Allison was hired by the Ottawa Senators organization in 1994 as head coach of their chief farm team, the Prince Edward Island Senators of the AHL. In 1994–95 he guided them to a 41–31–8 record. Allison began the 1995–96 season with PEI, leading them to a 10–11–2 record through 23 games. When the parent team in Ottawa fired head coach Rick Bowness in late 1995, Allison was selected as his replacement. He would be fired after only 27 games, finishing with a dismal record of 2–22–3, and being replaced by Jacques Martin.