Toll-like receptor 4 (TLR4) activation has been proposed to be important for islet cell inflammation and eventually β cell loss in the course of type 1 diabetes (T1D) development. However, according to the “hygiene hypothesis”, bacterial endotoxin lipopolysaccharide (LPS), an agonist on TLR4, inhibits T1D progression. Here we investigated possible mechanisms for the protective effect of LPS on T1D development in non-obese diabetic (NOD) mice. We found that LPS administration to NOD mice during the prediabetic state neither prevented nor reversed insulitis, but delayed the onset and decreased the incidence of diabetes, and that a multiple-injection protocol is more effective than a single LPS intervention. Further, LPS administration suppressed spleen T lymphocyte proliferation, increased the generation of CD4+CD25+Foxp3+ regulatory T cells (Tregs), reduced the synthesis of strong Th1 proinflammatory cytokines, and downregulated TLR4 and its downstream MyD88-dependent signaling pathway. Most importantly, multiple injections of LPS induced a potential tolerogenic dendritic cell (DC) subset with low TLR4 expression without influencing the DC phenotype. Explanting DCs from repeated LPS-treated NOD mice into NOD/SCID diabetic mice conferred sustained protective effects against the progression of diabetes in the recipients. Overall, these results suggest that multiple mechanisms are involved in the protective effects of LPS against the development of diabetes in NOD diabetic mice. These include Treg induction, down-regulation of TLR4 and its downstream MyD88-dependent signaling pathway, and the emergence of a potential tolerogenic DC subset.