diff --git a/rxjava-core/src/main/java/rx/exceptions/Exceptions.java b/rxjava-core/src/main/java/rx/exceptions/Exceptions.java
index 5fccfb2a61..86679c61b2 100644
--- a/rxjava-core/src/main/java/rx/exceptions/Exceptions.java
+++ b/rxjava-core/src/main/java/rx/exceptions/Exceptions.java
@@ -44,6 +44,13 @@ public static RuntimeException propagate(Throwable t) {
     public static void throwIfFatal(Throwable t) {
         if (t instanceof OnErrorNotImplementedException) {
             throw (OnErrorNotImplementedException) t;
+        } else if (t instanceof OnErrorFailedException) {
+            Throwable cause = ((OnErrorFailedException) t).getCause();
+            if (cause instanceof RuntimeException) {
+                throw (RuntimeException) cause;
+            } else {
+                throw (OnErrorFailedException) t;
+            }
         }
         // values here derived from https://github.com/Netflix/RxJava/issues/748#issuecomment-32471495
         else if (t instanceof StackOverflowError) {
diff --git a/rxjava-core/src/main/java/rx/exceptions/OnErrorFailedException.java b/rxjava-core/src/main/java/rx/exceptions/OnErrorFailedException.java
new file mode 100644
index 0000000000..be75ac82af
--- /dev/null
+++ b/rxjava-core/src/main/java/rx/exceptions/OnErrorFailedException.java
@@ -0,0 +1,35 @@
+/**
+ * Copyright 2014 Netflix, Inc.
+ * 
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ * 
+ * http://www.apache.org/licenses/LICENSE-2.0
+ * 
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+package rx.exceptions;
+
+import rx.Subscriber;
+
+/**
+ * Used for re-throwing errors thrown from {@link Subscriber#onError(Throwable)}.
+ * 
+ * https://github.com/Netflix/RxJava/issues/969
+ */
+public class OnErrorFailedException extends RuntimeException {
+    private static final long serialVersionUID = -419289748403337611L;
+
+    public OnErrorFailedException(String message, Throwable e) {
+        super(message, e);
+    }
+
+    public OnErrorFailedException(Throwable e) {
+        super(e.getMessage(), e);
+    }
+}
\ No newline at end of file
diff --git a/rxjava-core/src/main/java/rx/observers/SafeSubscriber.java b/rxjava-core/src/main/java/rx/observers/SafeSubscriber.java
index ff121eeb77..1bdbcd8272 100644
--- a/rxjava-core/src/main/java/rx/observers/SafeSubscriber.java
+++ b/rxjava-core/src/main/java/rx/observers/SafeSubscriber.java
@@ -21,6 +21,7 @@
 import rx.Subscriber;
 import rx.exceptions.CompositeException;
 import rx.exceptions.Exceptions;
+import rx.exceptions.OnErrorFailedException;
 import rx.exceptions.OnErrorNotImplementedException;
 import rx.plugins.RxJavaPlugins;
 
@@ -165,10 +166,10 @@ protected void _onError(Throwable e) {
                     } catch (Throwable pluginException) {
                         handlePluginException(pluginException);
                     }
-                    throw new RuntimeException("Error occurred when trying to propagate error to Observer.onError and during unsubscription.", new CompositeException(Arrays.asList(e, e2, unsubscribeException)));
+                    throw new OnErrorFailedException("Error occurred when trying to propagate error to Observer.onError and during unsubscription.", new CompositeException(Arrays.asList(e, e2, unsubscribeException)));
                 }
 
-                throw new RuntimeException("Error occurred when trying to propagate error to Observer.onError", new CompositeException(Arrays.asList(e, e2)));
+                throw new OnErrorFailedException("Error occurred when trying to propagate error to Observer.onError", new CompositeException(Arrays.asList(e, e2)));
             }
         }
         // if we did not throw above we will unsubscribe here, if onError failed then unsubscribe happens in the catch
@@ -180,7 +181,7 @@ protected void _onError(Throwable e) {
             } catch (Throwable pluginException) {
                 handlePluginException(pluginException);
             }
-            throw unsubscribeException;
+            throw new OnErrorFailedException(unsubscribeException);
         }
     }
 
diff --git a/rxjava-core/src/test/java/rx/exceptions/ExceptionsTest.java b/rxjava-core/src/test/java/rx/exceptions/ExceptionsTest.java
index 6880553736..75ce52c27e 100644
--- a/rxjava-core/src/test/java/rx/exceptions/ExceptionsTest.java
+++ b/rxjava-core/src/test/java/rx/exceptions/ExceptionsTest.java
@@ -15,6 +15,9 @@
  */
 package rx.exceptions;
 
+import static org.junit.Assert.assertTrue;
+import static org.junit.Assert.fail;
+
 import org.junit.Test;
 
 import rx.Observable;
@@ -134,4 +137,34 @@ public void onNext(Integer t) {
         });
     }
 
+    /**
+     * https://github.com/Netflix/RxJava/issues/969
+     */
+    @Test
+    public void testOnErrorExceptionIsThrown() {
+        try {
+            Observable.error(new IllegalArgumentException("original exception")).subscribe(new Observer<Object>() {
+                @Override
+                public void onCompleted() {
+
+                }
+
+                @Override
+                public void onError(Throwable e) {
+                    throw new IllegalStateException("This should be thrown");
+                }
+
+                @Override
+                public void onNext(Object o) {
+
+                }
+            });
+            fail("expecting an exception to be thrown");
+        } catch (CompositeException t) {
+            CompositeException ce = (CompositeException) t;
+            assertTrue(ce.getExceptions().get(0) instanceof IllegalArgumentException);
+            assertTrue(ce.getExceptions().get(1) instanceof IllegalStateException);
+        }
+    }
+
 }
diff --git a/rxjava-core/src/test/java/rx/observers/SafeObserverTest.java b/rxjava-core/src/test/java/rx/observers/SafeObserverTest.java
index 89b835ce00..f4316d4698 100644
--- a/rxjava-core/src/test/java/rx/observers/SafeObserverTest.java
+++ b/rxjava-core/src/test/java/rx/observers/SafeObserverTest.java
@@ -15,7 +15,11 @@
  */
 package rx.observers;
 
-import static org.junit.Assert.*;
+import static org.junit.Assert.assertEquals;
+import static org.junit.Assert.assertNotNull;
+import static org.junit.Assert.assertNull;
+import static org.junit.Assert.assertTrue;
+import static org.junit.Assert.fail;
 
 import java.util.concurrent.atomic.AtomicReference;
 
@@ -23,6 +27,7 @@
 
 import rx.Subscriber;
 import rx.exceptions.CompositeException;
+import rx.exceptions.OnErrorFailedException;
 import rx.exceptions.OnErrorNotImplementedException;
 import rx.functions.Action0;
 import rx.subscriptions.Subscriptions;
@@ -215,7 +220,8 @@ public void call() {
             assertEquals("failed", onError.get().getMessage());
 
             // now assert the exception that was thrown
-            assertTrue(e instanceof SafeObserverTestException);
+            OnErrorFailedException onErrorFailedException = (OnErrorFailedException) e;
+            assertTrue(onErrorFailedException.getCause() instanceof SafeObserverTestException);
             assertEquals("failure from unsubscribe", e.getMessage());
         }
     }