The mechanism of protection from type 1 diabetes conferred by regulatory T-cells induced by oral insulin treatment of NOD mice is not well understood. We demonstrate that oral insulin feeding of NOD mice induces the function of insulin B-chain reactive CD4+ regulatory T-cells, which compete with diabetogenic effector T-cells for the recognition of insulin in NOD.Scid recipient mice. These effector T-cells become deprived of interleukin (IL)-2 and interferon (IFN)-gamma and are unable to expand and migrate to the pancreas. Type 1 diabetes-protective splenic regulatory T-cells secrete relatively little transforming growth factor (TGF)-beta1, suggesting that TGF-beta may not contribute to the inactivation of effector T-cells in NOD.Scid recipients. The observed preferential infiltration of insulin-reactive regulatory T-cells rather than effector T-cells in the pancreas results in a nondestructive insulitis that correlates with an increased intrapancreatic expression of macrophage inflammatory protein-1beta. Thus, oral insulin therapy overcomes a deficiency in regulatory T-cells and protects against type 1 diabetes by inducing insulin B-chain reactive regulatory T-cells to block cytokine secretion and migration of diabetogenic effector T-cells to the pancreas. Our data emphasize that continuous oral insulin feeding over a prolonged period is required to prevent type 1 diabetes.