CLEC16A variation modulates the risk of multiple autoimmune disorders including type 1 diabetes. The function of CLEC16A has not been characterized, and how this gene contributes to autoimmunity is unknown. Here, we show that CLEC16A participates in the tolerogenic function of thymic epithelial cells (TECs). Clec16a silencing in the nonobese diabetic (NOD) mouse model for type 1 diabetes was highly protective against autoimmunity. Disease protection was attributable to the hyporeactivity of T cells. Hyporeactivity was not caused by a T cell-intrinsic effect of Clec16a however, but was instead imparted by thymic epithelial cells (TECs) during T cell maturation. T cell selection was markedly altered in the thymus of Clec16a KD mice. Notably, the negative regulator CD5 was upregulated on the surface of T cells during selection as a consequence of Clec16a silencing in thymic epithelium. This was correlated with the increased stimulatory capacity of cortical TECs. Together, these findings provide a functional link between CLEC16A variation and autoimmunity, and highlight the pivotal role of thymic epithelial dysfunction in establishing susceptibility to type 1 diabetes. Understanding the molecular basis for sustained T cell hyporeactivity in this model may reveal a novel pathway to restore immune tolerance in type 1 diabetes.