Impaired chronic viral and tumor clearance has been attributed to CD8 T cell exhaustion, a differentiation state in which T cells have reduced and altered effector function that can be partially reversed upon blockade of inhibitory receptors. The role of the exhaustion program and transcriptional networks that control CD8 T cell function and fate in autoimmunity is not clear. Here we show that intra-islet CD8 T cells phenotypically, transcriptionally, epigenetically and metabolically possess features of canonically exhausted T cells, yet maintain important differences. This 'restrained' phenotype can be perturbed and disease accelerated by CD8 T cell-restricted deletion of the inhibitory receptor lymphocyte activating gene 3 (LAG3). Mechanistically, LAG3-deficient CD8 T cells have enhanced effector-like functions, trafficking to the islets, and have a diminished exhausted phenotype, highlighting a physiological role for an exhaustion program in limiting autoimmunity and implicating LAG3 as a target for autoimmune therapy.