A number of studies have suggested B7-H1, a B7 family member, inhibits T cell responses. Therefore, its expression on nonlymphoid tissues has been proposed to prevent T cell–mediated tissue destruction. To test this hypothesis, we generated transgenic mice that expressed B7-H1 on pancreatic islet β cells. Surprisingly, we observed accelerated rejection of transplanted allogeneic B7-H1–expressing islet β cells. Furthermore, transgenic B7-H1 expression broke immune tolerance, as some of the mice spontaneously developed T cell–dependent autoimmune diabetes. In addition, B7-H1 expression increased CD8⁺ T cell proliferation and promoted autoimmunity induction in a T cell adoptive transfer model of diabetes. Consistent with these findings, B7-H1.Ig fusion protein augmented naive T cell priming both in vitro and in vivo. Our results demonstrate that B7-H1 can provide positive costimulation for naive T cells to promote allograft rejection and autoimmune disease pathogenesis.