diff --git a/pkg/tests/schema_pulumi_test.go b/pkg/tests/schema_pulumi_test.go
index ca2b8d485..791f331e6 100644
--- a/pkg/tests/schema_pulumi_test.go
+++ b/pkg/tests/schema_pulumi_test.go
@@ -189,3 +189,54 @@ func TestMakeTerraformResultNilVsEmptyMap(t *testing.T) {
 		assert.True(t, props["test"].DeepEquals(emptyMap))
 	})
 }
+
+func TestResourceInitFailure(t *testing.T) {
+	t.Parallel()
+
+	resMap := map[string]*schema.Resource{
+		"prov_test": {
+			Schema: map[string]*schema.Schema{
+				"test": {
+					Type:     schema.TypeString,
+					Required: true,
+				},
+			},
+			CreateContext: func(ctx context.Context, rd *schema.ResourceData, i interface{}) diag.Diagnostics {
+				rd.SetId("1")
+				return diag.Errorf("INIT TEST ERROR")
+			},
+		},
+	}
+	prov := &schema.Provider{ResourcesMap: resMap}
+	bridgedProvider := pulcheck.BridgedProvider(t, "prov", prov)
+
+	pt := pulcheck.PulCheck(t, bridgedProvider, `
+name: test
+runtime: yaml
+resources:
+  mainRes:
+    type: prov:index:Test
+	properties:
+	  test: "hello"
+`)
+
+	_, err := pt.CurrentStack().Up(pt.Context())
+	require.Error(t, err)
+	require.ErrorContains(t, err, "INIT TEST ERROR")
+
+	stack := pt.ExportStack(t)
+
+	data, err := stack.Deployment.MarshalJSON()
+	require.NoError(t, err)
+
+	var stateMap map[string]interface{}
+	err = json.Unmarshal(data, &stateMap)
+	require.NoError(t, err)
+
+	resourcesList := stateMap["resources"].([]interface{})
+	require.Len(t, resourcesList, 3)
+	mainResState := resourcesList[2].(map[string]interface{}) // stack, provider, resource
+	initErrors := mainResState["initErrors"].([]interface{})
+	require.Len(t, initErrors, 1)
+	require.Contains(t, initErrors[0], "INIT TEST ERROR")
+}
diff --git a/pkg/tfshim/sdk-v2/provider2.go b/pkg/tfshim/sdk-v2/provider2.go
index ef6e33438..ce38816ec 100644
--- a/pkg/tfshim/sdk-v2/provider2.go
+++ b/pkg/tfshim/sdk-v2/provider2.go
@@ -89,6 +89,9 @@ func (s *v2InstanceState2) Type() string {
 }
 
 func (s *v2InstanceState2) ID() string {
+	if s.stateValue.IsNull() {
+		return ""
+	}
 	id := s.stateValue.GetAttr("id")
 	if !id.IsKnown() {
 		return ""
@@ -347,15 +350,7 @@ func (p *planResourceChangeImpl) Apply(
 		maps.Copy(priv, diff.v2InstanceDiff.tf.Meta)
 	}
 
-	resp, err := p.server.ApplyResourceChange(ctx, t, ty, cfg, st, pl, priv, meta)
-	if err != nil {
-		return nil, err
-	}
-	return &v2InstanceState2{
-		resourceType: t,
-		stateValue:   resp.stateValue,
-		meta:         resp.meta,
-	}, nil
+	return p.server.ApplyResourceChange(ctx, t, ty, cfg, st, pl, priv, meta)
 }
 
 // This method is called to service `pulumi refresh` requests and maps naturally to the TF
@@ -629,7 +624,7 @@ func (s *grpcServer) ApplyResourceChange(
 	config, priorState, plannedState cty.Value,
 	plannedMeta map[string]interface{},
 	providerMeta *cty.Value,
-) (*v2InstanceState2, error) {
+) (shim.InstanceState, error) {
 	configVal, err := msgpack.Marshal(config, ty)
 	if err != nil {
 		return nil, err
@@ -662,25 +657,31 @@ func (s *grpcServer) ApplyResourceChange(
 		}
 		req.ProviderMeta = &tfprotov5.DynamicValue{MsgPack: providerMetaVal}
 	}
-	resp, err := s.gserver.ApplyResourceChange(ctx, req)
-	if err := handleDiagnostics(ctx, resp.Diagnostics, err); err != nil {
-		return nil, err
-	}
-	newState, err := msgpack.Unmarshal(resp.NewState.MsgPack, ty)
-	if err != nil {
-		return nil, err
-	}
+	resp, applyErr := s.gserver.ApplyResourceChange(ctx, req)
+	newState := cty.Value{}
 	var meta map[string]interface{}
-	if resp.Private != nil {
-		if err := json.Unmarshal(resp.Private, &meta); err != nil {
-			return nil, err
+	if resp != nil {
+		if resp.NewState != nil {
+			newState, err = msgpack.Unmarshal(resp.NewState.MsgPack, ty)
+			if err != nil {
+				return nil, err
+			}
+		}
+		if resp.Private != nil {
+			if err := json.Unmarshal(resp.Private, &meta); err != nil {
+				return nil, err
+			}
 		}
 	}
+	returnErr := handleDiagnostics(ctx, resp.Diagnostics, applyErr)
+	if newState.IsNull() {
+		return nil, returnErr
+	}
 	return &v2InstanceState2{
 		resourceType: typeName,
 		stateValue:   newState,
 		meta:         meta,
-	}, nil
+	}, returnErr
 }
 
 func (s *grpcServer) ReadResource(
diff --git a/pkg/tfshim/sdk-v2/provider2_test.go b/pkg/tfshim/sdk-v2/provider2_test.go
index 47ad7ac77..a96c7553b 100644
--- a/pkg/tfshim/sdk-v2/provider2_test.go
+++ b/pkg/tfshim/sdk-v2/provider2_test.go
@@ -641,3 +641,40 @@ func (l *testLogger) Error(msg string) {
 func (*testLogger) StatusUntyped() any {
 	return "?"
 }
+
+func TestInstanceStateId(t *testing.T) {
+	t.Parallel()
+
+	state := v2InstanceState2{
+		stateValue: cty.ObjectVal(map[string]cty.Value{
+			"id": cty.StringVal("1"),
+		}),
+	}
+	assert.Equal(t, "1", state.ID())
+
+	state.stateValue = cty.ObjectVal(map[string]cty.Value{
+		"id": cty.UnknownVal(cty.String),
+	})
+	assert.Equal(t, "", state.ID())
+
+	state.stateValue = cty.Value{}
+	assert.Equal(t, "", state.ID())
+}
+
+func TestInstanceStateObject(t *testing.T) {
+	t.Parallel()
+
+	state := v2InstanceState2{
+		stateValue: cty.ObjectVal(map[string]cty.Value{
+			"id": cty.StringVal("1"),
+		}),
+	}
+	actual, err := state.Object(nil)
+	require.NoError(t, err)
+	assert.Equal(t, map[string]interface{}{"id": "1"}, actual)
+
+	state.stateValue = cty.Value{}
+	actual, err = state.Object(nil)
+	require.NoError(t, err)
+	assert.Equal(t, map[string]interface{}(nil), actual)
+}