Type 1 diabetes is an autoimmune disorder characterized by selective destruction of pancreatic b cells and absolute insulin deficiency. Even when treated well, control is imperfect and complications inevitable. Advances in immunosuppressive drugs and preparation of donor islets have recently made curative islet transplantation a reality for type 1 diabetes. Unfortunately, short-term side effects and long-term health risks of lifelong systemic immunosuppression compromise the otherwise extraordinary benefits that accrue from a successful graft. Our current goal is to obviate the need for immunosuppression and achieve islet graft tolerance. New protocols based on costimulation blockade have brought us close to that goal, inducing states of both peripheral and central transplantation tolerance. These have overcome both allograft rejection and recurrent autoimmunity, but potentially detrimental effects of environmental agents on tolerance are not yet fully understood. Studies of the underlying mechanisms have provided new insights into the nature of both tolerance and autoimmunity.