The development of autoimmune diabetes in the nonobese diabetic (NOD) mouse results from a breakdown in tolerance to pancreatic islet antigens. CD28-B7 and CD40 ligand–CD40 (CD40L-CD40) costimulatory pathways affect the development of disease and are promising therapeutic targets. Indeed, it was shown previously that diabetes fails to develop in NOD–B7-2–/–and NOD-CD40L–/–mice. In this study, we examined the relative role of these 2 costimulatory pathways in the balance of autoimmunity versus regulation in NOD mice. We demonstrate that initiation but not effector function of autoreactive T cells was defective in NOD–B7-2–/–mice. Moreover, the residual proliferation of the autoreactive cells was effectively controlled by CD28-dependent CD4+ CD25+ regulatory T cells (Treg’s), as depletion of Treg’s partially restored proliferation of autoreactive T cells and resulted in diabetes in an adoptive-transfer model. Similarly, disruption of the CD28-B7 pathway and subsequent Treg deletion restored autoimmunity in NOD-CD40L–/–mice. These results demonstrate that development of diabetes is dependent on a balance of pathogenic and regulatory T cells that is controlled by costimulatory signals. Thus, elimination of Treg’s results in diabetes even in the absence of costimulation, which suggests a need for alternative strategies for immunotherapeutic approaches.