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Aims/hypothesis Numerous clinical studies have investigated the anti-CD3ɛ monoclonal antibody otelixizumab in individuals with type 1 diabetes, but limited progress has been made in identifying the optimal clinical dose with acceptable tolerability and safety. The aim of this study was to evaluate the association between dose–response, safety and tolerability, beta cell function preservation and the immunological effects of otelixizumab in new-onset type 1 diabetes. Methods In this randomised, single-blind, placebo-controlled, 24 month study, conducted in five centres in Belgium via the Belgian Diabetes Registry, participants (16–27 years old, n = 40). Randomisation to treatment was by a central computer system; only participants and bedside study personnel were blinded to study treatment. The co-primary endpoints were the incidence of adverse events, the rate of Epstein–Barr virus (EBV) reactivation, and laboratory measures and vital signs. A mixed-meal tolerance test was used to assess beta cell function; exploratory biomarkers were used to measure T cell responses. Results Thirty participants were randomised/28 were analysed (placebo, n = 6/5; otelixizumab 9 mg, n = 9/8; otelixizumab 18 mg, n = 8/8; otelixizumab 27 mg, n = 7/7; otelixizumab 36 mg, n = 0). Dosing was stopped at otelixizumab 27 mg as the predefined EBV reactivation stopping criteria were met. Adverse event frequency and severity were dose dependent; all participants on otelixizumab experienced at least one adverse event related to cytokine release syndrome during the dosing period. EBV reactivation (otelixizumab 9 mg, n = 2/9; 18 mg, n = 4/8: 27 mg, n = 5/7) and clinical manifestations (otelixizumab 9 mg, n = 0/9; 18 mg, n = 1/8; 27 mg, n = 3/7) were rapid, dose dependent and transient, and were associated with increased productive T cell clonality that diminished over time. Change from baseline mixed-meal tolerance test C-peptide weighted mean AUC0–120 min following otelixizumab 9 mg was above baseline for up to 18 months (difference from placebo 0.39 [95% CI 0.06, 0.72]; p = 0.023); no beta cell function preservation was observed at otelixizumab 18 and 27 mg. Conclusions/interpretation A metabolic response was observed with otelixizumab 9 mg, while doses higher than 18 mg increased the risk of unwanted clinical EBV reactivation. Although otelixizumab can temporarily compromise immunocompetence, allowing EBV to reactivate, the effect is dose dependent and transient, as evidenced by a rapid emergence of EBV-specific T cells preceding long-term control over EBV reactivation. Trial registration ClinicalTrials.gov NCT02000817. Funding The study was funded by GlaxoSmithKline.