CD8(+) T cells are fundamental for immune-mediated clearance of viral infections and contribute to immune pathology in autoimmune diseases such as type 1 diabetes. To execute these functions, CD8(+) T cells must differentiate into CTLs, a process that is precisely regulated by a variety of cytokines, costimulatory molecules, and transcription factors. IL-21 is an IL-2 family cytokine and a growth factor for multiple lymphocyte effector lineages, including cytotoxic CD8(+) T cells. Recent studies demonstrate that loss of IL-21 signaling results in reduced viral clearance in models of lymphocytic choriomeningitis virus infection, and also protection from type 1 diabetes in the NOD model. This is most likely the result of impaired CD8(+) CTL function in the absence of IL-21 signaling. Currently, the mechanisms by which IL-21 promotes CTL differentiation in CD8(+) T cells remain unclear, particularly the identity of the relevant transcription factor(s). We show that IL-21 promotes CTL function in vitro and killing of pancreatic islets in vivo via the use of transgenic mice expressing IL-21 in pancreatic β cells. We demonstrate that IL-21 induces the expression of the transcription factor T-bet in CD8(+) T cells, predominantly via STAT1, and that T-bet is required for the induction of cytolytic molecules, including perforin and granzyme B in response to IL-21. Finally, we show that IL-21-induced CTL function is T-bet dependent, as T-bet deficiency results in defective IL-21-dependent cytotoxicity in CD8(+) T cells in vitro and in vivo. Thus, IL-21 drives CD8(+) CTL differentiation via the actions of the transcription factor T-bet.