Both diet and commensal microbes impact the development of autoimmune diseases such as Type-1 diabetes (T1D). Since commensals are highly sensitive to changes in diet and can modify dietary components, it was unclear whether diet’s effect on autoimmunity was microbe independent or microbe dependent. We found that a diet containing hydrolyzed casein (HC) as the sole amino source protected non-obese diabetic (NOD) mice in both specific pathogen free (SPF) and germ free (GF) conditions. HC did not affect the generation of autoimmune effector cells. Instead, HC reduced β-cell stress by reducing insulin secretion, which was associated with reduced activation of autoreactive T cells. Adding gluten (a wheat storage protein complex associated with celiac disease) to the HC diet (HC+4%gluten) restored high T1D incidence to SPF housed NOD mice, but not to NOD mice raised in GF conditions. Gluten did not restore high β-cell stress but rather promoted inflammation and the expansion of diabetogenic T cells in the islets of Langerhans. To promote T1D, gluten had to be proteolytically digested by microbes. T1D was able to develop in mice fed HC+4%gluten and monocolonized with Enterococcus faecalis (E. faecalis) secreting gluten digesting proteases, but not with mutant bacteria incapable of secreting these proteases. Bacterial digestion liberated T cell activating peptides from gluten as well as lipopolysaccharide (LPS) capable of activating innate immunity. LPS released from microbially-digested gluten promoted T1D development. Consistent with this, gnotobiotic NOD mice lacking the LPS sensor TLR4 and monocolonized with E. faecalis were resistant to T1D when fed HC+gluten diet. Together, these results indicate that dietary influence on autoimmunity can either be microbe independent or microbe dependent and that microbial digestion can make an otherwise innocuous dietary component diabetogenic by modifying its ability to stimulate the innate immune system. Ultimately, these findings are important for developing dietary interventions to prevent autoimmunity.