The generation of auto-aggressive T cells involves failure of central or peripheral tolerance. We previously demonstrated that peripheral CD4(lo)CD40(+) T cells give rise to pathogenic T cells in the non-obese diabetic (NOD) model. Here we show that peripheral CD4(+)CD40(+) T cells from diabetic or pre-diabetic NOD mice induce insulin-dependent diabetes mellitus. Consistent with breach of peripheral tolerance, CD4(lo)CD40(+) T cells expand with age in NOD mice but not in MHC-matched non-obese resistant (NOR) or BALB/c controls. Suggestive of a causal role for CD40 in autoimmunity, blocking CD40-CD154 interactions early during NOD development prevents autoaggressive T cell expansion while promoting increases in CD4(+)CD25(+) regulatory T cells. Importantly, CD40 signals promote expansion of V alpha 3.2(+) and V alpha 8.3(+) T cells. Furthermore, peripheral V alpha 3.2(+)CD40(+) T cells induce diabetes in NOD.scid recipients while V alpha 8.3(+) T cells or V alpha 3.2(+)-depleted T cell populations do not. This is the first demonstration that primary T cells transfer disease with the kinetics of auto-aggressive T cell clones and that specific TCR V alpha expansion promotes diabetes.