We previously reported that continuous 24-month costimulation blockade by abatacept significantly slows the decline of β-cell function after diagnosis of type 1 diabetes. In a mechanistic extension of that study, we evaluated peripheral blood immune cell subsets (CD4, CD8-naive, memory and activated subsets, myeloid and plasmacytoid dendritic cells, monocytes, B lymphocytes, CD4+CD25high regulatory T cells, and invariant NK T cells) by flow cytometry at baseline and 3, 6, 12, 24, and 30 months after treatment initiation to discover biomarkers of therapeutic effect. Using multivariable analysis and lagging of longitudinally measured variables, we made the novel observation in the placebo group that an increase in central memory (CM) CD4 T cells (CD4+CD45R0+CD62L+) during a preceding visit was significantly associated with C-peptide decline at the subsequent visit. These changes were significantly affected by abatacept treatment, which drove the peripheral contraction of CM CD4 T cells and the expansion of naive (CD45R0−CD62L+) CD4 T cells in association with a significantly slower rate of C-peptide decline. The findings show that the quantification of CM CD4 T cells can provide a surrogate immune marker for C-peptide decline after the diagnosis of type 1 diabetes and that costimulation blockade may exert its beneficial therapeutic effect via modulation of this subset.