Chimeric antigen receptor (CAR) T cell therapy has shown remarkable efficacy in cancer treatment. Still, most patients receiving CAR T cells relapse within 5 years of treatment. CAR-mediated trogocytosis (CMT) is a potential tumor escape mechanism in which cell surface proteins transfer from tumor cells to CAR T cells. CMT results in the emergence of antigen-negative tumor cells, which can evade future CAR detection, and antigen-positive CAR T cells, which has been suggested to cause CAR T cell fratricide and exhaustion. Whether CMT indeed causes CAR T cell dysfunction and the molecular mechanisms conferring CMT remain unknown. Using a selective degrader of trogocytosed antigen in CAR T cells, we show that the presence of trogocytosed antigen on the CAR T cell surface directly causes CAR T cell fratricide and exhaustion. By performing a small molecule screening using a custom high throughput CMT-screening assay, we found that the cysteine protease cathepsin B (CTSB) is essential for CMT and that inhibition of CTSB is sufficient to prevent CAR T cell fratricide and exhaustion. Our data demonstrate that it is feasible to separate CMT from cytotoxic activity and that CAR T cell persistence, a key factor associated with clinical CAR T cell efficacy, is directly linked to CTSB activity in CAR T cells.