Diet and commensals can affect the development of autoimmune diseases like type 1 diabetes (T1D). However, whether dietary interventions are microbe-mediated was unclear. We found that a diet based on hydrolyzed casein (HC) as a protein source protects non-obese diabetic (NOD) mice in conventional and germ-free (GF) conditions via improvement in the physiology of insulin-producing cells to reduce autoimmune activation. The addition of gluten (a cereal protein complex associated with celiac disease) facilitates autoimmunity dependent on microbial proteolysis of gluten: T1D develops in GF animals monocolonized with Enterococcus faecalis harboring secreted gluten-digesting proteases but not in mice colonized with protease deficient bacteria. Gluten digestion by E. faecalis generates T cell-activating peptides and promotes innate immunity by enhancing macrophage reactivity to lipopolysaccharide (LPS). Gnotobiotic NOD Toll4-negative mice monocolonized with E. faecalis on an HC + gluten diet are resistant to T1D. These findings provide insights into strategies to develop dietary interventions to help protect humans against autoimmunity.