diff --git a/internal/backend/local/test.go b/internal/backend/local/test.go
index 7d498e0dc3cc..a4e9a278eb29 100644
--- a/internal/backend/local/test.go
+++ b/internal/backend/local/test.go
@@ -305,6 +305,16 @@ func (runner *TestFileRunner) Test(file *moduletest.File) {
 
 	// walk and execute the graph
 	diags = runner.walkGraph(graph)
+
+	// If the graph walk was terminated, we don't want to add the diagnostics.
+	// The error the user receives will just be:
+	// 			Failure! 0 passed, 1 failed.
+	// 			exit status 1
+	if diags.HasErrors() && diags.Err().Error() == dag.GraphTerminatedError.Error() {
+		log.Printf("[TRACE] TestFileRunner: graph walk terminated for %s due to error: %s", file.Name, dag.GraphTerminatedError)
+		return
+	}
+
 	file.Diagnostics = file.Diagnostics.Append(diags)
 }
 
@@ -363,6 +373,7 @@ func (runner *TestFileRunner) walkGraph(g *terraform.Graph) tfdiags.Diagnostics
 			// just mark the overall file status has having errored to indicate
 			// it was interrupted.
 			file.Status = file.Status.Merge(moduletest.Error)
+			g.AcyclicGraph.Terminate()
 			return
 		}
 
@@ -371,7 +382,6 @@ func (runner *TestFileRunner) walkGraph(g *terraform.Graph) tfdiags.Diagnostics
 			// following test as skipped, print the status, and move on.
 			run.Status = moduletest.Skip
 			runner.Suite.View.Run(run, file, moduletest.Complete, 0)
-			// continue
 			return
 		}
 
@@ -381,7 +391,6 @@ func (runner *TestFileRunner) walkGraph(g *terraform.Graph) tfdiags.Diagnostics
 			// skipped, print the status, and move on.
 			run.Status = moduletest.Skip
 			runner.Suite.View.Run(run, file, moduletest.Complete, 0)
-			// continue
 			return
 		}
 
@@ -405,7 +414,6 @@ func (runner *TestFileRunner) walkGraph(g *terraform.Graph) tfdiags.Diagnostics
 
 				run.Status = moduletest.Error
 				file.Status = moduletest.Error
-				// continue // Abort!
 				return
 			}
 
diff --git a/internal/dag/dag.go b/internal/dag/dag.go
index dfb9ef95708e..de5476c5cee4 100644
--- a/internal/dag/dag.go
+++ b/internal/dag/dag.go
@@ -4,6 +4,7 @@
 package dag
 
 import (
+	"context"
 	"errors"
 	"fmt"
 	"sort"
@@ -15,8 +16,12 @@ import (
 // AcyclicGraph is a specialization of Graph that cannot have cycles.
 type AcyclicGraph struct {
 	Graph
+
+	walker *Walker
 }
 
+var GraphTerminatedError = errors.New("graph walk terminated")
+
 // WalkFunc is the callback used for walking the graph.
 type WalkFunc func(Vertex) tfdiags.Diagnostics
 
@@ -273,9 +278,38 @@ func (g *AcyclicGraph) Cycles() [][]Vertex {
 // This will walk nodes in parallel if it can. The resulting diagnostics
 // contains problems from all graphs visited, in no particular order.
 func (g *AcyclicGraph) Walk(cb WalkFunc) tfdiags.Diagnostics {
-	w := &Walker{Callback: cb, Reverse: true}
+	ctx, cancel := context.WithCancelCause(context.Background())
+	w := &Walker{Callback: cb, Reverse: true, walkContext: ctx, walkContextCancel: cancel}
+	g.walker = w
+
 	w.Update(g)
-	return w.Wait()
+	// Start a goroutine to wait for all vertices to return.
+	// This allows us to return immediately while the walk completes.
+	doneCh := make(chan tfdiags.Diagnostics)
+	go func() {
+		doneCh <- w.Wait()
+		close(doneCh)
+	}()
+
+	// we wait for either the walk to complete or the context to be cancelled
+	for {
+		select {
+		case diags := <-doneCh:
+			return diags
+		case <-w.walkContext.Done():
+			err := context.Cause(w.walkContext)
+			var diags tfdiags.Diagnostics
+			return diags.Append(err)
+		}
+	}
+}
+
+// Terminate is a hard stop for the ongoing graph walk. It will stop the walk immediately,
+// and return a GraphTerminatedError.
+func (g *AcyclicGraph) Terminate() {
+	if g.walker != nil {
+		g.walker.walkContextCancel(GraphTerminatedError)
+	}
 }
 
 // simple convenience helper for converting a dag.Set to a []Vertex
diff --git a/internal/dag/marshal.go b/internal/dag/marshal.go
index 7bfac5ae5f38..8439c3ae1e18 100644
--- a/internal/dag/marshal.go
+++ b/internal/dag/marshal.go
@@ -144,7 +144,7 @@ func newMarshalGraph(name string, g *Graph) *marshalGraph {
 
 	sort.Sort(edges(mg.Edges))
 
-	for _, c := range (&AcyclicGraph{*g}).Cycles() {
+	for _, c := range (&AcyclicGraph{Graph: *g}).Cycles() {
 		var cycle []*marshalVertex
 		for _, v := range c {
 			mv := newMarshalVertex(v)
diff --git a/internal/dag/walk.go b/internal/dag/walk.go
index 07811dad97a1..3ce57307f2f5 100644
--- a/internal/dag/walk.go
+++ b/internal/dag/walk.go
@@ -4,6 +4,7 @@
 package dag
 
 import (
+	"context"
 	"errors"
 	"log"
 	"sync"
@@ -65,6 +66,9 @@ type Walker struct {
 	diagsMap       map[Vertex]tfdiags.Diagnostics
 	upstreamFailed map[Vertex]struct{}
 	diagsLock      sync.Mutex
+
+	walkContext       context.Context
+	walkContextCancel context.CancelCauseFunc
 }
 
 func (w *Walker) init() {
@@ -346,6 +350,9 @@ func (w *Walker) walkVertex(v Vertex, info *walkerVertex) {
 
 		case <-depsUpdateCh:
 			// New deps, reloop
+		case <-w.walkContext.Done():
+			// Context cancelled. return immediately.
+			return
 		}
 
 		// Check if we have updated dependencies. This can happen if the