Acute lymphoblastic leukemia (ALL) persisting or relapsing following bone marrow transplantation (BMT) has a dismal prognosis. Success with chimeric antigen receptor (CAR) T cells offers an opportunity to treat these patients with leukemia-redirected donor-derived T cells, which may be more functional than T cells derived from patients with leukemia but have the potential to mediate graft-versus-host disease (GVHD). We, together with others, have previously demonstrated tumor-specific T-cell dysfunction in the allogeneic environment. Here, we studied CAR T-cell function following BMT using an immunocompetent murine model of minor mismatched allogeneic transplantation followed by donor-derived CD19-CAR T cells. Allogeneic donor-derived CD19-CAR T cells eliminated residual ALL with equal potency to those administered after syngeneic BMT. Surprisingly, allogeneic CAR T cells mediated lethal acute GVHD with early mortality, which is atypical for this minor mismatch model. We demonstrated that both allogeneic and syngeneic CAR T cells show initial expansion as effector T cells, with a higher peak but rapid deletion of allogeneic CAR T cells. Interestingly, CAR-mediated acute GVHD was only seen in the presence of leukemia, suggesting CAR-target interactions induced GVHD. Indeed, serum interleukin (IL)-6 was elevated only in the presence of both leukemia and CAR T cells, and IL-6 neutralization ameliorated the severity of GVHD in a delayed donor lymphocyte infusion model. Finally, allogeneic CD4⁺ CAR T cells were responsible for GVHD, which correlated with their ability to produce IL-6 upon CAR stimulation. Altogether, we demonstrate that donor-derived allogeneic CAR T cells are active but have the capacity to drive GVHD.