SETD2 is the sole histone methyltransferase responsible for H3K36me3, with roles in splicing, transcription initiation and DNA damage response. Homozygous disruption of SETD2 yields a tumor suppressor effect in various cancers. However, SETD2 mutation is typically heterozygous in DLBCL. Here we show that heterozygous SETD2 deficiency results in GC hyperplasia, increased competitive fitness, with reduced DNA damage checkpoint activity and apoptosis, resulting in accelerated lymphomagenesis. Impaired DNA damage sensing in Setd2 haploinsufficient GCB and lymphoma cells associated with increased AICDA induced somatic hypermutation, complex structural variants, and increased translocations including those activating MYC. DNA damage was selectively increased on the non-template strand and H3K36me3 loss was associated with greater RNAPII processivity and mutational burden, suggesting that SETD2 mediated H3K36me3 is required for proper sensing of cytosine deamination. Hence, Setd2 haploinsufficiency delineates a novel GCB context specific oncogenic pathway involving defective epigenetic surveillance of AICDA mediated effects on transcribed genes.