diff --git a/Lib/test/test_trace.py b/Lib/test/test_trace.py
index 91112e8b211..d5fb0e504d8 100644
--- a/Lib/test/test_trace.py
+++ b/Lib/test/test_trace.py
@@ -178,23 +178,48 @@ class TraceTestCase(unittest.TestCase):
         self.run_test2(settrace_and_raise)
 
 class RaisingTraceFuncTestCase(unittest.TestCase):
-    def test_it(self):
-        def tr(frame, event, arg):
+    def trace(self, frame, event, arg):
+        """A trace function that raises an exception in response to a
+        specific trace event."""
+        if event == self.raiseOnEvent:
             raise ValueError # just something that isn't RuntimeError
-        def f():
+        else:
+            return self.trace
+    
+    def f(self):
+        """The function to trace; raises an exception if that's the case
+        we're testing, so that the 'exception' trace event fires."""
+        if self.raiseOnEvent == 'exception':
+            x = 0
+            y = 1/x
+        else:
             return 1
+    
+    def run_test_for_event(self, event):
+        """Tests that an exception raised in response to the given event is
+        handled OK."""
+        self.raiseOnEvent = event
         try:
             for i in xrange(sys.getrecursionlimit() + 1):
-                sys.settrace(tr)
+                sys.settrace(self.trace)
                 try:
-                    f()
+                    self.f()
                 except ValueError:
                     pass
                 else:
                     self.fail("exception not thrown!")
         except RuntimeError:
             self.fail("recursion counter not reset")
-            
+    
+    # Test the handling of exceptions raised by each kind of trace event.
+    def test_call(self):
+        self.run_test_for_event('call')
+    def test_line(self):
+        self.run_test_for_event('line')
+    def test_return(self):
+        self.run_test_for_event('return')
+    def test_exception(self):
+        self.run_test_for_event('exception')
 
 def test_main():
     test_support.run_unittest(TraceTestCase)
diff --git a/Python/ceval.c b/Python/ceval.c
index 1c95cb9cfba..e654efd462c 100644
--- a/Python/ceval.c
+++ b/Python/ceval.c
@@ -51,7 +51,7 @@ static int call_trace(Py_tracefunc, PyObject *, PyFrameObject *,
 static void call_trace_protected(Py_tracefunc, PyObject *,
 				 PyFrameObject *, int);
 static void call_exc_trace(Py_tracefunc, PyObject *, PyFrameObject *);
-static void maybe_call_line_trace(Py_tracefunc, PyObject *, 
+static int maybe_call_line_trace(Py_tracefunc, PyObject *, 
 				  PyFrameObject *, int *, int *);
 
 static PyObject *apply_slice(PyObject *, PyObject *, PyObject *);
@@ -726,9 +726,14 @@ eval_frame(PyFrameObject *f)
 			/* see maybe_call_line_trace
 			   for expository comments */
 			f->f_stacktop = stack_pointer;
-			maybe_call_line_trace(tstate->c_tracefunc,
-					      tstate->c_traceobj,
-					      f, &instr_lb, &instr_ub);
+			
+			if (maybe_call_line_trace(tstate->c_tracefunc,
+						  tstate->c_traceobj,
+						  f, &instr_lb, &instr_ub)) {
+				/* trace function raised an exception */
+				why = WHY_EXCEPTION;
+				goto on_error;
+			}
 			/* Reload possibly changed frame fields */
 			JUMPTO(f->f_lasti);
 			stack_pointer = f->f_stacktop;
@@ -2872,7 +2877,7 @@ call_trace(Py_tracefunc func, PyObject *obj, PyFrameObject *frame,
 	return result;
 }
 
-static void
+static int
 maybe_call_line_trace(Py_tracefunc func, PyObject *obj, 
 		      PyFrameObject *frame, int *instr_lb, int *instr_ub)
 {
@@ -2947,6 +2952,8 @@ maybe_call_line_trace(Py_tracefunc func, PyObject *obj,
 	   suggested by f_lasti on this one occasion where it's desirable.
 	*/
 
+	int result = 0;
+
 	if ((frame->f_lasti < *instr_lb || frame->f_lasti >= *instr_ub)) {
 		PyCodeObject* co = frame->f_code;
 		int size, addr, line;
@@ -2980,8 +2987,8 @@ maybe_call_line_trace(Py_tracefunc func, PyObject *obj,
 
 		if (addr == frame->f_lasti) {
 			frame->f_lineno = line;
-			call_trace(func, obj, frame, 
-				   PyTrace_LINE, Py_None);
+			result = call_trace(func, obj, frame, 
+					    PyTrace_LINE, Py_None);
 		}
 
 		if (size > 0) {
@@ -2996,6 +3003,8 @@ maybe_call_line_trace(Py_tracefunc func, PyObject *obj,
 			*instr_ub = INT_MAX;
 		}
 	}
+
+	return result;
 }
 
 void