Retinoic-acid-receptor-related orphan receptor γ (RORγ) is a major transcription factor for proinflammatory IL-17A production. Here, we revealed that the RORγ deficiency protects mice from STZ-induced Type 1 diabetes (T1D) through inhibiting IL-17A production, leading to improved pancreatic islet β cell function, thereby uncovering a potential novel therapeutic target for treating T1D. We further identified a novel RORγ inverse agonist, ginseng-derived panaxadiol, which selectively inhibits RORγ transcriptional activity with a distinct cofactor recruitment profile from known RORγ ligands. Structural and functional studies of receptor-ligand interactions reveal the molecular basis for a unique binding mode for panaxadiol in the RORγ ligand-binding pocket. Despite its inverse agonist activity, panaxadiol induced the C-terminal AF-2 helix of RORγ to adopt a canonical active conformation. Interestingly, panaxadiol ameliorates mice from STZ-induced T1D through inhibiting IL-17A production in a RORγ-dependent manner. This study demonstrates a novel regulatory function of RORγ with linkage of the IL-17A pathway in pancreatic β cells, and provides a valuable molecule for further investigating RORγ functions in treating T1D.