We are exposed to millions of microbial and dietary antigens via the gastrointestinal tract, which likely play a key role in type 1 diabetes (T1D). We differentiated the effects of these two major environmental factors on gut immunity and T1D. Diabetes-prone BioBreeding (BBdp) rats were housed in specific pathogen-free (SPF) or germ-free (GF) conditions and weaned onto diabetes-promoting cereal diets or a protective low-antigen hydrolyzed casein (HC) diet, and T1D incidence was monitored. Fecal microbiota 16S rRNA genes, immune cell distribution, and gene expression in the jejunum were analyzed. T1D was highest in cereal-SPF (65%) and cereal-GF rats (53%) but inhibited and delayed in HC-fed counterparts. Nearly all HC-GF rats remained diabetes-free, whereas HC-fed SPF rats were less protected (7 vs. 29%). Bacterial communities differed in SPF rats fed cereal compared with HC. Cereal-SPF rats displayed increased gut CD3(+) and CD8α(+) lymphocytes, ratio of Ifng to Il4 mRNA, and Lck expression, indicating T-cell activation. The ratio of CD3(+) T cells expressing the Treg marker Foxp3(+) was highest in HC-GF and lowest in cereal-SPF rats. Resident CD163(+) M2 macrophages were increased in HC-protected rats. The cathelicidin antimicrobial peptide (Camp) gene was upregulated in the jejunum of HC diet-protected rats, and CAMP(+) cells colocalized with CD163. A cereal diet was a stronger promoter of T1D than gut microbes in association with impaired gut immune homeostasis.