diff --git a/p2p/host/basic/basic_host.go b/p2p/host/basic/basic_host.go
index 67a61253e..a4518c4f3 100644
--- a/p2p/host/basic/basic_host.go
+++ b/p2p/host/basic/basic_host.go
@@ -190,12 +190,21 @@ func (h *BasicHost) NewStream(ctx context.Context, p peer.ID, pids ...protocol.I
 	var lastErr error
 	for _, pid := range pids {
 		s, err := h.newStream(ctx, p, pid)
-		if err == nil {
-			h.setPreferredProtocol(p, pid)
-			return s, nil
+		if err != nil {
+			lastErr = err
+			log.Infof("NewStream to %s for %s failed: %s", p, pid, err)
+			continue
 		}
-		lastErr = err
-		log.Infof("NewStream to %s for %s failed: %s", p, pid, err)
+
+		_, err = s.Read(nil)
+		if err != nil {
+			lastErr = err
+			log.Infof("NewStream to %s for %s failed (on read): %s", p, pid, err)
+			continue
+		}
+
+		h.setPreferredProtocol(p, pid)
+		return s, nil
 	}
 
 	return nil, lastErr
@@ -248,6 +257,8 @@ func (h *BasicHost) newStream(ctx context.Context, p peer.ID, pid protocol.ID) (
 		return nil, err
 	}
 
+	s.SetProtocol(string(pid))
+
 	logStream := mstream.WrapStream(s, pid, h.bwc)
 
 	lzcon := msmux.NewMSSelect(logStream, string(pid))
diff --git a/p2p/host/basic/basic_host_test.go b/p2p/host/basic/basic_host_test.go
index a7c893ef8..c52d9279c 100644
--- a/p2p/host/basic/basic_host_test.go
+++ b/p2p/host/basic/basic_host_test.go
@@ -4,7 +4,9 @@ import (
 	"bytes"
 	"io"
 	"testing"
+	"time"
 
+	host "github.com/libp2p/go-libp2p/p2p/host"
 	inet "github.com/libp2p/go-libp2p/p2p/net"
 	protocol "github.com/libp2p/go-libp2p/p2p/protocol"
 	testutil "github.com/libp2p/go-libp2p/p2p/test/util"
@@ -61,3 +63,156 @@ func TestHostSimple(t *testing.T) {
 		t.Fatal("buf1 != buf3 -- %x != %x", buf1, buf3)
 	}
 }
+
+func getHostPair(ctx context.Context, t *testing.T) (host.Host, host.Host) {
+	h1 := testutil.GenHostSwarm(t, ctx)
+	h2 := testutil.GenHostSwarm(t, ctx)
+
+	h2pi := h2.Peerstore().PeerInfo(h2.ID())
+	if err := h1.Connect(ctx, h2pi); err != nil {
+		t.Fatal(err)
+	}
+
+	return h1, h2
+}
+
+func assertWait(t *testing.T, c chan string, exp string) {
+	select {
+	case proto := <-c:
+		if proto != exp {
+			t.Fatal("should have connected on ", exp)
+		}
+	case <-time.After(time.Second * 5):
+		t.Fatal("timeout waiting for stream")
+	}
+}
+
+func TestHostProtoPreference(t *testing.T) {
+	ctx, cancel := context.WithCancel(context.Background())
+	defer cancel()
+
+	h1, h2 := getHostPair(ctx, t)
+	defer h1.Close()
+	defer h2.Close()
+
+	protoOld := protocol.ID("/testing")
+	protoNew := protocol.ID("/testing/1.1.0")
+	protoMinor := protocol.ID("/testing/1.2.0")
+
+	connectedOn := make(chan string, 16)
+
+	handler := func(s inet.Stream) {
+		connectedOn <- s.Protocol()
+		s.Close()
+	}
+
+	h1.SetStreamHandler(protoOld, handler)
+
+	s, err := h2.NewStream(ctx, h1.ID(), protoMinor, protoNew, protoOld)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	assertWait(t, connectedOn, string(protoOld))
+	s.Close()
+
+	mfunc, err := host.MultistreamSemverMatcher(string(protoMinor))
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	h1.SetStreamHandlerMatch(protoMinor, mfunc, handler)
+
+	// remembered preference will be chosen first, even when the other side newly supports it
+	s2, err := h2.NewStream(ctx, h1.ID(), protoMinor, protoNew, protoOld)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	// required to force 'lazy' handshake
+	_, err = s2.Write([]byte("hello"))
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	assertWait(t, connectedOn, string(protoOld))
+
+	s2.Close()
+
+	s3, err := h2.NewStream(ctx, h1.ID(), protoMinor)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	_, err = s3.Read(nil)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	assertWait(t, connectedOn, string(protoMinor))
+	s3.Close()
+}
+
+func TestHostProtoMismatch(t *testing.T) {
+	ctx, cancel := context.WithCancel(context.Background())
+	defer cancel()
+
+	h1, h2 := getHostPair(ctx, t)
+	defer h1.Close()
+	defer h2.Close()
+
+	h1.SetStreamHandler("/super", func(s inet.Stream) {
+		t.Error("shouldnt get here")
+		s.Close()
+	})
+
+	_, err := h2.NewStream(ctx, h1.ID(), "/foo", "/bar", "/baz/1.0.0")
+	if err == nil {
+		t.Fatal("expected new stream to fail")
+	}
+}
+
+func TestHostProtoPreknowledge(t *testing.T) {
+	ctx, cancel := context.WithCancel(context.Background())
+	defer cancel()
+
+	h1 := testutil.GenHostSwarm(t, ctx)
+	h2 := testutil.GenHostSwarm(t, ctx)
+
+	conn := make(chan string, 16)
+	handler := func(s inet.Stream) {
+		conn <- s.Protocol()
+		s.Close()
+	}
+
+	h1.SetStreamHandler("/super", handler)
+
+	h2pi := h2.Peerstore().PeerInfo(h2.ID())
+	if err := h1.Connect(ctx, h2pi); err != nil {
+		t.Fatal(err)
+	}
+	defer h1.Close()
+	defer h2.Close()
+
+	h1.SetStreamHandler("/foo", handler)
+
+	s, err := h2.NewStream(ctx, h1.ID(), "/foo", "/bar", "/super")
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	select {
+	case <-conn:
+		t.Fatal("shouldnt have gotten connection yet, we should have a lazy stream")
+	case <-time.After(time.Millisecond * 50):
+	}
+
+	_, err = s.Read(nil)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	assertWait(t, conn, "/super")
+
+	s.Close()
+}