Decoy receptor 3 (DCR3) halts both Fas ligand- and LIGHT-induced cell deaths, which are required for pancreatic beta cell damage in autoimmune diabetes. To directly investigate the therapeutic potential of DCR3 in preventing this disease, we generated transgenic nonobese diabetic mice, which overexpressed DCR3 in beta cells. Transgenic DCR3 protected mice from autoimmune and cyclophosphamide-induced diabetes in a dose-dependent manner and significantly reduced the severity of insulitis. Local expression of the transgene did not alter the diabetogenic properties of systemic lymphocytes or the development of T helper 1 or T regulatory cells. The transgenic islets had a higher transplantation success rate and survived for longer than wild-type islets. We have demonstrated for the first time that the immune-evasion function of DCR3 inhibits autoimmunity and that genetic manipulation of grafts may improve the success and survival of islet transplants.