diff --git a/compiler/backend/src/org/jetbrains/jet/compiler/CompileEnvironment.java b/compiler/backend/src/org/jetbrains/jet/compiler/CompileEnvironment.java
index 607bad3bd4e..52fae2502a4 100644
--- a/compiler/backend/src/org/jetbrains/jet/compiler/CompileEnvironment.java
+++ b/compiler/backend/src/org/jetbrains/jet/compiler/CompileEnvironment.java
@@ -4,7 +4,9 @@ import com.intellij.openapi.Disposable;
 import com.intellij.openapi.application.PathManager;
 import com.intellij.openapi.util.Disposer;
 import com.intellij.openapi.util.io.FileUtil;
+import com.intellij.openapi.util.text.StringUtil;
 import com.intellij.openapi.vfs.VirtualFile;
+import com.intellij.util.Function;
 import com.intellij.util.Processor;
 import jet.modules.IModuleBuilder;
 import jet.modules.IModuleSetBuilder;
@@ -40,7 +42,7 @@ public class CompileEnvironment {
         myEnvironment = new JetCoreEnvironment(myRootDisposable);
     }
 
-    public void setMyErrorStream(PrintStream errorStream) {
+    public void setErrorStream(PrintStream errorStream) {
         myErrorStream = errorStream;
     }
 
@@ -86,7 +88,7 @@ public class CompileEnvironment {
         myEnvironment.addToClasspath(rtJarPath);
     }
     
-    public static File findActiveRtJar() {
+    public static File findActiveRtJar(boolean failOnError) {
         ClassLoader systemClassLoader = ClassLoader.getSystemClassLoader();
         if (systemClassLoader instanceof URLClassLoader) {
             URLClassLoader loader = (URLClassLoader) systemClassLoader;
@@ -100,6 +102,17 @@ public class CompileEnvironment {
                     }
                 }
             }
+            if (failOnError) {
+                throw new CompileEnvironmentException("Could not find rt.jar in system class loader: " + StringUtil.join(loader.getURLs(), new Function<URL, String>() {
+                    @Override
+                    public String fun(URL url) {
+                        return url.toString();
+                    }
+                }, ", "));
+            }
+        }
+        else if (failOnError) {
+            throw new CompileEnvironmentException("System class loader is not an URLClassLoader: " + systemClassLoader);
         }
         return null;
     }
diff --git a/compiler/cli/src/org/jetbrains/jet/cli/KotlinCompiler.java b/compiler/cli/src/org/jetbrains/jet/cli/KotlinCompiler.java
index 22a1f6bc346..55861d76f8a 100644
--- a/compiler/cli/src/org/jetbrains/jet/cli/KotlinCompiler.java
+++ b/compiler/cli/src/org/jetbrains/jet/cli/KotlinCompiler.java
@@ -64,7 +64,7 @@ public class KotlinCompiler {
         String javaHome = System.getenv("JAVA_HOME");
         File rtJar;
         if (javaHome == null) {
-            rtJar = CompileEnvironment.findActiveRtJar();
+            rtJar = CompileEnvironment.findActiveRtJar(false);
 
             if(rtJar == null) {
                 System.out.println("JAVA_HOME environment variable needs to be defined");
diff --git a/compiler/tests/org/jetbrains/jet/compiler/CompileEnvironmentTest.java b/compiler/tests/org/jetbrains/jet/compiler/CompileEnvironmentTest.java
index de0a6ecf2fa..bf35a34a8fa 100644
--- a/compiler/tests/org/jetbrains/jet/compiler/CompileEnvironmentTest.java
+++ b/compiler/tests/org/jetbrains/jet/compiler/CompileEnvironmentTest.java
@@ -6,6 +6,8 @@ import junit.framework.TestCase;
 import org.jetbrains.jet.codegen.ClassFileFactory;
 import org.jetbrains.jet.parsing.JetParsingTest;
 
+import java.io.File;
+
 /**
  * @author yole
  */
@@ -24,7 +26,8 @@ public class CompileEnvironmentTest extends TestCase {
     }
 
     public void testSmoke() {
-        environment.setJavaRuntime(CompileEnvironment.findActiveRtJar());
+        final File activeRtJar = CompileEnvironment.findActiveRtJar(true);
+        environment.setJavaRuntime(activeRtJar);
         environment.initializeKotlinRuntime();
         final String testDataDir = JetParsingTest.getTestDataDir() + "/compiler/smoke/";
         final IModuleSetBuilder setBuilder = environment.loadModuleScript(testDataDir + "Smoke.kts");