Objective: Type 1 diabetes is an incurable chronic autoimmune disease. While transplantation of pancreatic islets may serve as a surrogate source of insulin, recipients are subjected to a life of immunosuppression. Interleukin-21 is necessary for type 1 diabetes in NOD mice. We examined the efficacy of an IL-21 targeted therapy on prevention of diabetes in NOD mice, in combination with syngeneic islet transplantation and the role of IL-21 in islet allograft rejection. In addition, we identified which immune cells were required to respond to IL-21 for the development of diabetes. Research Design and Methods: Diabetic NOD mice were treated with IL-21R/Fc, an IL-21 neutralizing chimeric protein combined with syngeneic islet transplantation. Survival of allogeneic islet grafts in IL-21R deficient mice was also assessed. The role of IL-21 was determined by the selective deletion on IL-21R on CD8+ T cells. Results: Evidence is provided that IL-21 is continually required by the autoimmune infiltrate, such that insulitis was reduced and reversed, and diabetes inhibited by neutralization of IL-21 at a late preclinical stage. Recovery from autoimmune diabetes was achieved by combining neutralization of IL-21 with islet transplantation, resulting in both the protection of transplanted islets as well as the recovery of endogenous beta cell function in diabetic mice. Furthermore, IL-21-responsiveness by CD8+ T cells was sufficient to mediate islet allograft rejection and was critical for the development of diabetes in NOD mice. Conclusions: Neutralization of IL-21 in NOD mice can inhibit diabetes, and when paired with islet transplantation, this therapeutic approach restored normoglycemia. The influence of IL-21 on a graft-mounted immune response was robust, since the absence of IL-21 signaling prevented islet allograft rejection. These findings suggest that therapeutic manipulation of IL-21 may serve as a suitable treatment for patients with type 1 diabetes.