diff --git a/src/module.cpp b/src/module.cpp
index 9628481996..57675fa2df 100644
--- a/src/module.cpp
+++ b/src/module.cpp
@@ -21,7 +21,7 @@ namespace
             object m_obj(((borrowed_reference_t*)m));
             scope current_module(m_obj);
 
-            handle_exception(init_function);
+            if (handle_exception(init_function)) return NULL;
         }
 
         return m;
diff --git a/test/fabscript b/test/fabscript
index 03e4c6f919..eb9379e0ac 100644
--- a/test/fabscript
+++ b/test/fabscript
@@ -67,6 +67,7 @@ for t in [('injected',),
           ('args',),
           ('raw_ctor',),
           ('exception_translator',),
+          ('module_init_exception',),
           ('test_enum', ['enum_ext']),
           ('test_cltree', ['cltree']),
           ('newtest', ['m1', 'm2']),
diff --git a/test/module_init_exception.cpp b/test/module_init_exception.cpp
new file mode 100644
index 0000000000..d8cec57d3a
--- /dev/null
+++ b/test/module_init_exception.cpp
@@ -0,0 +1,14 @@
+// Copyright (C) 2003 Rational Discovery LLC
+// Distributed under the Boost Software License, Version 1.0. (See
+// accompanying file LICENSE_1_0.txt or copy at
+// http://www.boost.org/LICENSE_1_0.txt)
+
+#include <boost/python/module.hpp>
+#include <stdexcept>
+
+using namespace boost::python;
+
+BOOST_PYTHON_MODULE(module_init_exception_ext)
+{
+    throw std::runtime_error("Module init failed");
+}
diff --git a/test/module_init_exception.py b/test/module_init_exception.py
new file mode 100644
index 0000000000..3da53e1956
--- /dev/null
+++ b/test/module_init_exception.py
@@ -0,0 +1,12 @@
+# Copyright (C) 2003 Rational Discovery LLC.  Distributed under the Boost
+# Software License, Version 1.0. (See accompanying file LICENSE_1_0.txt or copy
+# at http://www.boost.org/LICENSE_1_0.txt)
+
+print("running...")
+
+try:
+    import module_init_exception_ext
+except RuntimeError as e:
+    print(e)
+
+print("Done.")