Genetic and immunological screening for type 1 diabetes has led to the possibility of preventing disease in susceptible individuals. Here, we show that human mesenchymal stem/stromal cells (hMSCs) and tumor necrosis factor-α–stimulated gene 6 (TSG-6), a protein produced by hMSCs in response to signals from injured tissues, delayed the onset of spontaneous autoimmune diabetes in NOD mice by inhibiting insulitis and augmenting regulatory T cells (Tregs) within the pancreas. Importantly, hMSCs with a knockdown of tsg-6 were ineffective at delaying insulitis and the onset of diabetes in mice. TSG-6 inhibited the activation of both T cells and antigen-presenting cells (APCs) in a CD44-dependent manner. Moreover, multiple treatments of TSG-6 rendered APCs more tolerogenic, capable of enhancing Treg generation and delaying diabetes in an adoptive transfer model. Therefore, these results could provide the basis for a novel therapy for the prevention of type 1 diabetes.