diff --git a/core/src/main/java/io/grpc/internal/ServerCallImpl.java b/core/src/main/java/io/grpc/internal/ServerCallImpl.java
index 9634954607..77e7479504 100644
--- a/core/src/main/java/io/grpc/internal/ServerCallImpl.java
+++ b/core/src/main/java/io/grpc/internal/ServerCallImpl.java
@@ -30,7 +30,6 @@ import io.grpc.Codec;
 import io.grpc.Compressor;
 import io.grpc.CompressorRegistry;
 import io.grpc.Context;
-import io.grpc.Decompressor;
 import io.grpc.DecompressorRegistry;
 import io.grpc.InternalDecompressorRegistry;
 import io.grpc.Metadata;
@@ -65,17 +64,6 @@ final class ServerCallImpl<ReqT, RespT> extends ServerCall<ReqT, RespT> {
     this.messageAcceptEncoding = inboundHeaders.get(MESSAGE_ACCEPT_ENCODING_KEY);
     this.decompressorRegistry = decompressorRegistry;
     this.compressorRegistry = compressorRegistry;
-
-    if (inboundHeaders.containsKey(MESSAGE_ENCODING_KEY)) {
-      String encoding = inboundHeaders.get(MESSAGE_ENCODING_KEY);
-      Decompressor decompressor = decompressorRegistry.lookupDecompressor(encoding);
-      if (decompressor == null) {
-        throw Status.UNIMPLEMENTED
-            .withDescription(String.format("Can't find decompressor for %s", encoding))
-            .asRuntimeException();
-      }
-      stream.setDecompressor(decompressor);
-    }
   }
 
   @Override
diff --git a/core/src/main/java/io/grpc/internal/ServerImpl.java b/core/src/main/java/io/grpc/internal/ServerImpl.java
index 99bf32025d..b5411fa730 100644
--- a/core/src/main/java/io/grpc/internal/ServerImpl.java
+++ b/core/src/main/java/io/grpc/internal/ServerImpl.java
@@ -20,6 +20,7 @@ import static com.google.common.base.Preconditions.checkState;
 import static com.google.common.util.concurrent.MoreExecutors.directExecutor;
 import static io.grpc.Contexts.statusFromCancelled;
 import static io.grpc.Status.DEADLINE_EXCEEDED;
+import static io.grpc.internal.GrpcUtil.MESSAGE_ENCODING_KEY;
 import static io.grpc.internal.GrpcUtil.TIMEOUT_KEY;
 import static java.util.concurrent.TimeUnit.NANOSECONDS;
 
@@ -28,6 +29,7 @@ import com.google.common.base.Preconditions;
 import io.grpc.Attributes;
 import io.grpc.CompressorRegistry;
 import io.grpc.Context;
+import io.grpc.Decompressor;
 import io.grpc.DecompressorRegistry;
 import io.grpc.HandlerRegistry;
 import io.grpc.Metadata;
@@ -362,6 +364,18 @@ public final class ServerImpl extends io.grpc.Server implements WithLogId {
     @Override
     public void streamCreated(
         final ServerStream stream, final String methodName, final Metadata headers) {
+      if (headers.containsKey(MESSAGE_ENCODING_KEY)) {
+        String encoding = headers.get(MESSAGE_ENCODING_KEY);
+        Decompressor decompressor = decompressorRegistry.lookupDecompressor(encoding);
+        if (decompressor == null) {
+          stream.close(
+              Status.UNIMPLEMENTED.withDescription(
+                  String.format("Can't find decompressor for %s", encoding)),
+              new Metadata());
+          return;
+        }
+        stream.setDecompressor(decompressor);
+      }
 
       final StatsTraceContext statsTraceCtx = Preconditions.checkNotNull(
           stream.statsTraceContext(), "statsTraceCtx not present from stream");
diff --git a/core/src/test/java/io/grpc/internal/ServerImplTest.java b/core/src/test/java/io/grpc/internal/ServerImplTest.java
index 6bce3a8484..09f90a4f71 100644
--- a/core/src/test/java/io/grpc/internal/ServerImplTest.java
+++ b/core/src/test/java/io/grpc/internal/ServerImplTest.java
@@ -16,6 +16,7 @@
 
 package io.grpc.internal;
 
+import static io.grpc.internal.GrpcUtil.MESSAGE_ENCODING_KEY;
 import static org.junit.Assert.assertEquals;
 import static org.junit.Assert.assertFalse;
 import static org.junit.Assert.assertNotNull;
@@ -369,6 +370,28 @@ public class ServerImplTest {
     assertEquals(Status.Code.UNIMPLEMENTED, statusCaptor.getValue().getCode());
   }
 
+  @Test
+  public void decompressorNotFound() throws Exception {
+    String decompressorName = "NON_EXISTENT_DECOMPRESSOR";
+    createAndStartServer(NO_FILTERS);
+    ServerTransportListener transportListener
+        = transportServer.registerNewServerTransport(new SimpleServerTransport());
+    Metadata requestHeaders = new Metadata();
+    requestHeaders.put(MESSAGE_ENCODING_KEY, decompressorName);
+    StatsTraceContext statsTraceCtx =
+        StatsTraceContext.newServerContext(
+            streamTracerFactories, "Waiter/nonexist", requestHeaders);
+    when(stream.statsTraceContext()).thenReturn(statsTraceCtx);
+
+    transportListener.streamCreated(stream, "Waiter/nonexist", requestHeaders);
+
+    verify(stream).close(statusCaptor.capture(), any(Metadata.class));
+    Status status = statusCaptor.getValue();
+    assertEquals(Status.Code.UNIMPLEMENTED, status.getCode());
+    assertEquals("Can't find decompressor for " + decompressorName, status.getDescription());
+    verifyNoMoreInteractions(stream);
+  }
+
   @Test
   public void basicExchangeSuccessful() throws Exception {
     createAndStartServer(NO_FILTERS);