenic splenocytes, 25 vs. 75% for islet β cell–specific Th1 clone cells, and 0 vs. 50% for islet β cell–specific CD8+ clone cells, respectively. Based on these, it is concluded that autoimmune diabetes in NOD mice is not a systemic disease and it can be completely prevented by the paracrine TGF-β1 in the islet compartment through protection against CD4+ and CD8+ effector lymphocytes