Diabetes in nonobese diabetic (NOD) mice is a T cell-dependent autoimmune disease. The destructive activities of autoreactive T cells have been shown to be tightly regulated by effector molecules. In particular, T helper (Th) 1 cytokines have been linked to diabetes pathogenesis, whereas Th2 cytokines and the cells that release them have been postulated to be protective from disease. To test this hypothesis, we generated transgenic NOD mice that express interleukin (IL) 4 in their pancreatic beta cells under the control of the human insulin promoter. We found that transgenic NOD-IL-4 mice, both females and males, were completely protected from insulitis and diabetes. Induction of functional tolerance to islet antigens in these mice was indicated by their inability to reject syngeneic pancreatic islets and the failure of diabetogenic spleen cells to induce diabetes in transgenic NOD-IL-4 recipients. Interestingly, however, islet expression of IL-4 was incapable of preventing islet rejection in overtly diabetic NOD recipient mice. These results demonstrate that the Th2 cytokine IL-4 can prevent the development of autoimmunity and destructive autoreactivity in the NOD mouse. Its ability to regulate the disease process in the periphery also indicates that autoimmune diabetes in NOD mice is not a systemic disease, and it can be modulated from the islet compartment.