diff --git a/icu4c/source/io/ustream.cpp b/icu4c/source/io/ustream.cpp
index 0426c804374..229783b95df 100644
--- a/icu4c/source/io/ustream.cpp
+++ b/icu4c/source/io/ustream.cpp
@@ -1,6 +1,6 @@
 /*
 **********************************************************************
-*   Copyright (C) 2001-2006, International Business Machines
+*   Copyright (C) 2001-2007, International Business Machines
 *   Corporation and others.  All Rights Reserved.
 **********************************************************************
 *  FILE NAME : ustream.cpp
@@ -88,18 +88,25 @@ operator>>(STD_ISTREAM& stream, UnicodeString& str)
         char ch;
         UChar ch32;
         UBool intialWhitespace = TRUE;
+        UBool continueReading = TRUE;
 
         /* We need to consume one byte at a time to see what is considered whitespace. */
-        while (!stream.eof()) {
+        while (continueReading) {
             ch = stream.get();
-            sLimit = &ch + 1;
-            errorCode = U_ZERO_ERROR;
+            if (stream.eof()) {
+                // The EOF is only set after the get() of an unavailable byte.
+                stream.clear(STD_NAMESPACE ios_base::eofbit);
+                continueReading = FALSE;
+            }
+            sLimit = &ch + (int)continueReading;
             us = uBuffer;
             s = &ch;
-            ucnv_toUnicode(converter, &us, uLimit, &s, sLimit, 0, FALSE, &errorCode);
+            errorCode = U_ZERO_ERROR;
+            ucnv_toUnicode(converter, &us, uLimit, &s, sLimit, 0, !continueReading, &errorCode);
             if(U_FAILURE(errorCode)) {
                 /* Something really bad happened */
-                return stream;
+                stream.setstate(STD_NAMESPACE ios_base::failbit);
+                goto STOP_READING;
             }
             /* Was the character consumed? */
             if (us != uBuffer) {
diff --git a/icu4c/source/test/iotest/stream.cpp b/icu4c/source/test/iotest/stream.cpp
index ccc70632235..49edff3cd48 100644
--- a/icu4c/source/test/iotest/stream.cpp
+++ b/icu4c/source/test/iotest/stream.cpp
@@ -28,9 +28,11 @@
 // <strstream> is deprecated on some platforms, and the compiler complains very loudly if you use it.
 #include <strstream>
 #endif
+#include <fstream>
 using namespace std;
 #elif U_IOSTREAM_SOURCE >= 198506
 #include <strstream.h>
+#include <fstream.h>
 #endif
 
 #include <string.h>
@@ -127,9 +129,40 @@ static void U_CALLCONV TestStream(void)
     log_info("U_IOSTREAM_SOURCE is disabled\n");
 #endif
 }
+
+static void U_CALLCONV TestStreamEOF(void)
+{
+    UnicodeString dest;
+    fstream fs(STANDARD_TEST_FILE, fstream::in | fstream::out | fstream::trunc);
+#ifdef USE_SSTREAM
+    stringstream ss;
+#else
+    strstream ss;
+#endif
+
+    fs << "EXAMPLE";
+    fs.seekg(0);
+    ss << "EXAMPLE";
+
+    if (!(fs >> dest)) {
+        log_err("Reading of file did not return expected status result\n");
+    }
+    if (dest != "EXAMPLE") {
+        log_err("Reading of file did not return expected string\n");
+    }
+
+    if (!(ss >> dest)) {
+        log_err("Reading of string did not return expected status result\n");
+    }
+    if (dest != "EXAMPLE") {
+        log_err("Reading of string did not return expected string\n");
+    }
+    fs.close();
+}
 U_CDECL_END
 
 U_CFUNC void addStreamTests(TestNode** root) {
     addTest(root, &TestStream, "stream/TestStream");
+    addTest(root, &TestStreamEOF, "stream/TestStreamEOF");
 }