diff --git a/extmod/asyncio/stream.py b/extmod/asyncio/stream.py
index c47c48cf09..5547bfbd51 100644
--- a/extmod/asyncio/stream.py
+++ b/extmod/asyncio/stream.py
@@ -127,20 +127,30 @@ class Server:
         await self.wait_closed()
 
     def close(self):
+        # Note: the _serve task must have already started by now due to the sleep
+        # in start_server, so `state` won't be clobbered at the start of _serve.
+        self.state = True
         self.task.cancel()
 
     async def wait_closed(self):
         await self.task
 
     async def _serve(self, s, cb):
+        self.state = False
         # Accept incoming connections
         while True:
             try:
                 yield core._io_queue.queue_read(s)
-            except core.CancelledError:
-                # Shutdown server
+            except core.CancelledError as er:
+                # The server task was cancelled, shutdown server and close socket.
                 s.close()
-                return
+                if self.state:
+                    # If the server was explicitly closed, ignore the cancellation.
+                    return
+                else:
+                    # Otherwise e.g. the parent task was cancelled, propagate
+                    # cancellation.
+                    raise er
             try:
                 s2, addr = s.accept()
             except:
@@ -167,6 +177,16 @@ async def start_server(cb, host, port, backlog=5):
     # Create and return server object and task.
     srv = Server()
     srv.task = core.create_task(srv._serve(s, cb))
+    try:
+        # Ensure that the _serve task has been scheduled so that it gets to
+        # handle cancellation.
+        await core.sleep_ms(0)
+    except core.CancelledError as er:
+        # If the parent task is cancelled during this first sleep, then
+        # we will leak the task and it will sit waiting for the socket, so
+        # cancel it.
+        srv.task.cancel()
+        raise er
     return srv
 
 
diff --git a/tests/net_hosted/asyncio_start_server.py b/tests/net_hosted/asyncio_start_server.py
index 3162218981..e76faf7edb 100644
--- a/tests/net_hosted/asyncio_start_server.py
+++ b/tests/net_hosted/asyncio_start_server.py
@@ -22,6 +22,44 @@ async def test():
         print("sleep")
         await asyncio.sleep(0)
 
+    # Test that cancellation works before the server starts if
+    # the subsequent code raises.
+    print("create server3")
+    server3 = await asyncio.start_server(None, "0.0.0.0", 8000)
+    try:
+        async with server3:
+            raise OSError
+    except OSError as er:
+        print("OSError")
+
+    # Test that closing doesn't raise CancelledError.
+    print("create server4")
+    server4 = await asyncio.start_server(None, "0.0.0.0", 8000)
+    server4.close()
+    await server4.wait_closed()
+    print("server4 closed")
+
+    # Test that cancelling the task will still raise CancelledError, checking
+    # edge cases around how many times the tasks have been re-scheduled by
+    # sleep.
+    async def task(n):
+        print("create task server", n)
+        srv = await asyncio.start_server(None, "0.0.0.0", 8000)
+        await srv.wait_closed()
+        # This should be unreachable.
+        print("task finished")
+
+    for num_sleep in range(0, 5):
+        print("sleep", num_sleep)
+        t = asyncio.create_task(task(num_sleep))
+        for _ in range(num_sleep):
+            await asyncio.sleep(0)
+        t.cancel()
+        try:
+            await t
+        except asyncio.CancelledError:
+            print("CancelledError")
+
     print("done")
 
 
diff --git a/tests/net_hosted/asyncio_start_server.py.exp b/tests/net_hosted/asyncio_start_server.py.exp
index 0fb8e6a63b..58982a108c 100644
--- a/tests/net_hosted/asyncio_start_server.py.exp
+++ b/tests/net_hosted/asyncio_start_server.py.exp
@@ -2,4 +2,22 @@ create server1
 create server2
 OSError
 sleep
+create server3
+OSError
+create server4
+server4 closed
+sleep 0
+CancelledError
+sleep 1
+create task server 1
+CancelledError
+sleep 2
+create task server 2
+CancelledError
+sleep 3
+create task server 3
+CancelledError
+sleep 4
+create task server 4
+CancelledError
 done