Acute graft- vs. -host disease (GVHD) is an important cause of morbidity and death after allogeneic hematopoietic cell transplantation (HCT). We identify a new approach to prevent GVHD that impairs monocyte-derived dendritic cell (moDC) alloactivation of T cells, yet preserves graft- vs.-leukemia (GVL). Exceeding endoplasmic reticulum (ER) capacity results in a spliced form of X-box binding protein-1 (XBP-1s). XBP-1s mediates ER stress and inflammatory responses. We demonstrate that siRNA targeting XBP-1 in moDCs abrogates their stimulation of allogeneic T cells. B-I09, an inositol-requiring enzyme-1α (IRE1α) inhibitor that prevents XBP-1 splicing, reduces human moDC migration, allo-stimulatory potency, and curtails moDC IL-1β, TGFβ, and p40 cytokines, suppressing Th1 and Th17 cell priming. B-I09-treated moDCs reduce responder T cell activation via calcium flux without interfering with regulatory T cell (Treg) function or GVL effects by cytotoxic T lymphocytes (CTL) and NK cells. In a human T cell mediated xenogeneic GVHD model, B-I09 inhibition of XBP-1s reduced target-organ damage and pathogenic Th1 and Th17 cells without impacting donor Tregs or anti-tumor CTL. DC XBP-1s inhibition provides an innovative strategy to prevent GVHD and retain GVL.