diff --git a/headroom/proxy/memory_handler.py b/headroom/proxy/memory_handler.py
index 75770d3f9..808e51087 100644
--- a/headroom/proxy/memory_handler.py
+++ b/headroom/proxy/memory_handler.py
@@ -198,6 +198,20 @@ class MemoryHandler:
                 "Subsequent requests will retry."
             )
             return
+        except asyncio.CancelledError:
+            # External cancellation (shutdown / task cancelled).
+            # CancelledError is BaseException — the TimeoutError branch
+            # above does NOT catch it, and caller ``except Exception``
+            # blocks don't either, so it propagates unconditionally.
+            # Reset state so any later retry starts clean, then re-raise:
+            # cancellation is a signal, not an error to swallow.
+            self._backend = None
+            self._initialized = False
+            logger.info(
+                "Memory: backend initialization cancelled "
+                f"(backend={self.config.backend})"
+            )
+            raise
 
     async def _init_backend_locked(self) -> None:
         """Actual backend-init body. Must be called with ``_init_lock`` held."""
diff --git a/tests/test_memory_handler_concurrent_init.py b/tests/test_memory_handler_concurrent_init.py
index 6a7424b4d..b73ee044b 100644
--- a/tests/test_memory_handler_concurrent_init.py
+++ b/tests/test_memory_handler_concurrent_init.py
@@ -190,6 +190,45 @@ async def test_ensure_initialized_timeout_nulls_partially_initialized_backend(
     assert handler._backend is None
 
 
+@pytest.mark.asyncio
+async def test_ensure_initialized_cancellation_propagates_and_resets_state(
+    tmp_path, monkeypatch
+):
+    """External cancellation of an in-flight ``_ensure_initialized`` must
+    propagate (CancelledError is BaseException — not a swallowable error)
+    and leave the handler in a clean state."""
+
+    class HangingBackend:
+        def __init__(self, config):
+            self.config = config
+
+        async def _ensure_initialized(self) -> None:
+            await asyncio.Event().wait()
+
+        async def close(self) -> None:
+            pass
+
+    import headroom.memory.backends.local as local_mod
+
+    monkeypatch.setattr(local_mod, "LocalBackend", HangingBackend)
+
+    handler = MemoryHandler(
+        MemoryConfig(
+            enabled=True, backend="local", db_path=str(tmp_path / "mem.db")
+        )
+    )
+
+    task = asyncio.create_task(handler._ensure_initialized())
+    # Give the task a tick to enter _init_backend_locked and assign _backend.
+    await asyncio.sleep(0.05)
+    task.cancel()
+    with pytest.raises(asyncio.CancelledError):
+        await task
+
+    assert handler._initialized is False
+    assert handler._backend is None
+
+
 # -------------------------------------------------------------------
 # Real backend init (no monkeypatching) — integration smoke test
 # -------------------------------------------------------------------