OBJECTIVE—Antilymphocyte serum can reverse overt type 1 diabetes in NOD mice; yet, the therapeutic parameters and immunological mechanisms underlying the ability for this agent to modulate autoimmune responses against β-cells are unclear, forming the rationale for this investigation. RESEARCH DESIGN AND METHODS—A form of antilymphocyte serum, rabbit anti-mouse thymocyte globulin (mATG), was utilized in a variety of in vivo and in vitro settings, each for the purpose of defining the physiological, immunological, and metabolic activities of this agent, with particular focus on actions influencing development of type 1 diabetes. RESULTS—We observed that mATG attenuates type 1 diabetes development in an age-dependent fashion, only proving efficacious at disease onset or in the late pre-diabetic phase (12 weeks of age). When provided at 12 weeks of age, mATG reversed pancreatic insulitis, improved metabolic responses to glucose challenge, and rapidly increased frequency of antigen-presenting cells in spleen and pancreatic lymph nodes. Surprisingly, mATG therapy dramatically increased, in an age-dependent fashion, the frequency and the functional activity of CD4+CD25+ regulatory T-cells. Adoptive transfer/cotransfer studies of type 1 diabetes also support the concept that mATG treatment induces a stable and transferable immunomodulatory repertoire in vivo. CONCLUSIONS—These findings indicate that an induction of immunoregulation, rather than simple lymphocyte depletion, contributes to the therapeutic efficacy of antithymocyte globulin and suggest that time-dependent windows for the ability to delay or reverse type 1 diabetes exist based on the capacity to enhance the functional activity of regulatory T-cells.