diff --git a/Code/Tools/PythonBindingsExample/source/Application.h b/Code/Tools/PythonBindingsExample/source/Application.h
index 5bb30654ce..afbcd4f05a 100644
--- a/Code/Tools/PythonBindingsExample/source/Application.h
+++ b/Code/Tools/PythonBindingsExample/source/Application.h
@@ -28,6 +28,18 @@ namespace PythonBindingsExample
         void TearDown();
         bool RunWithParameters(const ApplicationParameters& params);
 
+        inline void GetErrorCount(int& exceptionCount, int& errorCount)
+        {
+            exceptionCount = m_pythonExceptionCount;
+            errorCount = m_pythonErrorCount;
+        }
+
+        inline void ResetErrorCount()
+        {
+            m_pythonExceptionCount = 0;
+            m_pythonErrorCount = 0;
+        }
+
     protected:
         ////////////////////////////////////////////////////////////////////////////////////////////
         // TraceMessageBus
diff --git a/Code/Tools/PythonBindingsExample/source/ApplicationParameters.cpp b/Code/Tools/PythonBindingsExample/source/ApplicationParameters.cpp
index 8039fafc37..4b994c6c64 100644
--- a/Code/Tools/PythonBindingsExample/source/ApplicationParameters.cpp
+++ b/Code/Tools/PythonBindingsExample/source/ApplicationParameters.cpp
@@ -60,6 +60,10 @@ PythonBindingsExample.exe --file path/to/file.py --arg one --arg two
             {
                 m_interactiveMode = true;
             }
+            else if (switchItem.m_option.starts_with("regset"))
+            {
+                // skip
+            }
             else
             {
                 AZ_Warning("python_app", false, "Unknown switch %s \n", switchItem.m_option.c_str());
diff --git a/Code/Tools/PythonBindingsExample/tests/ApplicationTests.cpp b/Code/Tools/PythonBindingsExample/tests/ApplicationTests.cpp
index cd25c796cc..b9bed86c28 100644
--- a/Code/Tools/PythonBindingsExample/tests/ApplicationTests.cpp
+++ b/Code/Tools/PythonBindingsExample/tests/ApplicationTests.cpp
@@ -58,9 +58,9 @@ namespace PythonBindingsExample
 
     AZStd::unique_ptr<PythonBindingsExample::Application> PythonBindingsExampleTest::s_application;
 
-    TEST_F(PythonBindingsExampleTest, Application_Run_Fails)
+    TEST_F(PythonBindingsExampleTest, Application_Run_Works)
     {
-        EXPECT_FALSE(s_application->Run());
+        EXPECT_TRUE(s_application->Run());
     }
 
     TEST_F(PythonBindingsExampleTest, Application_RunWithParameters_Works)
@@ -90,4 +90,37 @@ namespace PythonBindingsExample
         EXPECT_TRUE(s_application->RunWithParameters(params));
     }
 
+    TEST_F(PythonBindingsExampleTest, Application_SystemExit_Blocked)
+    {
+        int exceptions = 0;
+        int errors = 0;
+
+        s_application->GetErrorCount(exceptions, errors);
+        ASSERT_EQ(exceptions, 0);
+        ASSERT_EQ(errors, 0);
+
+        // expects a clean "error" from this statement
+        // the whole program should not exit()
+        {
+            ApplicationParameters params;
+            params.m_pythonStatement = "import sys; sys.exit(0)";
+            EXPECT_FALSE(s_application->RunWithParameters(params));
+
+            s_application->GetErrorCount(exceptions, errors);
+            EXPECT_EQ(exceptions, 0);
+            EXPECT_GE(errors, 1);
+        }
+        s_application->ResetErrorCount();
+
+        // should be able to run more statements
+        {
+            ApplicationParameters params;
+            params.m_pythonStatement = "import sys";
+            EXPECT_TRUE(s_application->RunWithParameters(params));
+
+            s_application->GetErrorCount(exceptions, errors);
+            EXPECT_EQ(exceptions, 0);
+            EXPECT_EQ(errors, 0);
+        }
+    }
 }
diff --git a/Gems/EditorPythonBindings/Code/Source/PythonSystemComponent.cpp b/Gems/EditorPythonBindings/Code/Source/PythonSystemComponent.cpp
index 3ec2d2d73d..3e3e54507d 100644
--- a/Gems/EditorPythonBindings/Code/Source/PythonSystemComponent.cpp
+++ b/Gems/EditorPythonBindings/Code/Source/PythonSystemComponent.cpp
@@ -496,6 +496,7 @@ namespace EditorPythonBindings
             // ignore system location for sites site-packages
             Py_IsolatedFlag = 1; // -I - Also sets Py_NoUserSiteDirectory.  If removed PyNoUserSiteDirectory should be set.
             Py_IgnoreEnvironmentFlag = 1; // -E
+            Py_InspectFlag = 1; // unhandled SystemExit will terminate the process unless Py_InspectFlag is set
 
             const bool initializeSignalHandlers = true;
             pybind11::initialize_interpreter(initializeSignalHandlers);