diff --git a/thunder/__init__.py b/thunder/__init__.py
index 54c94855d..c5eb46819 100644
--- a/thunder/__init__.py
+++ b/thunder/__init__.py
@@ -71,7 +71,7 @@
     AnyProxy,
 )
 from thunder.core.interpreter import print_interpreter_log, print_to_log
-from thunder.core.jit_ext import thunder_general_jit
+from thunder.core.jit_ext import thunder_general_jit, InnerException
 from thunder.executors.torch_autograd import split_forward_backward, ThunderFunction
 
 # NOTE This import is intentionally pytorch so that it thunder.torch doesn't import this
@@ -814,7 +814,49 @@ def maybe_call_epilogue(cache_entry, result, pro_to_epi):
 
         return result
 
+    def unwrap_inner_exception(c: Callable) -> Callable:
+        def _thunder_unwrap_inner_exception(*args, **kwargs):
+            # Run the function, and caputre the exception if there is one.
+            try:
+                return c(*args, **kwargs)
+            except InnerException as e:
+                exc = e.value
+
+            def internal_to_thunder(co):
+                if co is thunder_general_jit.__code__ or co is _thunder_unwrap_inner_exception.__code__:
+                    return True
+                return co.co_filename.endswith("thunder" + os.sep + "core" + os.sep + "interpreter.py") and (
+                    co.co_name in ("fn_", "fn_2")
+                )
+
+            # Iterate over the traceback and collect frames that don't correspond to thunder internal functions.
+            tb = exc.__traceback__
+            tb_frames = []
+            while tb != None:
+                co = tb.tb_frame.f_code
+                if not internal_to_thunder(co):
+                    tb_frames.append(tb)
+                tb = tb.tb_next
+
+            # Relink the non-internal traceback frames
+            if tb_frames:
+                top_tb = tb = tb_frames[0]
+                for _tb in tb_frames[1:]:
+                    tb.tb_next = _tb
+                    tb = _tb
+                exc.__traceback__ = top_tb
+
+            # Re-raise the exception without retaining it in this stack frame to avoid leaking tensors.
+            try:
+                raise exc
+            except Exception:
+                del exc
+                raise  # re-raises current exception
+
+        return _thunder_unwrap_inner_exception
+
     @wraps(fn)
+    @unwrap_inner_exception
     @update_call_statistics
     def fn_(*args, **kwargs) -> Any:
         if is_tracing():
diff --git a/thunder/core/jit_ext.py b/thunder/core/jit_ext.py
index cf186b1ea..e822cb5b6 100644
--- a/thunder/core/jit_ext.py
+++ b/thunder/core/jit_ext.py
@@ -132,6 +132,11 @@
 }
 
 
+class InnerException(BaseException):
+    def __init__(self, *, value: BaseException):
+        self.value = value
+
+
 class JITSharpEdgeError(RuntimeError):
     """
     Thrown when the program cannot be safely translated to a thunder program,
@@ -1741,7 +1746,11 @@ def thunder_general_jit(
 
     with jit_ctx(ctx):
         with tracectx(computation_trace):
-            result = jfn(*args, **kwargs)
+            try:
+                result = jfn(*args, **kwargs)
+            except BaseException as e:
+                raise InnerException(value=e)
+
             prims.python_return(result)
             computation_trace.set_current_source_location(None, None)
             process_recorded_modifications(ctx, epilogue_trace)
diff --git a/thunder/tests/test_interpreter.py b/thunder/tests/test_interpreter.py
index 580ac914d..08f53f0b7 100644
--- a/thunder/tests/test_interpreter.py
+++ b/thunder/tests/test_interpreter.py
@@ -850,6 +850,36 @@ def main():
     assert weak_x() is None
 
 
+def test_backtrace_filter():
+    import thunder
+
+    def fn1():
+        fn2()
+
+    def fn2():
+        fn3()
+
+    def fn3():
+        raise ValueError
+
+    jfn = thunder.jit(fn1)
+
+    expected_frame_names = ["test_backtrace_filter", "_thunder_unwrap_inner_exception", "fn1", "fn2", "fn3"]
+
+    try:
+        jfn()
+    except ValueError as e:
+        tb_frames = []
+        tb = e.__traceback__
+        while tb != None:
+            tb_frames.append(tb)
+            tb = tb.tb_next
+        frame_names = [tb.tb_frame.f_code.co_name for tb in tb_frames]
+        assert frame_names == expected_frame_names
+    except BaseException as e:
+        assert False, e  # Wrong exception type.
+
+
 def test_walrus_operator(jit):
     def foo(a, b):
         c = (a := b)