CD4⁺CD25⁺ regulatory T cells are essential in the protection from organ-specific autoimmune diseases. In the pancreas, they inhibit actions of autoreactive T cells and thereby prevent diabetes progression. The signals that control the generation, the maintenance, or the expansion of regulatory T cell pool in vivo remain poorly understood. Here we show that a transient pulse of transforming growth factor β (TGF-β) in the islets during the priming phase of diabetes is sufficient to inhibit disease onset by promoting the expansion of intraislet CD4⁺CD25⁺ T cell pool. Approximately 40–50% of intraislet CD4⁺ T cells expressed the CD25 marker and exhibited characteristics of regulatory T cells including small size, high level of intracellular CTLA-4, expression of Foxp3, and transfer of protection against diabetes. Results from in vivo incorporation of BrdUrd revealed that the generation of a high frequency of regulatory T cells in the islets is due to in situ expansion upon TGF-β expression. Thus, these findings demonstrate a previously uncharacterized mechanism by which TGF-β inhibits autoimmune diseases via regulation of the size of the CD4⁺CD25⁺ regulatory T cell pool in vivo.