diff --git a/ChangeLog b/ChangeLog
index 4ab0191ce5..4e3cf85f2f 100644
--- a/ChangeLog
+++ b/ChangeLog
@@ -1,3 +1,8 @@
+Mon Dec 10 15:23:35 2012  Nobuyoshi Nakada  <nobu@ruby-lang.org>
+
+	* vm_trace.c (rb_threadptr_exec_event_hooks): exceptions in event
+	  hooks should not propagate outside.
+
 Mon Dec 10 15:11:06 2012  Nobuyoshi Nakada  <nobu@ruby-lang.org>
 
 	* compile.c (iseq_compile_each): count flip-flop state in local iseq
diff --git a/KNOWNBUGS.rb b/KNOWNBUGS.rb
index 4a1ea23896..b97a08d928 100644
--- a/KNOWNBUGS.rb
+++ b/KNOWNBUGS.rb
@@ -3,5 +3,3 @@
 # So all tests will cause failure.
 #
 
-assert_equal('ok', "TracePoint.new(:line) {raise}.enable {\n  1\n}\n'ok'")
-assert_finish(3, 'def m; end; TracePoint.new(:return) {raise}.enable {m}')
diff --git a/test/ruby/test_settracefunc.rb b/test/ruby/test_settracefunc.rb
index 6775b72b89..788253834e 100644
--- a/test/ruby/test_settracefunc.rb
+++ b/test/ruby/test_settracefunc.rb
@@ -798,4 +798,18 @@ class TestSetTraceFunc < Test::Unit::TestCase
       end
     }
   end
+
+  def test_tracepoint_exception_at_line
+    assert_nothing_raised do
+      TracePoint.new(:line) {raise}.enable {
+        1
+      }
+    end
+  end
+
+  def test_tracepoint_exception_at_return
+    assert_nothing_raised(Timeout::Error, 'infinite trace') do
+      assert_normal_exit('def m; end; TracePoint.new(:return) {raise}.enable {m}', '', timeout: 3)
+    end
+  end
 end
diff --git a/vm_trace.c b/vm_trace.c
index 160005220f..161c5d1528 100644
--- a/vm_trace.c
+++ b/vm_trace.c
@@ -286,14 +286,14 @@ rb_threadptr_exec_event_hooks(rb_trace_arg_t *targ)
     if (th->trace_running == 0 &&
 	targ->self != rb_mRubyVMFrozenCore /* skip special methods. TODO: remove it. */) {
 	const int vm_tracing = th->vm->trace_running;
+	const VALUE errinfo = th->errinfo;
+	const int outer_state = th->state;
 	int state = 0;
-	int outer_state = th->state;
 	th->state = 0;
 
 	th->vm->trace_running = 1;
 	th->trace_running = 1;
 	{
-	    const VALUE errinfo = th->errinfo;
 	    rb_hook_list_t *list;
 
 	    /* thread local traces */
@@ -309,15 +309,11 @@ rb_threadptr_exec_event_hooks(rb_trace_arg_t *targ)
 		state = exec_hooks(th, list, targ, !vm_tracing);
 		if (state) goto terminate;
 	    }
-	    th->errinfo = errinfo;
 	}
       terminate:
+	th->errinfo = errinfo;
 	th->trace_running = 0;
 	th->vm->trace_running = vm_tracing;
-
-	if (state) {
-	    TH_JUMP_TAG(th, state);
-	}
 	th->state = outer_state;
     }
 }