diff --git a/changelog/175.bugfix b/changelog/175.bugfix
new file mode 100644
index 00000000..35440813
--- /dev/null
+++ b/changelog/175.bugfix
@@ -0,0 +1,2 @@
+Fix error internal error handling during event loop in the master node. This bug would shadow the original errors
+making extremely hard/impossible for users to diagnose the problem properly.
diff --git a/testing/test_remote.py b/testing/test_remote.py
index 151616ed..eeb5a4c9 100644
--- a/testing/test_remote.py
+++ b/testing/test_remote.py
@@ -29,9 +29,9 @@ def __str__(self):
 class SlaveSetup:
     use_callback = False
 
-    def __init__(self, request):
-        self.testdir = request.getfuncargvalue("testdir")
+    def __init__(self, request, testdir):
         self.request = request
+        self.testdir = testdir
         self.events = queue.Queue()
 
     def setup(self, ):
@@ -65,8 +65,8 @@ def sendcommand(self, name, **kwargs):
 
 
 @pytest.fixture
-def slave(request):
-    return SlaveSetup(request)
+def slave(request, testdir):
+    return SlaveSetup(request, testdir)
 
 
 @pytest.mark.xfail(reason='#59')
@@ -319,6 +319,15 @@ def test_func():
             ("pytest_collectreport", "report.collector.fspath == bbb"),
         ])
 
+    def test_process_from_remote_error_handling(self, slave, capsys):
+        slave.use_callback = True
+        slave.setup()
+        slave.slp.process_from_remote(('<nonono>', ()))
+        out, err = capsys.readouterr()
+        assert 'INTERNALERROR> ValueError: unknown event: <nonono>' in out
+        ev = slave.popevent()
+        assert ev.name == "errordown"
+
 
 def test_remote_env_vars(testdir):
     testdir.makepyfile('''
diff --git a/xdist/slavemanage.py b/xdist/slavemanage.py
index 8091f8dd..36d52635 100644
--- a/xdist/slavemanage.py
+++ b/xdist/slavemanage.py
@@ -323,7 +323,9 @@ def process_from_remote(self, eventcall):  # noqa too complex
         except:
             excinfo = py.code.ExceptionInfo()
             py.builtin.print_("!" * 20, excinfo)
-            self.config.pluginmanager.notify_exception(excinfo)
+            self.config.notify_exception(excinfo)
+            self.shutdown()
+            self.notify_inproc("errordown", node=self, error=excinfo)
 
 
 def unserialize_report(name, reportdict):