A llogeneic hematopoietic stem cell transplantation (HSCT) is used effectively to treat a number of hematological malignancies. Its beneficial effects rely on donor-derived T cell–targeted leukemic cells, the so-called graft-versus-leukemia (GVL) effect. Induction of GVL is usually associated with concomitant development of graft-versus-host disease (GVHD), a major complication of allogeneic HSCT. The T cells that mediate GVL and GVHD are activated by alloantigen presented on host antigen-presenting cells of hematopoietic origin, and it is not well understood how alloantigen expression on non-hematopoietic cells affects GVL activity. Here we show, in mouse models of MHC-matched, minor histocompatibility antigen–mismatched bone marrow transplantation, that alloantigen expression on host epithelium drives donor T cells into apoptosis and dysfunction during GVHD, resulting in a loss of GVL activity. During GVHD, programmed death–1 (PD-1) and PD ligand–1 (PD-L1), molecules implicated in inducing T cell exhaustion, were upregulated on activated T cells and the target tissue, respectively, suggesting that the T cell defects driven by host epithelial alloantigen expression might be mediated by the PD-1/PD-L1 pathway. Consistent with this, blockade of PD-1/PD-L1 interactions partially restored T cell effector functions and improved GVL. These results elucidate a previously unrecognized significance of alloantigen expression on non-hematopoietic cells in GVL and suggest that separation of GVL from GVHD for more effective HSCT may be possible in human patients.