Allogeneic bone marrow transplantation is most commonly used as treatment for leukemia. Allotransplantation is associated with several interrelated immunologic processes, graft rejection, graft-versus-host disease (GvHD) and graft versus leukemia (GvL). Graft rejection can be overcome by intensive pretransplant immunosuppressive therapy. Following transplantation, immunoreconstitution must occur from donor-derived progenitors and GvHD may occur from reactivity of donor-derived immunocompetent cells against host tissues. In a related, but distinct process, donor immunocompetent cells may react against the recipient leukemia and recent data confirm that this GvL effect plays a critical role in preventing posttransplant relapse. This report summarizes present data regarding the mechanism of these processes. A major challenge is to separate the beneficial GvL effect from GvHD, the major complication of allogeneic marrow transplantation. We summarize data regarding innovative approaches to modify the composition of the transplanted marrow to optimize clinical outcome as well as use of donor lymphocyte infusions as a means to induce posttransplant GvL.