Cerebrospinal fluid tumor-derived DNA (CSF-tDNA) analysis is a promising approach for monitoring the neoplastic processes of the central nervous system. We applied a lung cancer-specific sequencing panel (CAPP-Seq) to 81 CSF, blood, and tissue samples from 24 lung cancer patients who underwent lumbar puncture (LP) for suspected leptomeningeal disease (LMD). A subset of the cohort (N = 12) participated in a prospective trial of osimertinib for refractory LMD in which serial LPs were performed before and during treatment. CSF-tDNA variant allele fractions (VAFs) were significantly higher than plasma circulating tumor DNA (ctDNA) VAFs (median CSF-tDNA, 32.7%; median plasma ctDNA, 1.8%; P < 0.0001). Concentrations of tumor DNA in CSF and plasma were positively correlated (Spearman's ρ, 0.45; P = 0.03). For LMD diagnosis, cytology was 81.8% sensitive and CSF-tDNA was 91.7% sensitive. CSF-tDNA was also strongly prognostic for overall survival (HR = 7.1; P = 0.02). Among patients with progression on targeted therapy, resistance mutations, such as EGFR T790M and MET amplification, were common in peripheral blood but were rare in time-matched CSF, indicating differences in resistance mechanisms based on the anatomic compartment. In the osimertinib cohort, patients with CNS progression had increased CSF-tDNA VAFs at follow-up LP. Post-osimertinib CSF-tDNA VAF was strongly prognostic for CNS progression (HR = 6.2, P = 0.009). Detection of CSF-tDNA in lung cancer patients with suspected LMD is feasible and may have clinical utility. CSF-tDNA improves the sensitivity of LMD diagnosis, enables improved prognostication, and drives therapeutic strategies that account for spatial heterogeneity in resistance mechanisms.