Insulin-dependent diabetes mellitus in the NOD mouse model is caused by the T cell-mediated autoimmune destruction of pancreatic β cells. Viral IL-10 (vIL-10), encoded in the Epstein-Barr virus genome, shares many of the anti-inflammatory properties of cellular IL-10, but lacks its immunostimulatory properties. In the present study, we generated transgenic (Tg) NOD mice in which vIL-10 was produced exclusively in pancreatic islets and investigated the effect of vIL-10 on the development of diabetes. The accumulation of lymphocytes around islets was more prominent, but the invasive insulitis decreased in the vIL-10 Tg mice. The incidence of diabetes was markedly reduced in the vIL-10 Tg mice, in clear contrast to the accelerated diabetes seen in the murine IL-10 Tg NOD mice. IL-12p40 and IFN-γ mRNA levels were decreased in pancreata of the vIL-10 Tg mice, although CD4 mRNA level was markedly increased. These results suggest that locally produced vIL-10 induced leukocyte migration, but inhibited the activation of Th1, probably through suppressing the production of IL-12. They indicate that vIL-10 may well be superior to cellular IL-10 in the treatment of autoimmune diabetes. The vIL-10 Tg NOD mice should provide a useful tool for understanding the differential action of vIL-10 versus cellular IL-10.