Celiac disease is a T cell-mediated immune disorder induced by dietary gluten that is characterized by the development of an inflammatory anti-gluten CD4 T cell response, anti-gluten antibodies, and autoantibodies against tissue transglutaminase 2 and the activation of intraepithelial lymphocytes (IELs) leading to the destruction of the intestinal epithelium. Intraepithelial lymphocytes represent a heterogeneous population of T cells composed mainly of cytotoxic CD8 T cells residing within the epithelial layer, whose main role is to maintain the integrity of the epithelium by eliminating infected cells and promoting epithelial repair. Dysregulated activation of IELs is a hallmark of CD and is critically involved in epithelial cell destruction and the subsequent development of villous atrophy. In this review, we compare and contrast the phenotype and function of human and mouse small intestinal IELs under physiological conditions. Furthermore, we discuss how conditions of epithelial distress associated with overexpression of IL-15 and non-classical MHC class I molecules induce cytotoxic IELs to become licensed killer cells that upregulate activating NKG2D and CD94/NKG2C natural killer receptors, acquiring lymphokine killer activity. Pathways leading to dysregulated IEL activation could eventually be targeted to prevent villous atrophy and treat patients who respond poorly to gluten-free diet.