Genetic variants of interleukin 2 (IL-2) and its receptor are associated with murine and human susceptibility to Type 1 diabetes, yet the role of IL-2 in controlling pancreatic islet-reactive T cells is unknown. Here, we develop a model where IL-2 deficiency precipitates a breakdown of self-tolerance and progression to diabetes, and its action upon diabetogenic islet-specific CD4 T cells can be tracked. We find that IL-2 is not required for Aire-dependent thymic clonal deletion of high-avidity diabetogenic clones, but is essential for thymic formation of islet-specific Foxp3-expressing CD4 T cells. The absence of IL-2 results in the expansion of low-avidity Foxp3(-) islet-reactive CD4 T cells. The mechanism by which IL-2 prevents diabetes is therefore through the establishment of a repertoire of islet-reactive Foxp3(+) T cells within the thymus, and limitation of the peripheral activation of low-avidity islet-reactive T cells that normally escape thymic negative selection.