diff --git a/dtlstransport.go b/dtlstransport.go
index 402518217a1..502b819f787 100644
--- a/dtlstransport.go
+++ b/dtlstransport.go
@@ -44,8 +44,9 @@ type DTLSTransport struct {
 	state                 DTLSTransportState
 	srtpProtectionProfile srtp.ProtectionProfile
 
-	onStateChangeHandler   func(DTLSTransportState)
-	internalOnCloseHandler func()
+	onStateChangeHandler         func(DTLSTransportState)
+	internalOnStateChangeHandler func(DTLSTransportState)
+	internalOnCloseHandler       func()
 
 	conn *dtls.Conn
 
@@ -120,8 +121,10 @@ func (t *DTLSTransport) ICETransport() *ICETransport {
 // onStateChange requires the caller holds the lock.
 func (t *DTLSTransport) onStateChange(state DTLSTransportState) {
 	t.state = state
-	handler := t.onStateChangeHandler
-	if handler != nil {
+	if handler := t.onStateChangeHandler; handler != nil {
+		handler(state)
+	}
+	if handler := t.internalOnStateChangeHandler; handler != nil {
 		handler(state)
 	}
 }
@@ -386,10 +389,18 @@ func (t *DTLSTransport) Start(remoteParameters DTLSParameters) error { //nolint:
 
 		parsedRemoteCert, parseErr := x509.ParseCertificate(t.remoteCertificate)
 		if parseErr != nil {
+			t.onStateChange(DTLSTransportStateFailed)
+
 			return parseErr
 		}
 
-		return t.validateFingerPrint(parsedRemoteCert)
+		if fpErr := t.validateFingerPrint(parsedRemoteCert); fpErr != nil {
+			t.onStateChange(DTLSTransportStateFailed)
+
+			return fpErr
+		}
+
+		return nil
 	}
 
 	// Connect as DTLS Client/Server, function is blocking and we
diff --git a/dtlstransport_test.go b/dtlstransport_test.go
index 8820df390c4..cdc42c5ff90 100644
--- a/dtlstransport_test.go
+++ b/dtlstransport_test.go
@@ -67,9 +67,44 @@ func TestInvalidFingerprintCausesFailed(t *testing.T) { //nolint:cyclop
 		}
 	})
 
-	// Also wait for PeerConnection to close (may take longer due to cleanup)
-	offerConnectionHasClosed := untilConnectionState(PeerConnectionStateClosed, pcOffer)
-	answerConnectionHasClosed := untilConnectionState(PeerConnectionStateClosed, pcAnswer)
+	// Track PeerConnection state transitions - need single handler since OnConnectionStateChange replaces
+	offerConnectionHasFailed := make(chan struct{})
+	offerConnectionHasClosed := make(chan struct{})
+	pcOffer.OnConnectionStateChange(func(state PeerConnectionState) {
+		if state == PeerConnectionStateFailed {
+			select {
+			case <-offerConnectionHasFailed:
+			default:
+				close(offerConnectionHasFailed)
+			}
+		}
+		if state == PeerConnectionStateClosed {
+			select {
+			case <-offerConnectionHasClosed:
+			default:
+				close(offerConnectionHasClosed)
+			}
+		}
+	})
+
+	answerConnectionHasFailed := make(chan struct{})
+	answerConnectionHasClosed := make(chan struct{})
+	pcAnswer.OnConnectionStateChange(func(state PeerConnectionState) {
+		if state == PeerConnectionStateFailed {
+			select {
+			case <-answerConnectionHasFailed:
+			default:
+				close(answerConnectionHasFailed)
+			}
+		}
+		if state == PeerConnectionStateClosed {
+			select {
+			case <-answerConnectionHasClosed:
+			default:
+				close(answerConnectionHasClosed)
+			}
+		}
+	})
 
 	_, err = pcOffer.CreateDataChannel("unusedDataChannel", nil)
 	assert.NoError(t, err)
@@ -119,9 +154,35 @@ func TestInvalidFingerprintCausesFailed(t *testing.T) { //nolint:cyclop
 		assert.Fail(t, "timed out waiting for answer DTLS to fail")
 	}
 
+	// Verify PeerConnection state transitions to "failed" (per W3C WebRTC spec)
+	// "Any of the RTCIceTransports or RTCDtlsTransports are in a 'failed' state"
+	// should result in PeerConnectionStateFailed
+	select {
+	case <-offerConnectionHasFailed:
+		// Expected - offer PeerConnection reached failed state
+	case <-time.After(7 * time.Second):
+		assert.Fail(t, "timed out waiting for offer PeerConnection to reach failed state")
+	}
+
+	select {
+	case <-answerConnectionHasFailed:
+		// Expected - answer PeerConnection reached failed state
+	case <-time.After(7 * time.Second):
+		assert.Fail(t, "timed out waiting for answer PeerConnection to reach failed state")
+	}
+
 	// Wait for PeerConnection to close (may take longer due to cleanup)
-	offerConnectionHasClosed.Wait()
-	answerConnectionHasClosed.Wait()
+	select {
+	case <-offerConnectionHasClosed:
+	case <-time.After(7 * time.Second):
+		assert.Fail(t, "timed out waiting for offer PeerConnection to close")
+	}
+
+	select {
+	case <-answerConnectionHasClosed:
+	case <-time.After(7 * time.Second):
+		assert.Fail(t, "timed out waiting for answer PeerConnection to close")
+	}
 
 	assert.Contains(
 		t, []DTLSTransportState{DTLSTransportStateClosed, DTLSTransportStateFailed}, pcOffer.SCTP().Transport().State(),
diff --git a/peerconnection.go b/peerconnection.go
index d6ba18eb28f..1e99b620983 100644
--- a/peerconnection.go
+++ b/peerconnection.go
@@ -187,6 +187,11 @@ func (api *API) NewPeerConnection(configuration Configuration) (*PeerConnection,
 	}
 	pc.dtlsTransport = dtlsTransport
 
+	// Wire up DTLS state change handler to update PeerConnection state
+	pc.dtlsTransport.internalOnStateChangeHandler = func(state DTLSTransportState) {
+		pc.updateConnectionState(pc.ICEConnectionState(), state)
+	}
+
 	// Create the SCTP transport
 	pc.sctpTransport = pc.api.NewSCTPTransport(pc.dtlsTransport)
 
@@ -2425,6 +2430,18 @@ func (pc *PeerConnection) close(shouldGracefullyClose bool) error { //nolint:cyc
 	// https://www.w3.org/TR/webrtc/#dom-rtcpeerconnection-close (step #1)
 	// https://www.w3.org/TR/webrtc/#dom-rtcpeerconnection-close (step #2)
 
+	// Per W3C WebRTC spec, if DTLS is in "failed" state, the PeerConnection should
+	// transition to "failed" before "closed". Check and report failed state before
+	// setting isClosed, which would prevent the failed state from being reported.
+	// Also check for "connecting" state - if DTLS handshake started but never completed
+	// when close is called, treat it as a failure (e.g., remote peer closed during handshake).
+	if pc.dtlsTransport != nil {
+		dtlsState := pc.dtlsTransport.State()
+		if dtlsState == DTLSTransportStateFailed || dtlsState == DTLSTransportStateConnecting {
+			pc.updateConnectionState(pc.ICEConnectionState(), DTLSTransportStateFailed)
+		}
+	}
+
 	pc.mu.Lock()
 	// A lock in this critical section is needed because pc.isClosed and
 	// pc.isGracefullyClosingOrClosed are related to each other in that we