The pancreatic islet microenvironment is highly oxidative, rendering β cells vulnerable to autoinflammatory insults. Here, we examined the role of islet resident macrophages in the autoimmune attack that initiates type 1 diabetes. Islet macrophages highly expressed CXCL16, a chemokine and scavenger receptor for oxidized low-density lipoproteins (OxLDLs), regardless of autoimmune predisposition. Deletion of Cxcl16 in nonobese diabetic (NOD) mice suppressed the development of autoimmune diabetes. Mechanistically, Cxcl16 deficiency impaired clearance of OxLDL by islet macrophages, leading to OxLDL accumulation in pancreatic islets and a substantial reduction in intra-islet transitory (Tex) CD8 T cells displaying proliferative and effector signatures. Tex cells were vulnerable to oxidative stress and diminished by ferroptosis; PD-1 blockade rescued this population and reversed diabetes resistance in NOD.Cxcl16 mice. Thus, OxLDL scavenging in pancreatic islets inadvertently promotes differentiation of pathogenic CD8 T cells, presenting a paradigm wherein tissue homeostasis processes can facilitate autoimmune pathogenesis in predisposed individuals.