Tolerance to peripheral antigens is thought to result from the inability of parenchymal tissue to stimulate T cells--an inability that is believed to relate to the lack of expression of the costimulatory signal(s) required for T-cell activation. To test this model, we generated transgenic mice expressing costimulatory molecule B7-1 on the B cells of the pancreas. We find that islets from these transgenic mice are immunogenic for naive T cells in vitro and in vivo. Nonetheless, mice expressing the costimulator B7-1 specifically on beta cells do not develop diabetes, suggesting that expression of the B7-1 costimulator is not sufficient to abrogate the tolerance to peripheral antigens. We have reported that tumor necrosis factor alpha subunit (TNF-alpha) expressed by beta cells leads to a local inflammation but no islet destruction. Strikingly, however, the combination of a local inflammation due to the expression of the cytokine TNF-alpha and the expression of B7-1 results in tissue destruction and diabetes.