diff --git a/Lib/contextlib.py b/Lib/contextlib.py
index 33d83a6e14c..33c302dd96f 100644
--- a/Lib/contextlib.py
+++ b/Lib/contextlib.py
@@ -91,7 +91,6 @@ def nested(*contexts):
     """
     exits = []
     vars = []
-    exc = (None, None, None)
     try:
         try:
             for context in contexts:
@@ -103,6 +102,8 @@ def nested(*contexts):
             yield vars
         except:
             exc = sys.exc_info()
+        else:
+            exc = (None, None, None)
     finally:
         while exits:
             exit = exits.pop()
@@ -110,6 +111,8 @@ def nested(*contexts):
                 exit(*exc)
             except:
                 exc = sys.exc_info()
+            else:
+                exc = (None, None, None)
         if exc != (None, None, None):
             raise
 
diff --git a/Lib/test/test_contextlib.py b/Lib/test/test_contextlib.py
index 8c8d887a553..f8db88cc58a 100644
--- a/Lib/test/test_contextlib.py
+++ b/Lib/test/test_contextlib.py
@@ -107,6 +107,60 @@ def b():
         else:
             self.fail("Didn't raise ZeroDivisionError")
 
+    def test_nested_b_swallows(self):
+        @contextmanager
+        def a():
+            yield
+        @contextmanager
+        def b():
+            try:
+                yield
+            except:
+                # Swallow the exception
+                pass
+        try:
+            with nested(a(), b()):
+                1/0
+        except ZeroDivisionError:
+            self.fail("Didn't swallow ZeroDivisionError")
+
+    def test_nested_break(self):
+        @contextmanager
+        def a():
+            yield
+        state = 0
+        while True:
+            state += 1
+            with nested(a(), a()):
+                break
+            state += 10
+        self.assertEqual(state, 1)
+
+    def test_nested_continue(self):
+        @contextmanager
+        def a():
+            yield
+        state = 0
+        while state < 3:
+            state += 1
+            with nested(a(), a()):
+                continue
+            state += 10
+        self.assertEqual(state, 3)
+
+    def test_nested_return(self):
+        @contextmanager
+        def a():
+            try:
+                yield
+            except:
+                pass
+        def foo():
+            with nested(a(), a()):
+                return 1
+            return 10
+        self.assertEqual(foo(), 1)
+
 class ClosingTestCase(unittest.TestCase):
 
     # XXX This needs more work