Carlshof housed up to 1,500 inmates from all over East Prussia and specialized in treating patients with epilepsy and intellectual disability; it also cared for alcoholics, elderly, and juveniles as well as homeless persons.

In World War II, Carlshof served as a military hospital and barracks for Hitler's nearby headquarters at the Wolf's Lair (German: Wolfsschanze).

[2] Following the Nazi takeover in 1933, 53 patients of Carlshof – 35 female and 18 male – were victims of compulsory sterilization based on the Law for the Prevention of Hereditarily Diseased Offspring executed in the municipal hospital of Rastenburg.

[2][3] The National Socialist People's Welfare (NSV) and the East Prussian provincial government tried to expand their influence on Carlshof, especially Gauleiter Erich Koch aimed at a repression of confessionally operated institutions.

The attempt failed, and Dembowski was finally ousted by a Gestapo decree, Carlshof was expropriated to the benefit of the East Prussian provincial government.

Hitler and the members of his staff wounded by Stauffenberg's bomb were treated in the Carlshof military hospital; Rudolf Schmundt, Günther Korten, and Heinz Brandt died here.