Prevention of immune rejection without immunosuppression is the ultimate goal of transplant immunobiology. One way to achieve this in cellular transplantation, such as with islet transplantation, is to create a favorable local environment at the transplant site. In the current study, we found that C57BL/6 mice with streptozotocin-induced diabetes remained normoglycemic for >1 year after transplantation of BALB/c islets without immunosuppression when the inguinal subcutaneous white adipose tissue (ISWAT) was the site of transplantation and when the site was pretreated with basic fibroblast growth factor. Mechanistically, mesenchymal stem cells (MSCs) expanded in the ISWAT after the treatment was found to produce transforming growth factor-β (TGF-β), and prevention of islet allograft rejection could be achieved by cotransplantation with syngeneic MSCs isolated from the ISWAT after the treatment, which was abolished by anti-TGF-β antibody treatment. Importantly, TGF-β-producing cells remained present at the site of cotransplantation up to the end of observation period at 240 days after transplantation. These findings indicate that prevention of islet allograft rejection without immunosuppression is feasible with the use of syngeneic TGF-β-producing MSCs expanded in the ISWAT after the treatment with bFGF, providing a novel strategy for prevention of islet allograft rejection without immunosuppression.