diff --git a/PSReadLine/ConsoleLib.cs b/PSReadLine/ConsoleLib.cs
index 870a1092..7ee977ff 100644
--- a/PSReadLine/ConsoleLib.cs
+++ b/PSReadLine/ConsoleLib.cs
@@ -9,6 +9,14 @@ namespace Microsoft.PowerShell.Internal
 {
     internal class VirtualTerminal : IConsole
     {
+        // These two fields are used by PowerShellEditorServices to inject a
+        // custom ReadKey implementation. This is not a public API, but it is
+        // part of a private contract with that project.
+        private static Func<bool, ConsoleKeyInfo> _readKeyOverride;
+
+        private static Lazy<Func<bool, ConsoleKeyInfo>> _readKeyMethod = new Lazy<Func<bool, ConsoleKeyInfo>>(
+            () => _readKeyOverride == null ? Console.ReadKey : _readKeyOverride);
+
         public int CursorLeft
         {
             get => Console.CursorLeft;
@@ -97,7 +105,7 @@ public Encoding OutputEncoding
             set { try { Console.OutputEncoding = value; } catch { } }
         }
 
-        public ConsoleKeyInfo ReadKey()                  => Console.ReadKey(true);
+        public ConsoleKeyInfo ReadKey()                  => _readKeyMethod.Value(true);
         public bool KeyAvailable                         => Console.KeyAvailable;
         public void SetWindowPosition(int left, int top) => Console.SetWindowPosition(left, top);
         public void SetCursorPosition(int left, int top) => Console.SetCursorPosition(left, top);
diff --git a/PSReadLine/ReadLine.cs b/PSReadLine/ReadLine.cs
index c993ca8f..2f10c98a 100644
--- a/PSReadLine/ReadLine.cs
+++ b/PSReadLine/ReadLine.cs
@@ -28,8 +28,16 @@ class ExitException : Exception { }
 
     public partial class PSConsoleReadLine : IPSConsoleReadLineMockableMethods
     {
+        private const int ConsoleExiting = 1;
+
+        private const int CancellationRequested = 2;
+
+        private const int EventProcessingRequested = 3;
+
         private static readonly PSConsoleReadLine _singleton = new PSConsoleReadLine();
 
+        private static readonly CancellationToken _defaultCancellationToken = new CancellationTokenSource().Token;
+
         private bool _delayedOneTimeInitCompleted;
 
         private IPSConsoleReadLineMockableMethods _mockableMethods;
@@ -41,6 +49,8 @@ public partial class PSConsoleReadLine : IPSConsoleReadLineMockableMethods
         private Thread _readKeyThread;
         private AutoResetEvent _readKeyWaitHandle;
         private AutoResetEvent _keyReadWaitHandle;
+        private AutoResetEvent _forceEventWaitHandle;
+        private CancellationToken _cancelReadCancellationToken;
         internal ManualResetEvent _closingWaitHandle;
         private WaitHandle[] _threadProcWaitHandles;
         private WaitHandle[] _requestKeyWaitHandles;
@@ -139,7 +149,12 @@ private void ReadKeyThreadProc()
                 if (handleId == 1) // It was the _closingWaitHandle that was signaled.
                     break;
 
+                var localCancellationToken = _singleton._cancelReadCancellationToken;
                 ReadOneOrMoreKeys();
+                if (localCancellationToken.IsCancellationRequested)
+                {
+                    continue;
+                }
 
                 // One or more keys were read - let ReadKey know we're done.
                 _keyReadWaitHandle.Set();
@@ -174,9 +189,10 @@ internal static ConsoleKeyInfo ReadKey()
                     //   - a key is pressed
                     //   - the console is exiting
                     //   - 300ms - to process events if we're idle
-
+                    //   - processing of events is requested externally
+                    //   - ReadLine cancellation is requested externally
                     handleId = WaitHandle.WaitAny(_singleton._requestKeyWaitHandles, 300);
-                    if (handleId != WaitHandle.WaitTimeout)
+                    if (handleId != WaitHandle.WaitTimeout && handleId != EventProcessingRequested)
                         break;
 
                     // If we timed out, check for event subscribers (which is just
@@ -236,7 +252,7 @@ internal static ConsoleKeyInfo ReadKey()
                 ps?.Dispose();
             }
 
-            if (handleId == 1)
+            if (handleId == ConsoleExiting)
             {
                 // The console is exiting - throw an exception to unwind the stack to the point
                 // where we can return from ReadLine.
@@ -249,6 +265,18 @@ internal static ConsoleKeyInfo ReadKey()
                 throw new OperationCanceledException();
             }
 
+            if (handleId == CancellationRequested)
+            {
+                // ReadLine was cancelled. Save the current line to be restored next time ReadLine
+                // is called, clear the buffer and throw an exception so we can return an empty string.
+                _singleton.SaveCurrentLine();
+                _singleton._getNextHistoryIndex = _singleton._history.Count;
+                _singleton._current = 0;
+                _singleton._buffer.Clear();
+                _singleton.Render();
+                throw new OperationCanceledException();
+            }
+
             var key = _singleton._queuedKeys.Dequeue();
             return key;
         }
@@ -275,6 +303,18 @@ private void PrependQueuedKeys(ConsoleKeyInfo key)
         /// </summary>
         /// <returns>The complete command line.</returns>
         public static string ReadLine(Runspace runspace, EngineIntrinsics engineIntrinsics)
+        {
+            // Use a default cancellation token instead of CancellationToken.None because the
+            // WaitHandle is shared and could be triggered accidently.
+            return ReadLine(runspace, engineIntrinsics, _defaultCancellationToken);
+        }
+
+        /// <summary>
+        /// Entry point - called by custom PSHost implementations that require the
+        /// ability to cancel ReadLine.
+        /// </summary>
+        /// <returns>The complete command line.</returns>
+        public static string ReadLine(Runspace runspace, EngineIntrinsics engineIntrinsics, CancellationToken cancellationToken)
         {
             var console = _singleton._console;
 
@@ -304,11 +344,14 @@ public static string ReadLine(Runspace runspace, EngineIntrinsics engineIntrinsi
                         _singleton.Initialize(runspace, engineIntrinsics);
                     }
 
+                    _singleton._cancelReadCancellationToken = cancellationToken;
+                    _singleton._requestKeyWaitHandles[2] = _singleton._cancelReadCancellationToken.WaitHandle;
                     return _singleton.InputLoop();
                 }
                 catch (OperationCanceledException)
                 {
-                    // Console is exiting - return value isn't too critical - null or 'exit' could work equally well.
+                    // Console is either exiting or the cancellation of ReadLine has been requested
+                    // by a custom PSHost implementation.
                     return "";
                 }
                 catch (ExitException)
@@ -710,8 +753,9 @@ private void DelayedOneTimeInitialize()
 
             _singleton._readKeyWaitHandle = new AutoResetEvent(false);
             _singleton._keyReadWaitHandle = new AutoResetEvent(false);
+            _singleton._forceEventWaitHandle = new AutoResetEvent(false);
             _singleton._closingWaitHandle = new ManualResetEvent(false);
-            _singleton._requestKeyWaitHandles = new WaitHandle[] {_singleton._keyReadWaitHandle, _singleton._closingWaitHandle};
+            _singleton._requestKeyWaitHandles = new WaitHandle[] {_singleton._keyReadWaitHandle, _singleton._closingWaitHandle, _defaultCancellationToken.WaitHandle, _singleton._forceEventWaitHandle};
             _singleton._threadProcWaitHandles = new WaitHandle[] {_singleton._readKeyWaitHandle, _singleton._closingWaitHandle};
 
             // This is for a "being hosted in an alternate appdomain scenario" (the
@@ -731,6 +775,17 @@ private void DelayedOneTimeInitialize()
             _singleton._readKeyThread.Start();
         }
 
+        /// <summary>
+        /// Used by PowerShellEditorServices to force immediate
+        /// event handling during the <see cref="PSConsoleReadLine.ReadKey" />
+        /// method. This is not a public API, but it is part of a private contract
+        /// with that project.
+        /// </summary>
+        private static void ForcePSEventHandling()
+        {
+            _singleton._forceEventWaitHandle.Set();
+        }
+
         private static void Chord(ConsoleKeyInfo? key = null, object arg = null)
         {
             if (!key.HasValue)