Neonatal thymectomy (NTX) impairs T cell regulation and leads to organ-specific autoimmune disease in susceptible mouse strains. In the NOD mouse model of spontaneous type 1 diabetes, we observed that NTX dramatically accelerated autoimmune pancreatic beta cell destruction and diabetes. NTX had only a minor effect in NOD mice protected from diabetes by transgenic expression of the beta cell autoantigen proinsulin in APCs, inferring that accelerated diabetes after NTX is largely due to failure to regulate proinsulin-specific T cells. NTX markedly impaired the development of intraepithelial lymphocytes (IEL), the number of which was already reduced in euthymic NOD mice compared with control strains. IEL purified from euthymic NOD mice, specifically CD8alphaalpha TCRgammadelta IEL, when transferred into NTX-NOD mice, trafficked to the small intestinal epithelium and prevented diabetes. Transfer of prototypic CD4+CD25+ regulatory T cells also prevented diabetes in NTX-NOD mice; however, the induction of these cells by oral insulin in euthymic mice depended on the integrity of TCRgammadelta IEL. We conclude that TCRgammadelta IEL at the mucosal interface between self and nonself play a key role in maintaining peripheral tolerance both physiologically and during oral tolerance induction.