diff --git a/snap-core.cabal b/snap-core.cabal
--- a/snap-core.cabal
+++ b/snap-core.cabal
@@ -1,5 +1,5 @@
 name:           snap-core
-version:        0.4.0
+version:        0.4.0.1
 synopsis:       Snap: A Haskell Web Framework (Core)
 
 description:
diff --git a/src/Snap/Internal/Http/Types.hs b/src/Snap/Internal/Http/Types.hs
--- a/src/Snap/Internal/Http/Types.hs
+++ b/src/Snap/Internal/Http/Types.hs
@@ -529,7 +529,7 @@
 
 
 ------------------------------------------------------------------------------
--- | addCookie has been deprecated and will be removed in 0.4. Please use
+-- | addCookie has been deprecated and will be removed in 0.5. Please use
 -- 'addResponseCookie' instead.
 addCookie :: Cookie                   -- ^ cookie value
           -> Response                 -- ^ response to modify
diff --git a/src/Snap/Iteratee.hs b/src/Snap/Iteratee.hs
--- a/src/Snap/Iteratee.hs
+++ b/src/Snap/Iteratee.hs
@@ -138,17 +138,28 @@
         ee <- try $ runIteratee (m `catchError` h)
         case ee of
           (Left e)  -> runIteratee (handler e)
-          (Right v) -> return v
+          (Right v) -> step v
       where
+        step (Continue k)  = return $ Continue (\s -> k s `catch` handler)
+        -- don't worry about Error here because the error had to come from the
+        -- handler (because of 'catchError' above)
+        step y             = return y
+
         -- we can only catch iteratee errors if "e" matches "SomeException"
         h e = maybe (throwError e)
                     (handler)
                     (fromException e)
 
     --block :: m a -> m a
-    block m = Iteratee $ block $ runIteratee m
-    unblock m = Iteratee $ unblock $ runIteratee m
+    block m = Iteratee $ block $ (runIteratee m >>= step)
+      where
+        step (Continue k) = return $ Continue (\s -> block (k s))
+        step y            = return y
 
+    unblock m = Iteratee $ unblock $ (runIteratee m >>= step)
+      where
+        step (Continue k) = return $ Continue (\s -> unblock (k s))
+        step y            = return y
 
 
 ------------------------------------------------------------------------------
diff --git a/test/suite/Snap/Iteratee/Tests.hs b/test/suite/Snap/Iteratee/Tests.hs
--- a/test/suite/Snap/Iteratee/Tests.hs
+++ b/test/suite/Snap/Iteratee/Tests.hs
@@ -8,8 +8,9 @@
 
 import           Control.Concurrent (threadDelay)
 import qualified Control.Exception as E
-import           Control.Exception hiding (try, assert)
+import           Control.Exception hiding (try, assert, throw, catch)
 import           Control.Monad
+import           Control.Monad.CatchIO
 import           Control.Monad.Identity
 import           Control.Monad.Trans
 import qualified Data.ByteString.Base16 as B16
@@ -18,7 +19,7 @@
 import qualified Data.ByteString.Lazy.Char8 as L
 import           Data.Int
 import           Data.Maybe
-import           Prelude hiding (head, drop, take)
+import           Prelude hiding (catch, head, drop, take)
 import           System.Timeout
 import           Test.Framework
 import           Test.Framework.Providers.QuickCheck2
@@ -78,6 +79,7 @@
         , testKillIfTooSlow1
         , testKillIfTooSlow2
         , testKMP
+        , testCatchIO
         ]
 
 testEnumBS :: Test
@@ -504,6 +506,24 @@
     m <- liftM S.concat $ run_ $ tooSlowEnum 3 $$ iter
     H.assertEqual "testKillIfTooSlow2" (S.replicate 300 'f') m
 
+
+
+------------------------------------------------------------------------------
+testCatchIO :: Test
+testCatchIO = testCase "iteratee/monadCatchIO" $ do
+    e <- run_ $ enumList 1 ["1", "2", "3", "4", "5"] $$ iter 0
+    H.assertBool "handled exception" $ isJust e
+
+  where
+    iter !i = (continue $ k (i::Int)) `catch` h
+
+    k _ EOF = return Nothing
+    k i _   = if i >= 2
+                then throw $ ErrorCall "should not escape!"
+                else iter (i+1)
+
+    h :: SomeException -> Iteratee ByteString IO (Maybe String)
+    h e = return $ Just $ show e
 
 ------------------------------------------------------------------------------
 tooSlowEnum :: Int -> Enumerator ByteString IO a