diff --git a/.github/actions/spelling/expect/expect.txt b/.github/actions/spelling/expect/expect.txt
index a86ec47001f..5485ca43e43 100644
--- a/.github/actions/spelling/expect/expect.txt
+++ b/.github/actions/spelling/expect/expect.txt
@@ -572,6 +572,7 @@ FGHIJ
 fgidx
 FGs
 FILEDESCRIPTION
+filehops
 FILESUBTYPE
 FILESYSPATH
 FILEW
diff --git a/src/host/ft_host/API_FileTests.cpp b/src/host/ft_host/API_FileTests.cpp
index 7b42b2b5e09..e4115a58ec4 100644
--- a/src/host/ft_host/API_FileTests.cpp
+++ b/src/host/ft_host/API_FileTests.cpp
@@ -670,7 +670,7 @@ void FileTests::TestReadFileBasicEmpty()
     const auto hIn = GetStdInputHandle();
     VERIFY_IS_NOT_NULL(hIn, L"Verify we have the standard input handle.");
 
-    DWORD dwMode = 0;
+    DWORD dwMode = ENABLE_PROCESSED_INPUT; // ^Z is only handled when processed input is enabled.
     VERIFY_WIN32_BOOL_SUCCEEDED(SetConsoleMode(hIn, dwMode), L"Set input mode for test.");
 
     VERIFY_WIN32_BOOL_SUCCEEDED(FlushConsoleInputBuffer(hIn), L"Flush input buffer in preparation for test.");
diff --git a/src/server/ApiDispatchers.cpp b/src/server/ApiDispatchers.cpp
index efa5f65783f..f240257209f 100644
--- a/src/server/ApiDispatchers.cpp
+++ b/src/server/ApiDispatchers.cpp
@@ -270,6 +270,16 @@ constexpr T saturate(auto val)
     }
     CATCH_RETURN();
 
+    if (a->ProcessControlZ)
+    {
+        // ProcessControlZ is only set for CONSOLE_IO_RAW_READ. To restore
+        // the behavior from Windows 7 (see filehops.c:123) we need to honor
+        // ^Z only if PROCESSED_INPUT is enabled.
+        ULONG InputMode{ 0 };
+        m->_pApiRoutines->GetConsoleInputModeImpl(*pInputBuffer, InputMode);
+        a->ProcessControlZ = (InputMode & ENABLE_PROCESSED_INPUT) != 0;
+    }
+
     TraceConsoleAPICallWithOrigin(
         "ReadConsole",
         TraceLoggingBoolean(a->Unicode, "Unicode"),