diff --git a/Misc/NEWS.d/next/Core_and_Builtins/2025-07-06-14-53-19.gh-issue-109700.KVNQQi.rst b/Misc/NEWS.d/next/Core_and_Builtins/2025-07-06-14-53-19.gh-issue-109700.KVNQQi.rst
new file mode 100644
index 00000000000..a37f4a51050
--- /dev/null
+++ b/Misc/NEWS.d/next/Core_and_Builtins/2025-07-06-14-53-19.gh-issue-109700.KVNQQi.rst
@@ -0,0 +1 @@
+Fix memory error handling in :c:func:`PyDict_SetDefault`.
diff --git a/Objects/dictobject.c b/Objects/dictobject.c
index 6b7b150f0e2..be62ae5eefd 100644
--- a/Objects/dictobject.c
+++ b/Objects/dictobject.c
@@ -4411,6 +4411,7 @@ dict_setdefault_ref_lock_held(PyObject *d, PyObject *key, PyObject *default_valu
             if (result) {
                 *result = NULL;
             }
+            return -1;
         }
 
         STORE_USED(mp, mp->ma_used + 1);