IL-10, a powerful anti-Th1 cytokine, has shown paradoxical effects against diabetes. The mechanism underlying such variable function remains largely undefined. An approach for controlled mobilization of endogenous IL-10 was applied to the NOD mouse and indicated that IL-10 encounter with diabetogenic T cells within the islets sustains activation, while encounter occurring peripheral to the islets induces tolerance. Insulin beta-chain (INSbeta) 9-23 peptide was expressed on an Ig, and the aggregated (agg) form of the resulting Ig-INSbeta triggered IL-10 production by APCs, and expanded IL-10-producing T regulatory cells. Consequently, agg Ig-INSbeta delayed diabetes effectively in young NOD mice whose pathogenic T cells remain peripheral to the islets. However, agg Ig-INSbeta was unable to suppress the disease in 10-wk-old insulitis-positive animals whose diabetogenic T cells have populated the islets. This is not due to irreversibility of the disease because soluble Ig-INSbeta did delay diabetes in these older mice. Evidence is provided indicating that upon migration to the islet, T cells were activated and up-regulated CTLA-4 expression. IL-10, however, reverses such up-regulation, abolishing CTLA-4-inhibitory functions and sustaining activation of the islet T lymphocytes. Therefore, IL-10 supports T cell tolerance in the periphery, but its interplay with CTLA-4 sustains activation within the islets. As a result, IL-10 displays opposite functions against diabetes in young vs older insulitis-positive mice.