Loss of tolerance is considered to be an early event that is essential for the development of autoimmune disease. In contrast to this expectation, autoimmune (type 1) diabetes develops in NOD mice that harbor an anti-insulin Ig transgene (125Tg), even though anti-insulin B cells are tolerant. Tolerance is maintained in a similar manner in both normal C57BL/6 and autoimmune NOD mice, as evidenced by B cell anergy to stimulation through their Ag receptor (anti-IgM), TLR4 (LPS), and CD40 (anti-CD40). Unlike B cells in other models of tolerance, anergic 125Tg B cells are not arrested in development, and they enter mature subsets of follicular and marginal zone B cells. In addition, 125Tg B cells remain competent to increase CD86 expression in response to both T cell-dependent (anti-CD40) and T cell-independent (anti-IgM or LPS) signals. Thus, for anti-insulin B cells, tolerance is characterized by defective B cell proliferation uncoupled from signals that promote maturation and costimulator function. In diabetes-prone NOD mice, anti-insulin B cells in this novel state of tolerance provide the essential B cell contribution required for autoimmune beta cell destruction. These findings suggest that the degree of functional impairment, rather than an overt breach of tolerance, is a critical feature that governs B cell contribution to T cell-mediated autoimmune disease.