diff --git a/program-test/src/lib.rs b/program-test/src/lib.rs
index eec8e215b833a0..c0f0a32d0ddc7e 100644
--- a/program-test/src/lib.rs
+++ b/program-test/src/lib.rs
@@ -56,6 +56,7 @@ use {
         fs::File,
         io::{self, Read},
         mem::transmute,
+        panic::AssertUnwindSafe,
         path::{Path, PathBuf},
         sync::{
             atomic::{AtomicBool, Ordering},
@@ -140,12 +141,25 @@ pub fn invoke_builtin_function(
         unsafe { deserialize(&mut parameter_bytes.as_slice_mut()[0] as *mut u8) };
 
     // Execute the program
-    builtin_function(program_id, &account_infos, input).map_err(|err| {
-        let err = InstructionError::from(u64::from(err));
-        stable_log::program_failure(&log_collector, program_id, &err);
-        let err: Box<dyn std::error::Error> = Box::new(err);
-        err
-    })?;
+    match std::panic::catch_unwind(AssertUnwindSafe(|| {
+        builtin_function(program_id, &account_infos, input)
+    })) {
+        Ok(program_result) => {
+            program_result.map_err(|program_error| {
+                let err = InstructionError::from(u64::from(program_error));
+                stable_log::program_failure(&log_collector, program_id, &err);
+                let err: Box<dyn std::error::Error> = Box::new(err);
+                err
+            })?;
+        }
+        Err(_panic_error) => {
+            let err = InstructionError::ProgramFailedToComplete;
+            stable_log::program_failure(&log_collector, program_id, &err);
+            let err: Box<dyn std::error::Error> = Box::new(err);
+            Err(err)?;
+        }
+    };
+
     stable_log::program_success(&log_collector, program_id);
 
     // Lookup table for AccountInfo
@@ -724,8 +738,6 @@ impl ProgramTest {
 
             // If SBF is not required (i.e., we were invoked with `test`), use the provided
             // processor function as is.
-            //
-            // TODO: figure out why tests hang if a processor panics when running native code.
             (false, _, Some(builtin_function)) => {
                 self.add_builtin_program(program_name, program_id, builtin_function)
             }
diff --git a/program-test/tests/panic.rs b/program-test/tests/panic.rs
new file mode 100644
index 00000000000000..de8e74b3d40902
--- /dev/null
+++ b/program-test/tests/panic.rs
@@ -0,0 +1,42 @@
+use {
+    solana_program_test::{processor, ProgramTest},
+    solana_sdk::{
+        account_info::AccountInfo,
+        entrypoint::ProgramResult,
+        instruction::{Instruction, InstructionError},
+        pubkey::Pubkey,
+        signature::Signer,
+        transaction::{Transaction, TransactionError},
+    },
+};
+
+fn panic(_program_id: &Pubkey, _accounts: &[AccountInfo], _input: &[u8]) -> ProgramResult {
+    panic!("I panicked");
+}
+
+#[tokio::test]
+async fn panic_test() {
+    let program_id = Pubkey::new_unique();
+
+    let program_test = ProgramTest::new("panic", program_id, processor!(panic));
+
+    let context = program_test.start_with_context().await;
+
+    let instruction = Instruction::new_with_bytes(program_id, &[], vec![]);
+
+    let transaction = Transaction::new_signed_with_payer(
+        &[instruction],
+        Some(&context.payer.pubkey()),
+        &[&context.payer],
+        context.last_blockhash,
+    );
+    assert_eq!(
+        context
+            .banks_client
+            .process_transaction(transaction)
+            .await
+            .unwrap_err()
+            .unwrap(),
+        TransactionError::InstructionError(0, InstructionError::ProgramFailedToComplete)
+    );
+}