Surviving beta cells in type 1 diabetes respond to inflammation by upregulating programmed death-ligand 1 (PD-L1) to engage immune cell programmed death-1 (PD-1) and limit destruction by self-reactive immune cells. Extracellular vesicles (EVs) and their cargo can serve as biomarkers of beta cell health and contribute to islet intercellular communication. We hypothesized that the inflammatory milieu of type 1 diabetes increases PD-L1 in beta cell EV cargo and that EV PD-L1 may protect beta cells against immune-mediated cell death. Beta cell lines and human islets were treated with proinflammatory cytokines to model the proinflammatory type 1 diabetes microenvironment. EVs were isolated using ultracentrifugation or size exclusion chromatography and analysed via immunoblot, flow cytometry, and ELISA. EV PD-L1: PD-1 binding was assessed using a competitive binding assay and in vitro functional assays testing the ability of EV PD-L1 to inhibit NOD CD8 T cells. Plasma EV and soluble PD-L1 were assayed in plasma of individuals with islet autoantibody positivity (Ab+) or recent-onset type 1 diabetes and compared to non-diabetic controls. PD-L1 protein colocalized with tetraspanin-associated proteins intracellularly and was detected on the surface of beta cell EVs. 24-h IFN-α or IFN-γ treatment induced a two-fold increase in EV PD-L1 cargo without a corresponding increase in number of EVs. IFN exposure predominantly increased PD-L1 expression on the surface of beta cell EVs and beta cell EV PD-L1 showed a dose-dependent capacity to bind PD-1. Functional experiments demonstrated specific effects of beta cell EV PD-L1 to suppress proliferation and cytotoxicity of murine CD8 T cells. Plasma EV PD-L1 levels were increased in islet Ab+ individuals, particularly in those with single Ab+, Additionally, in from individuals with either Ab+ or type 1 diabetes, but not in controls, plasma EV PD-L1 positively correlated with circulating C-peptide, suggesting that higher EV-PD-L1 could be protective for residual beta cell function. IFN exposure increases PD-L1 on the beta cell EV surface. Beta cell EV PD-L1 binds PD1 and inhibits CD8 T cell proliferation and cytotoxicity. Circulating EV PD-L1 is higher in islet autoantibody positive patients compared to controls. Circulating EV PD-L1 levels correlate with residual C-peptide at different stages in type 1 diabetes progression. These findings suggest that EV PD-L1 could contribute to heterogeneity in type 1 diabetes progression and residual beta cell function and raise the possibility that EV PD-L1 could be exploited as a means to inhibit immune-mediated beta cell death.