diff --git a/Lib/test/test_descr.py b/Lib/test/test_descr.py
index 8d8c276..ab55952 100644
--- a/Lib/test/test_descr.py
+++ b/Lib/test/test_descr.py
@@ -2897,6 +2897,27 @@
     keys.sort()
     vereq(keys, ['__dict__', '__doc__', '__module__', '__weakref__', 'meth'])
 
+def funnynew():
+    if verbose: print "Testing __new__ returning something unexpected..."
+    class C(object):
+        def __new__(cls, arg):
+            if isinstance(arg, str): return [1, 2, 3]
+            elif isinstance(arg, int): return object.__new__(D)
+            else: return object.__new__(cls)
+    class D(C):
+        def __init__(self, arg):
+            self.foo = arg
+    vereq(C("1"), [1, 2, 3])
+    vereq(D("1"), [1, 2, 3])
+    d = D(None)
+    veris(d.foo, None)
+    d = C(1)
+    vereq(isinstance(d, D), True)
+    vereq(d.foo, 1)
+    d = D(1)
+    vereq(isinstance(d, D), True)
+    vereq(d.foo, 1)
+
 def test_main():
     class_docstrings()
     lists()
@@ -2959,6 +2980,7 @@
     dictproxyitervalues()
     dictproxyiteritems()
     pickleslots()
+    funnynew()
     if verbose: print "All OK"
 
 if __name__ == "__main__":
diff --git a/Misc/NEWS b/Misc/NEWS
index 8c42460..4923dce 100644
--- a/Misc/NEWS
+++ b/Misc/NEWS
@@ -6,6 +6,10 @@
 
 Core and builtins
 
+- Changed new-style class instantiation so that when C's __new__
+  method returns something that's not a C instance, its __init__ is
+  not called.  [SF bug #537450]
+
 - Fixed super() to work correctly with class methods.  [SF bug #535444]
 
 - A new built-in type, bool, has been added, as well as built-in
diff --git a/Objects/typeobject.c b/Objects/typeobject.c
index 71d22f3..51ed430 100644
--- a/Objects/typeobject.c
+++ b/Objects/typeobject.c
@@ -169,6 +169,10 @@
 		    (kwds == NULL ||
 		     (PyDict_Check(kwds) && PyDict_Size(kwds) == 0)))
 			return obj;
+		/* If the returned object is not an instance of type,
+		   it won't be initialized. */
+		if (!PyType_IsSubtype(obj->ob_type, type))
+			return obj;
 		type = obj->ob_type;
 		if (type->tp_init != NULL &&
 		    type->tp_init(obj, args, kwds) < 0) {