Immune modulation of pancreatic inflammation induces recovery from type 1 diabetes (T1D), but remission was not durable, perhaps because of an inability to sustain the formation and function of new pancreatic β-cells. We have previously shown that Ig-GAD2, carrying GAD 206-220 peptide, induced in hyperglycemic mice immune modulation that was able to control pancreatic inflammation, stimulate β-cell regeneration, and prevent T1D progression. Herein, we show that the same Ig-GAD2 regimen given to mice with overt T1D was unable to reverse the course of disease despite eradication of Th1 and Th17 cells from the pancreas. However, the regimen was able to sustain recovery from T1D when Ig-GAD2 was accompanied with transfer of bone marrow (BM) cells from healthy donors. Interestingly, alongside immune modulation, there was concomitant formation of new β-cells and endothelial cells (ECs) in the pancreas. The new β-cells were of host origin while the donor BM cells gave rise to the ECs. Moreover, transfer of purified BM endothelial progenitors instead of whole BM cells sustained both β-cell and EC formation and reversal of diabetes. Thus, overcoming T1D requires both immune modulation and repair of the islet vascular niche to preserve newly formed β-cells.