While allergic reactions to hair dye are much less common with henna than other salon-based color treatments or at-home boxed hair color products, they can still occur. This women posted a youtube video about her visit to an Emergency Room after having a hair dye treatment with henna. According to a report from Yahoo, she had had a previous allergic reaction to hair dye, hence the reason for opting for henna (which is believed to cause fewer problems and allergic reactions). After a small "test" area was treated with henna, she proceeded with the full scalp henna color treatment. Unfortunately, she experienced severe burning sensation of the scalp and progressively worse swelling of her face--leading to an ER visit.
Severe reactions to chemicals or other substances on the scalp can lead to hair loss due to hair follicles being "shut down" by the inflammation that is occurring. Typically, hair loss from this kind of allergic reaction would begin to be noticed about six weeks after the reaction on the scalp.