Little is known about the pathogenic role of B cell dysfunction in T cell-mediated autoimmune disease. We previously reported that B cell hyper-responsiveness, resistance to apoptosis, and accumulation in islets occur during the onset of insulitis, but not in type 1 diabetes (T1D), in NOD mice. In this study we extended these studies to further determine how islet-infiltrated B cells contribute to this inflammatory insulitis. We demonstrate the presence of an increased percentage of B7-1+ and a decreased percentage of B7-2+ B cells in the spleen of autoimmune disease-prone NOD and nonobese diabetes-resistant mice compared with the spleen of nonautoimmune disease-prone C57BL/6 and BALB/c mice. An age-dependent differential expression of B7-1 and B7-2 was associated with the development of insulitis and CD4+ CD25+ T cell deficiency in autoimmune disease-prone mice. Whereas BCR and LPS stimulation increased B7-2 expression on B cells from autoimmune disease-prone and nonautoimmune disease-prone mice, LPS-induced B7-1 expression was higher on NOD than C57BL/6 B cells. Interestingly, increased expression of B7-1 and B7-2 was found on islet-infiltrated B cells, and this increase was associated with enhanced T cell costimulation. Islet-infiltrated B cells were shown to be a source of TNF-α production in islets. B7 blockade of BCR-stimulated NOD B cells by anti-B7-1 and anti-B7-2 mAbs during coadoptive transfer with diabetogenic T cells into NOD. scid mice protected these recipients from T1D. These results suggest that increased B7-1 and B7-2 expression on islet-infiltrated NOD B cells is associated with increased T cell costimulation and the development of inflammatory insulitis in NOD mice.