Type I diabetes mellitus is caused by autoimmune destruction of pancreatic β cells, and effective treatment of the disease might require rescuing β cell function in a context of reinstalled immune tolerance. Sertoli cells (SCs) are found in the testes, where their main task is to provide local immunological protection and nourishment to developing germ cells. SCs engraft, self-protect, and coprotect allogeneic and xenogeneic grafts from immune destruction in different experimental settings. SCs have also been successfully implanted into the central nervous system to create a regulatory environment to the surrounding tissue which is trophic and counter-inflammatory. We report that isolated neonatal porcine SC, administered alone in highly biocompatible microcapsules, led to diabetes prevention and reversion in the respective 88 and 81% of overtly diabetic (nonobese diabetic [NOD]) mice, with no need for additional β cell or insulin therapy. The effect was associated with restoration of systemic immune tolerance and detection of functional pancreatic islets that consisted of glucose-responsive and insulin-secreting cells. Curative effects by SC were strictly dependent on efficient tryptophan metabolism in the xenografts, leading to TGF-β–dependent emergence of autoantigen-specific regulatory T cells and recovery of β cell function in the diabetic recipients.