diff --git a/regression/verilog/preprocessor/include1.desc b/regression/verilog/preprocessor/include1.desc
new file mode 100644
index 000000000..f62a87cae
--- /dev/null
+++ b/regression/verilog/preprocessor/include1.desc
@@ -0,0 +1,15 @@
+CORE
+include1.v
+--preprocess
+// Enable multi-line checking
+activate-multi-line-match
+`line 1 "include1.v" 0
+`line 1 "include1b.v" 1
+line b 1
+line b 2
+`line 2 "include1.v" 2
+line 2
+line 3
+^EXIT=0$
+^SIGNAL=0$
+--
diff --git a/regression/verilog/preprocessor/include1.v b/regression/verilog/preprocessor/include1.v
new file mode 100644
index 000000000..b7ee716d9
--- /dev/null
+++ b/regression/verilog/preprocessor/include1.v
@@ -0,0 +1,3 @@
+`include "include1b.v"
+line 2
+line 3
diff --git a/regression/verilog/preprocessor/include1b.v b/regression/verilog/preprocessor/include1b.v
new file mode 100644
index 000000000..255fd89de
--- /dev/null
+++ b/regression/verilog/preprocessor/include1b.v
@@ -0,0 +1,2 @@
+line b 1
+line b 2
diff --git a/src/verilog/verilog_preprocessor.cpp b/src/verilog/verilog_preprocessor.cpp
index 6bdc2681d..7b5072708 100644
--- a/src/verilog/verilog_preprocessor.cpp
+++ b/src/verilog/verilog_preprocessor.cpp
@@ -98,45 +98,19 @@ Function: verilog_preprocessort::include
 
 \*******************************************************************/
 
-void verilog_preprocessort::include(const std::string &filename)
+std::string
+verilog_preprocessort::find_include_file(const std::string &filename)
 {
   // first try filename as is
-  {
-#ifdef _MSC_VER
-    auto in = new std::ifstream(widen(filename));
-#else
-    auto in = new std::ifstream(filename);
-#endif
-
-    if(*in)
-    {
-      context_stack.emplace_back(true, in, filename);
-      context().print_line_directive(out, 1); // 'enter'
-      return; // done
-    }
-    else
-      delete in;
-  }
+  if(file_exists(filename))
+    return filename; // done
 
   // try include paths in given order
   for(const auto &path : config.verilog.include_paths)
   {
     auto full_name = concat_dir_file(path, filename);
-
-#ifdef _MSC_VER
-    auto in = new std::ifstream(widen(full_name));
-#else
-    auto in = new std::ifstream(full_name);
-#endif
-
-    if(*in)
-    {
-      context_stack.emplace_back(true, in, filename);
-      context().print_line_directive(out, 1); // 'enter'
-      return; // done
-    }
-
-    delete in;
+    if(file_exists(full_name))
+      return full_name; // done
   }
 
   throw verilog_preprocessor_errort()
@@ -486,8 +460,23 @@ void verilog_preprocessort::directive()
 
     // strip quotes off string literal, escaping, etc.
     auto filename = file_token.string_literal_value();
+    auto full_path = find_include_file(filename);
+
+#ifdef _MSC_VER
+    auto in = new std::ifstream(widen(full_path));
+#else
+    auto in = new std::ifstream(full_path);
+#endif
+
+    if(!*in)
+      throw verilog_preprocessor_errort() << "failed to open an include file";
+
     tokenizer().skip_until_eol();
-    include(filename);
+    tokenizer().next_token(); // eat the \n
+
+    context_stack.emplace_back(true, in, filename);
+    context().print_line_directive(out, 1); // 'enter'
+    // we now continue in the new context
   }
   else if(text=="resetall")
   {
diff --git a/src/verilog/verilog_preprocessor.h b/src/verilog/verilog_preprocessor.h
index ed55645f1..7ed75f45b 100644
--- a/src/verilog/verilog_preprocessor.h
+++ b/src/verilog/verilog_preprocessor.h
@@ -44,7 +44,7 @@ class verilog_preprocessort:public preprocessort
   definest defines;
 
   void directive();
-  void include(const std::string &filename);
+  std::string find_include_file(const std::string &filename);
   definet::parameterst parse_define_parameters();
 
   using define_argumentst = std::map<std::string, std::vector<tokent>>;
diff --git a/src/verilog/verilog_preprocessor_tokenizer.cpp b/src/verilog/verilog_preprocessor_tokenizer.cpp
index 1e70f1468..e9ae9c5bb 100644
--- a/src/verilog/verilog_preprocessor_tokenizer.cpp
+++ b/src/verilog/verilog_preprocessor_tokenizer.cpp
@@ -88,13 +88,19 @@ verilog_preprocessor_tokenizert::verilog_preprocessor_tokenizert(
 std::size_t
 verilog_preprocessor_tokenizert::yy_input(char *buffer, std::size_t max_size)
 {
-  std::size_t result;
-  for(result = 0; result < max_size; result++)
+  std::size_t result = 0;
+  while(result < max_size)
   {
     char ch;
     if(!in.get(ch))
-      return result; // eof
-    buffer[result] = ch;
+      break; // eof
+    buffer[result++] = ch;
+    if(ch == '\n')
+    {
+      // We need to abort prematurely to enable
+      // switching input streams on `include.
+      break;
+    }
   }
   return result;
 }