The recognition of autophagy related 16-like 1 (ATG16L1) as a genetic risk factor has exposed the critical role of autophagy in Crohn's disease. Homozygosity for the highly prevalent ATG16L1 risk allele, or murine hypomorphic (HM) activity, causes Paneth cell dysfunction. As Atg16l1(HM) mice do not develop spontaneous intestinal inflammation, the mechanism(s) by which ATG16L1 contributes to disease remains obscure. Deletion of the unfolded protein response (UPR) transcription factor X-box binding protein-1 (Xbp1) in intestinal epithelial cells, the human orthologue of which harbours rare inflammatory bowel disease risk variants, results in endoplasmic reticulum (ER) stress, Paneth cell impairment and spontaneous enteritis. Unresolved ER stress is a common feature of inflammatory bowel disease epithelium, and several genetic risk factors of Crohn's disease affect Paneth cells. Here we show that impairment in either UPR (Xbp1(ΔIEC)) or autophagy function (Atg16l1(ΔIEC) or Atg7(ΔIEC)) in intestinal epithelial cells results in each other's compensatory engagement, and severe spontaneous Crohn's-disease-like transmural ileitis if both mechanisms are compromised. Xbp1(ΔIEC) mice show autophagosome formation in hypomorphic Paneth cells, which is linked to ER stress via protein kinase RNA-like endoplasmic reticulum kinase (PERK), elongation initiation factor 2α (eIF2α) and activating transcription factor 4 (ATF4). Ileitis is dependent on commensal microbiota and derives from increased intestinal epithelial cell death, inositol requiring enzyme 1α (IRE1α)-regulated NF-κB activation and tumour-necrosis factor signalling, which are synergistically increased when autophagy is deficient. ATG16L1 restrains IRE1α activity, and augmentation of autophagy in intestinal epithelial cells ameliorates ER stress-induced intestinal inflammation and eases NF-κB overactivation and intestinal epithelial cell death. ER stress, autophagy induction and spontaneous ileitis emerge from Paneth-cell-specific deletion of Xbp1. Genetically and environmentally controlled UPR function within Paneth cells may therefore set the threshold for the development of intestinal inflammation upon hypomorphic ATG16L1 function and implicate ileal Crohn's disease as a specific disorder of Paneth cells.