Secreted microvesicles (MVs) are potent inflammatory triggers that stimulate autoreactive B and T cells, causing Type 1 Diabetes in non‐obese diabetic (NOD) mice. Proteomic analysis of purified MVs released from islet cells detected the presence of endogenous retrovirus (ERV) antigens, including Env and Gag sequences similar to the well‐characterized murine leukemia retroviruses. This raises the possibility that ERV antigens may be expressed in the pancreatic islets via MV secretion. Using virus‐like particles produced by co‐expressing ERV Env and Gag antigens, and a recombinant gp70 Env protein, we demonstrated that NOD but not diabetes‐resistant mice developed anti‐Env autoantibodies that increase in titer as disease progresses. A lentiviral‐based RNA interference knockdown of Gag revealed that Gag contributes to the MV‐induced T‐cell response, whose diabetogenic function can be demonstrated via cell‐transfer into immune‐deficient mice. Finally, we observed that Gag and Env are expressed in NOD islet‐derived primary mesenchymal stem cells (MSCs). However, MSCs derived from the islets of diabetes‐resistant mice do not express the antigens. Taken together, abnormal ERV activation and secretion of MVs may induce anti‐retroviral responses to trigger autoimmunity.