diff --git a/swarm/CHANGELOG.md b/swarm/CHANGELOG.md
index 34fa2fd3..df045073 100644
--- a/swarm/CHANGELOG.md
+++ b/swarm/CHANGELOG.md
@@ -90,6 +90,8 @@
 - Deprecate methods `Swarm::with_executor`, `Swarm::with_*_executor`, `Swarm::without_executor`.
   Introduce similar methods in `SwarmBuilder`. See [PR 3588].
 
+- Gracefully disable oneshot handler on dial upgrade errors. See [PR 3577].
+
 [PR 3364]: https://github.com/libp2p/rust-libp2p/pull/3364
 [PR 3170]: https://github.com/libp2p/rust-libp2p/pull/3170
 [PR 3134]: https://github.com/libp2p/rust-libp2p/pull/3134
@@ -106,6 +108,7 @@
 [PR 3254]: https://github.com/libp2p/rust-libp2p/pull/3254
 [PR 3497]: https://github.com/libp2p/rust-libp2p/pull/3497
 [PR 3588]: https://github.com/libp2p/rust-libp2p/pull/3588
+[PR 3577]: https://github.com/libp2p/rust-libp2p/pull/3577
 
 # 0.41.1
 
diff --git a/swarm/src/handler.rs b/swarm/src/handler.rs
index 6c0ccc06..4093ecae 100644
--- a/swarm/src/handler.rs
+++ b/swarm/src/handler.rs
@@ -458,7 +458,7 @@ impl<TUpgrErr> ConnectionHandlerUpgrErr<TUpgrErr> {
 
 impl<TUpgrErr> fmt::Display for ConnectionHandlerUpgrErr<TUpgrErr>
 where
-    TUpgrErr: fmt::Display,
+    TUpgrErr: error::Error + 'static,
 {
     fn fmt(&self, f: &mut fmt::Formatter<'_>) -> fmt::Result {
         match self {
@@ -468,7 +468,10 @@ where
             ConnectionHandlerUpgrErr::Timer => {
                 write!(f, "Timer error while opening a substream")
             }
-            ConnectionHandlerUpgrErr::Upgrade(err) => write!(f, "{err}"),
+            ConnectionHandlerUpgrErr::Upgrade(err) => {
+                write!(f, "Upgrade: ")?;
+                crate::print_error_chain(f, err)
+            }
         }
     }
 }
@@ -481,7 +484,7 @@ where
         match self {
             ConnectionHandlerUpgrErr::Timeout => None,
             ConnectionHandlerUpgrErr::Timer => None,
-            ConnectionHandlerUpgrErr::Upgrade(err) => Some(err),
+            ConnectionHandlerUpgrErr::Upgrade(_) => None,
         }
     }
 }
diff --git a/swarm/src/handler/one_shot.rs b/swarm/src/handler/one_shot.rs
index e8cd03eb..29ba45ab 100644
--- a/swarm/src/handler/one_shot.rs
+++ b/swarm/src/handler/one_shot.rs
@@ -213,7 +213,8 @@ where
             }
             ConnectionEvent::DialUpgradeError(DialUpgradeError { error, .. }) => {
                 if self.pending_error.is_none() {
-                    self.pending_error = Some(error);
+                    log::debug!("DialUpgradeError: {error}");
+                    self.keep_alive = KeepAlive::No;
                 }
             }
             ConnectionEvent::AddressChange(_) | ConnectionEvent::ListenUpgradeError(_) => {}