Type 1 diabetes (T1D) results from autoimmune destruction of insulin producing β cells of the pancreatic islets. Curbing autoimmunity at the initiation of T1D can result in recovery of residual β cells and consequently remission of diabetes. Here we report a cell-based therapy for autoimmune diabetes in non-obese diabetic (NOD) mice using dermal fibroblasts. This was achieved by a single injection of fibroblasts, expressing the immunoregulatory molecule indoleamine 2,3 dioxygenase (IDO), into peritoneal cavity of NOD mice shortly after the onset of overt hyperglycemia. Mice were then monitored for reversal of hyperglycemia and changes in inflammatory/regulatory T cell profiles. Blood glucose levels dropped into the normal range in 82% of NOD mice after receiving IDO-expressing fibroblasts while all control mice remained diabetic. We found significantly reduced islet inflammation, increased regulatory T cells, and decreased T helper 17 cells and β cell specific autoreactive CD8+ T cells following IDO cell therapy. We further showed that some of intraperitoneal injected fibroblasts migrated to local lymph nodes and expressed co-inhibitory molecules. These findings suggest that IDO fibroblasts therapy can reinstate self-tolerance and alleviate β cell autoreactivity in NOD mice, resulting in remission of autoimmune diabetes.