diff --git a/Sources/AWSLambdaRuntimeCore/Lambda.swift b/Sources/AWSLambdaRuntimeCore/Lambda.swift
index 3ba90e9c..4634fca0 100644
--- a/Sources/AWSLambdaRuntimeCore/Lambda.swift
+++ b/Sources/AWSLambdaRuntimeCore/Lambda.swift
@@ -37,25 +37,31 @@ public enum Lambda {
     ) async throws where Handler: StreamingLambdaHandler {
         var handler = handler
 
-        while !Task.isCancelled {
-            let (invocation, writer) = try await runtimeClient.nextInvocation()
+        do {
+            while !Task.isCancelled {
+                let (invocation, writer) = try await runtimeClient.nextInvocation()
 
-            do {
-                try await handler.handle(
-                    invocation.event,
-                    responseWriter: writer,
-                    context: LambdaContext(
-                        requestID: invocation.metadata.requestID,
-                        traceID: invocation.metadata.traceID,
-                        invokedFunctionARN: invocation.metadata.invokedFunctionARN,
-                        deadline: DispatchWallTime(millisSinceEpoch: invocation.metadata.deadlineInMillisSinceEpoch),
-                        logger: logger
+                do {
+                    try await handler.handle(
+                        invocation.event,
+                        responseWriter: writer,
+                        context: LambdaContext(
+                            requestID: invocation.metadata.requestID,
+                            traceID: invocation.metadata.traceID,
+                            invokedFunctionARN: invocation.metadata.invokedFunctionARN,
+                            deadline: DispatchWallTime(
+                                millisSinceEpoch: invocation.metadata.deadlineInMillisSinceEpoch
+                            ),
+                            logger: logger
+                        )
                     )
-                )
-            } catch {
-                try await writer.reportError(error)
-                continue
+                } catch {
+                    try await writer.reportError(error)
+                    continue
+                }
             }
+        } catch is CancellationError {
+            // don't allow cancellation error to propagate further
         }
     }
 
diff --git a/Sources/AWSLambdaRuntimeCore/LambdaRuntimeClient.swift b/Sources/AWSLambdaRuntimeCore/LambdaRuntimeClient.swift
index 228dc471..809a6a0e 100644
--- a/Sources/AWSLambdaRuntimeCore/LambdaRuntimeClient.swift
+++ b/Sources/AWSLambdaRuntimeCore/LambdaRuntimeClient.swift
@@ -145,22 +145,28 @@ final actor LambdaRuntimeClient: LambdaRuntimeClientProtocol {
     }
 
     func nextInvocation() async throws -> (Invocation, Writer) {
-        switch self.lambdaState {
-        case .idle:
-            self.lambdaState = .waitingForNextInvocation
-            let handler = try await self.makeOrGetConnection()
-            let invocation = try await handler.nextInvocation()
-            guard case .waitingForNextInvocation = self.lambdaState else {
+        try await withTaskCancellationHandler {
+            switch self.lambdaState {
+            case .idle:
+                self.lambdaState = .waitingForNextInvocation
+                let handler = try await self.makeOrGetConnection()
+                let invocation = try await handler.nextInvocation()
+                guard case .waitingForNextInvocation = self.lambdaState else {
+                    fatalError("Invalid state: \(self.lambdaState)")
+                }
+                self.lambdaState = .waitingForResponse(requestID: invocation.metadata.requestID)
+                return (invocation, Writer(runtimeClient: self))
+
+            case .waitingForNextInvocation,
+                .waitingForResponse,
+                .sendingResponse,
+                .sentResponse:
                 fatalError("Invalid state: \(self.lambdaState)")
             }
-            self.lambdaState = .waitingForResponse(requestID: invocation.metadata.requestID)
-            return (invocation, Writer(runtimeClient: self))
-
-        case .waitingForNextInvocation,
-            .waitingForResponse,
-            .sendingResponse,
-            .sentResponse:
-            fatalError("Invalid state: \(self.lambdaState)")
+        } onCancel: {
+            Task {
+                await self.close()
+            }
         }
     }
 
@@ -819,6 +825,12 @@ extension LambdaChannelHandler: ChannelInboundHandler {
 
     func channelInactive(context: ChannelHandlerContext) {
         // fail any pending responses with last error or assume peer disconnected
+        switch self.state {
+        case .connected(_, .waitingForNextInvocation(let continuation)):
+            continuation.resume(throwing: self.lastError ?? ChannelError.ioOnClosedChannel)
+        default:
+            break
+        }
 
         // we don't need to forward channelInactive to the delegate, as the delegate observes the
         // closeFuture
diff --git a/Tests/AWSLambdaRuntimeCoreTests/LambdaRuntimeClientTests.swift b/Tests/AWSLambdaRuntimeCoreTests/LambdaRuntimeClientTests.swift
index e779b931..5d430a0f 100644
--- a/Tests/AWSLambdaRuntimeCoreTests/LambdaRuntimeClientTests.swift
+++ b/Tests/AWSLambdaRuntimeCoreTests/LambdaRuntimeClientTests.swift
@@ -86,4 +86,56 @@ struct LambdaRuntimeClientTests {
             }
         }
     }
+
+    @Test
+    func testCancellation() async throws {
+        struct HappyBehavior: LambdaServerBehavior {
+            let requestId = UUID().uuidString
+            let event = "hello"
+
+            func getInvocation() -> GetInvocationResult {
+                .success((self.requestId, self.event))
+            }
+
+            func processResponse(requestId: String, response: String?) -> Result<Void, ProcessResponseError> {
+                #expect(self.requestId == requestId)
+                #expect(self.event == response)
+                return .success(())
+            }
+
+            func processError(requestId: String, error: ErrorResponse) -> Result<Void, ProcessErrorError> {
+                Issue.record("should not report error")
+                return .failure(.internalServerError)
+            }
+
+            func processInitError(error: ErrorResponse) -> Result<Void, ProcessErrorError> {
+                Issue.record("should not report init error")
+                return .failure(.internalServerError)
+            }
+        }
+
+        try await withMockServer(behaviour: HappyBehavior()) { port in
+            try await LambdaRuntimeClient.withRuntimeClient(
+                configuration: .init(ip: "127.0.0.1", port: port),
+                eventLoop: NIOSingletons.posixEventLoopGroup.next(),
+                logger: self.logger
+            ) { runtimeClient in
+                try await withThrowingTaskGroup(of: Void.self) { group in
+                    group.addTask {
+                        while true {
+                            let (_, writer) = try await runtimeClient.nextInvocation()
+                            // Wrap this is a task so cancellation isn't propagated to the write calls
+                            try await Task {
+                                try await writer.write(ByteBuffer(string: "hello"))
+                                try await writer.finish()
+                            }.value
+                        }
+                    }
+                    // wait a small amount to ensure we are waiting for continuation
+                    try await Task.sleep(for: .milliseconds(100))
+                    group.cancelAll()
+                }
+            }
+        }
+    }
 }