Indoleamine 2,3-dioxygenase (IDO) induces immunological tolerance in physiological and pathological conditions. Therefore, we used dermal fibroblasts with stable IDO expression as a cell therapy to: (i) Investigate the factors determining the efficacy of this cell therapy for autoimmune diabetes in non-obese diabetic (NOD) mice; (ii) Scrutinize the potential immunological mechanisms. Newly diabetic NOD mice were randomly injected with either 10 × 10(6) (10M) or 15 × 10(6) (15M) IDO-expressing dermal fibroblasts. Blood glucose levels (BGLs), body weight, plasma kynurenine levels, insulitis severity, islet beta cell function, autoreactive CD8(+) T cells, Th17 cells and regulatory T cells (Tregs) were then investigated in these mice. IL-1β and cleaved caspase-3 levels were assessed in islets co-cultured with IDO-expressing fibroblasts. BGLs in 83% mice treated with 15M IDO-expressing fibroblasts recovered to normal up to 120 days. However, only 17% mice treated with 10M IDO-expressing cells were reversed to normoglycemia. A 15M IDO-expressing fibroblasts significantly reduced infiltrated immune cells in islets and recovered the functionality of remaining islet beta cells in NOD mice. Additionally, they successfully inhibited autoreactive CD8(+) T cells and Th17 cells as well as increased Tregs in different organs of NOD mice. Islet beta cells co-cultured with IDO-expressing fibroblasts had reduced IL-1β levels and cell apoptosis. Both cell number and IDO enzymatic activity contributes to the efficiency of IDO cell therapy. Optimized IDO-expressing fibroblasts successfully reverse the progression of diabetes in NOD mice through induction of Tregs as well as inhibition of beta cell specific autoreactive CD8(+) T cells and Th17 cells. J. Cell. Physiol. 231: 1964-1973, 2016. © 2016 Wiley Periodicals, Inc.