The E3 ubiquitin ligase Cbl-b regulates T cell activation thresholds and has been associated with protecting against Type 1 diabetes, but its in vivo role in the process of self-tolerance has not been examined at the level of potentially auto-aggressive CD4+ T cells. Here we visualize the consequences of Cbl-b deficiency on self-tolerance to lysozyme antigen expressed in transgenic mice under control of the insulin promoter (insHEL). By tracing the fate of pancreatic islet-reactive CD4+ T cells in pre-diabetic 3A9-TCR x insHEL double-transgenic mice, we find that Cbl-b deficiency contrasts with AIRE or IL-2 deficiency because it does not affect thymic negative selection of islet-reactive CD4+ cells nor the numbers of islet-specific CD4+ or CD4+ FOXP3+ T cells in the periphery, although it decreased differentiation of inducible Treg (iTreg) cells from TGF-b treated 3A9-TCR cells in vitro. When removed from Tregs and placed in culture, Cblb-deficient islet-reactive CD4+ cells reveal a capacity to proliferate to HEL antigen that is repressed in wild-type cells. This latent failure of T cell anergy is nevertheless controlled in vivo in pre-diabetic mice, so that islet-reactive CD4+ cells in spleen and pancreatic lymph node of Cblb-deficient mice show no evidence of increased activation or proliferation in situ. Cblb-deficiency subsequently precipitated diabetes in most TCR:insHEL animals by 15 wks of age. These results reveal a role for peripheral T cell anergy in organ-specific self-tolerance, and illuminate the interplay between Cblb-dependent anergy and other mechanisms for preventing organ-specific autoimmunity.