Studies in NOD mice have provided important insight into the genetics and pathogenesis of type 1 diabetes (T1D). Our goal was to further explore novel methods of genetic manipulation in this mouse model. We tested the feasibility of using zinc-finger nucleases (ZFNs) to knock out a gene directly in a pure NOD background, bypassing the need of embryonic stem cells. We report here the successful application of ZFN pairs to specifically and efficiently knock out Tnfrsf9 (encoding CD137/4–1BB) directly in the NOD mouse by embryo microinjection. Histology and T1D incidence studies indicated that CD137 was dispensable for the development of insulitis but played a role to promote progression to overt diabetes in NOD mice. We also demonstrated that CD137-deficient T-cells were less diabetogenic than their wild-type counterpart when adoptively transferred into NOD.Rag1^−/− recipients, even when CD25⁺ cells were predepleted. In vitro assays suggested that CD137 deficiency had a limited effect on the suppressive function of CD4⁺CD25⁺ regulatory T-cells (Tregs). Therefore, CD137 deficiency predominately affected effector T-cells rather than Tregs. Our study demonstrates the ability to generate gene-targeted knockouts in a pure NOD background by using ZFNs without potential confounding factors introduced by contaminating genetic materials obtained from other strains.