diff --git a/src/strands/multiagent/graph.py b/src/strands/multiagent/graph.py
index 97435ad4a..4cce2ac43 100644
--- a/src/strands/multiagent/graph.py
+++ b/src/strands/multiagent/graph.py
@@ -663,11 +663,14 @@ async def _execute_graph(self, invocation_state: dict[str, Any]) -> AsyncIterato
                 ]
                 return
 
+            # Check if execution was cancelled - stop execution gracefully
+            if self.state.status == Status.FAILED:
+                return
+
             self._interrupt_state.deactivate()
 
             # Find newly ready nodes after batch execution
-            # We add all nodes in current batch as completed batch,
-            # because a failure would throw exception and code would not make it here
+            # Only nodes that completed successfully are considered for downstream execution
             newly_ready = self._find_newly_ready_nodes(current_batch)
 
             # Emit handoff event for batch transition if there are nodes to transition to
@@ -868,7 +871,8 @@ async def _execute_node(self, node: GraphNode, invocation_state: dict[str, Any])
                 )
                 logger.debug("reason=<%s> | cancelling execution", cancel_message)
                 yield MultiAgentNodeCancelEvent(node.node_id, cancel_message)
-                raise RuntimeError(cancel_message)
+                self.state.status = Status.FAILED
+                return
 
             # Build node input from satisfied dependencies
             node_input = self._build_node_input(node)
diff --git a/tests/strands/multiagent/test_graph.py b/tests/strands/multiagent/test_graph.py
index ab2d86e70..0f28261c1 100644
--- a/tests/strands/multiagent/test_graph.py
+++ b/tests/strands/multiagent/test_graph.py
@@ -2080,14 +2080,22 @@ def cancel_callback(event):
     stream = graph.stream_async("test task")
 
     tru_cancel_event = None
-    with pytest.raises(RuntimeError, match=cancel_message):
-        async for event in stream:
-            if event.get("type") == "multiagent_node_cancel":
-                tru_cancel_event = event
-
+    tru_result_event = None
+    async for event in stream:
+        if event.get("type") == "multiagent_node_cancel":
+            tru_cancel_event = event
+        elif event.get("type") == "multiagent_result":
+            tru_result_event = event
+
+    # Verify cancel event was emitted
     exp_cancel_event = MultiAgentNodeCancelEvent(node_id="test_agent", message=cancel_message)
     assert tru_cancel_event == exp_cancel_event
 
+    # Verify result event was yielded (no exception raised)
+    assert tru_result_event is not None
+    assert tru_result_event["result"].status == Status.FAILED
+
+    # Verify graph state
     tru_status = graph.state.status
     exp_status = Status.FAILED
     assert tru_status == exp_status
diff --git a/tests_integ/hooks/multiagent/test_cancel.py b/tests_integ/hooks/multiagent/test_cancel.py
index 9267330b7..5eb547ada 100644
--- a/tests_integ/hooks/multiagent/test_cancel.py
+++ b/tests_integ/hooks/multiagent/test_cancel.py
@@ -73,16 +73,30 @@ async def test_swarm_cancel_node(swarm):
 @pytest.mark.asyncio
 async def test_graph_cancel_node(graph):
     tru_cancel_event = None
-    with pytest.raises(RuntimeError, match="test cancel"):
-        async for event in graph.stream_async("What is the weather"):
-            if event.get("type") == "multiagent_node_cancel":
-                tru_cancel_event = event
+    tru_result_event = None
+    async for event in graph.stream_async("What is the weather"):
+        if event.get("type") == "multiagent_node_cancel":
+            tru_cancel_event = event
+        elif event.get("type") == "multiagent_result":
+            tru_result_event = event
 
     exp_cancel_event = MultiAgentNodeCancelEvent(node_id="weather", message="test cancel")
     assert tru_cancel_event == exp_cancel_event
 
-    state = graph.state
+    # Verify result was yielded (no exception raised)
+    assert tru_result_event is not None
+    multiagent_result = tru_result_event["result"]
 
-    tru_status = state.status
+    tru_status = multiagent_result.status
     exp_status = Status.FAILED
     assert tru_status == exp_status
+
+    state = graph.state
+
+    tru_state_status = state.status
+    exp_state_status = Status.FAILED
+    assert tru_state_status == exp_state_status
+
+    # Verify the info node was executed but weather node was cancelled (not executed)
+    assert "info" in state.results
+    assert "weather" not in state.results