Although islet transplantation is an effective treatment for Type 1 diabetes, primary engraftment failure contributes to suboptimal outcomes. We tested the hypothesis that islet isolation and transplantation activate innate immunity through TLR expressed on islets. Murine islets constitutively express TLR2 and TLR4, and TLR activation with peptidoglycan or LPS upregulates islet production of cytokines and chemokines. Following transplantation into streptozotocin‐induced diabetic, syngeneic mice, islets exposed to LPS or peptidoglycan had primary graft failure with intra‐ and peri‐islet mononuclear cell inflammation. The use of knockout mice showed that recipient CD8⁺ T cells caused engraftment failure and did so in the absence of islet‐derived DC. To mimic physiological islet injury, islets were transplanted with exocrine debris. Transplantation of TLR2/4^−/− islets reduced proinflammatory cytokine production and improved islet survival. Stressed islets released the alarmin high‐mobility group box protein 1 (HMGB1) and recombinant HMGB1 (rHMGB1) induced NFkB activation. NFkB activation was prevented in the absence of both TLR2 and TLR4. rHMGB1 pretreatment also prevented primary engraftment through a TLR2/4‐dependent pathway. Our results show that islet graft failure can be initiated by TLR2 and TLR4 signaling and suggest that HMGB1 is one likely early mediator. Subsequent downstream signaling results in intra‐islet inflammation followed by T‐cell‐mediated graft destruction.