diff --git a/libraries/stdlib/src/kotlin/collections/Sequence.kt b/libraries/stdlib/src/kotlin/collections/Sequence.kt
index a7fb281eca1..3727793cfac 100644
--- a/libraries/stdlib/src/kotlin/collections/Sequence.kt
+++ b/libraries/stdlib/src/kotlin/collections/Sequence.kt
@@ -473,29 +473,28 @@ private class DistinctIterator<T, K>(private val source : Iterator<T>, private v
 
 private class GeneratorSequence<T: Any>(private val getInitialValue: () -> T?, private val getNextValue: (T) -> T?): Sequence<T> {
     override fun iterator(): Iterator<T> = object : Iterator<T> {
-        var nextItem: T? = getInitialValue()
-        var nextState: Int = if (nextItem == null) 0 else 1 // -1 for unknown, 0 for done, 1 for continue
+        var nextItem: T? = null
+        var nextState: Int = -2 // -2 for initial unknown, -1 for next unknown, 0 for done, 1 for continue
 
         private fun calcNext() {
-            nextItem = getNextValue(nextItem!!)
+            nextItem = if (nextState == -2) getInitialValue() else getNextValue(nextItem!!)
             nextState = if (nextItem == null) 0 else 1
         }
 
         override fun next(): T {
-            if (nextState == -1)
+            if (nextState < 0)
                 calcNext()
+
             if (nextState == 0)
                 throw NoSuchElementException()
             val result = nextItem as T
-            // Clean next to avoid keeping reference on yielded instance
-            // need to keep state
-            // nextItem = null
+            // Do not clean nextItem (to avoid keeping reference on yielded instance) -- need to keep state for getNextValue
             nextState = -1
             return result
         }
 
         override fun hasNext(): Boolean {
-            if (nextState == -1)
+            if (nextState < 0)
                 calcNext()
             return nextState == 1
         }
@@ -530,7 +529,10 @@ public fun <T : Any> sequence(nextFunction: () -> T?): Sequence<T> {
  *
  * The sequence can be iterated multiple times, each time starting with the [initialValue].
  */
-public /*inline*/ fun <T : Any> sequence(initialValue: T, nextFunction: (T) -> T?): Sequence<T> =
+public fun <T : Any> sequence(initialValue: T?, nextFunction: (T) -> T?): Sequence<T> =
+    if (initialValue == null)
+        EmptySequence
+    else
         GeneratorSequence({ initialValue }, nextFunction)
 
 /**
diff --git a/libraries/stdlib/test/collections/SequenceTest.kt b/libraries/stdlib/test/collections/SequenceTest.kt
index 559301263dd..4b8382cf958 100644
--- a/libraries/stdlib/test/collections/SequenceTest.kt
+++ b/libraries/stdlib/test/collections/SequenceTest.kt
@@ -1,6 +1,7 @@
 package test.collections
 
 import org.junit.Test as test
+import org.junit.Test
 import kotlin.test.*
 import java.util.*
 
@@ -233,6 +234,24 @@ public class SequenceTest {
         assertEquals(expected, values.toList(), "Iterating sequence second time yields the same result")
     }
 
+    @Test fun sequenceFromFunctionWithLazyInitialValue() {
+        var start = 3
+        val values = sequence({ start }, { n -> if (n > 0) n - 1 else null })
+        val expected = listOf(3, 2, 1, 0)
+        assertEquals(expected, values.toList())
+        assertEquals(expected, values.toList(), "Iterating sequence second time yields the same result")
+
+        start = 2
+        assertEquals(expected.drop(1), values.toList(), "Initial value function is called on each iterator request")
+
+        // does not throw on construction
+        val errorValues = sequence<Int>({ (throw IllegalStateException()) }, { null })
+        // does not throw on iteration
+        val iterator = errorValues.iterator()
+        // throws on advancing
+        assertFails { iterator.next() }
+    }
+
 
     @test fun sequenceFromIterator() {
         val list = listOf(3, 2, 1, 0)