Pancreatic lymph node-derived CD4⁺CD25⁺ T regulatory (Treg) cells inhibit in situ differentiation of islet-reactive CD8⁺ T cells into cytotoxic T lymphocytes, thereby preventing diabetes progression. The mechanism by which these Treg cells suppress anti-islet CD8⁺ T cells is unknown. Here, we show by using a CD8⁺ T cell-mediated model of type 1 diabetes that transforming growth factor (TGF)-β–TGF-β receptor signals are critical for CD4⁺CD25⁺ Treg cell regulation of autoreactive islet-specific cytotoxic T lymphocytes. Transgenic expression of tumor necrosis factor α from birth to 25 days of age in the islets of B6 mice that constitutively express CD80 on their β cells results in accumulation of CD4⁺CD25⁺TGF-β⁺ cells exclusively in the islets and pancreatic lymph nodes, which delays diabetes progression. In contrast, expression of tumor necrosis factor α until 28 days of age prevents islet accumulation of CD4⁺CD25⁺TGF-β⁺ Treg cells, resulting in acceleration to diabetes. Furthermore, adoptive transfer experiments demonstrated that CD4⁺CD25⁺ Treg cells could not control naïve or activated isletreactive CD8⁺ T cells bearing a dominant negative TGF-β receptor type II. Our data demonstrate that, in vivo, TGF-β signaling in CD8⁺ T cells is critical for CD4⁺CD25⁺ Treg cell suppression of isletreactive CD8⁺ T cells in type 1 diabetes.