Pancreatic islets contain cells that produce IL-18 and cells that express IL-18 receptors. In experimentally induced diabetes, islet failure correlates with IL-18 levels and diabetes is delayed with blockade of endogenous IL-18. We studied islet-derived IL-18 and responses to IL-18 in a mouse model of islet allograft transplantation. In vitro, IL-18-stimulated islets produced nitric oxide, which closely matched islet apoptosis. By neutralizing IL-18 activity with IL-18 binding protein (IL-18BP), we observed that islets produce bioactive IL-18. In vivo, transgenic mice overproducing IL-18BP (IL-18BP-Tg) exhibited delayed hyperglycemia induced by β cell toxic streptozotocin. Similarly, cultured IL-18BP-Tg islets were protected from streptozotocin-induced apoptosis. In the transplant model, islets grafted from WT to IL-18BP-Tg mice achieved prolonged normoglycemia (P = 0.031). Improved graft function was also observed by using IL-18-deficient islets transplanted into WT recipients, demonstrating that endogenous, islet-derived IL-18 mediates IL-18-driven graft damage. Unexpectedly, islets from mice deficient in IL-18 receptor α chain (IL-18R) exhibited rapid graft failure (P = 0.024; IL-18- versus IL-18R-deficient grafts in WT recipients). In related studies, IL-18R-deficient splenocytes and macrophages produced 2- to 3-fold greater amounts of IL-18, TNFα, macrophage inflammatory protein 1, macrophage inflammatory protein 2, and IFNγ upon stimulation with Con A, Toll-like receptor 2 agonist, or anti-CD3 antibodies. These data reveal a role for islet-derived IL-18 activity during inflammation-mediated islet injury. Importantly, discrepancies between IL-18- and IL-18R-deficient cells suggest that IL-18Rα chain is used by an inflammation-suppressing signal.