diff --git a/toolkit/mozapps/extensions/src/nsExtensionManager.js.in b/toolkit/mozapps/extensions/src/nsExtensionManager.js.in
index 4e71eab830a0..8378d8fd28fb 100644
--- a/toolkit/mozapps/extensions/src/nsExtensionManager.js.in
+++ b/toolkit/mozapps/extensions/src/nsExtensionManager.js.in
@@ -4856,13 +4856,19 @@ ExtensionManager.prototype = {
       catch (e) {
         ERROR("_finalizeUninstall: failed to remove directory for item: " + id +
               " at Install Location: " + installLocation.name + ", rolling back uninstall");
-        // Removal of the files failed, reset the uninstalled flag and rewrite
-        // the install manifests so this item's components are registered.
-        // Clear the op flag from the Startup Cache
-        StartupCache.put(installLocation, id, OP_NONE, true);
-        var restartRequired = this.installRequiresRestart(id, ds.getItemProperty(id, "type"))
-        this._updateManifests(restartRequired);
-        return;
+        var manifest = installLocation.getItemFile(id, "FILE_INSTALL_MANIFEST");
+        // If there is no manifest then either the rollback failed, or there was
+        // no manifest in the first place. Either way this item is now invalid
+        // and we shouldn't try to re-install it.
+        if (manifest.exists()) {
+          // Removal of the files failed, reset the uninstalled flag and rewrite
+          // the install manifests so this item's components are registered.
+          // Clear the op flag from the Startup Cache
+          StartupCache.put(installLocation, id, OP_NONE, true);
+          var restartRequired = this.installRequiresRestart(id, ds.getItemProperty(id, "type"))
+          this._updateManifests(restartRequired);
+          return;
+        }
       }
     }
     else if (installLocation.name == KEY_APP_PROFILE ||
diff --git a/toolkit/mozapps/extensions/test/unit/data/test_bug421396/chrome.manifest b/toolkit/mozapps/extensions/test/unit/data/test_bug421396/chrome.manifest
new file mode 100644
index 000000000000..dc7f95abd69c
--- /dev/null
+++ b/toolkit/mozapps/extensions/test/unit/data/test_bug421396/chrome.manifest
@@ -0,0 +1 @@
+# blank file to stop the EM attempting to create one anyway
\ No newline at end of file
diff --git a/toolkit/mozapps/extensions/test/unit/data/test_bug421396/install.rdf b/toolkit/mozapps/extensions/test/unit/data/test_bug421396/install.rdf
new file mode 100644
index 000000000000..a785025bea19
--- /dev/null
+++ b/toolkit/mozapps/extensions/test/unit/data/test_bug421396/install.rdf
@@ -0,0 +1,22 @@
+<?xml version="1.0"?>
+
+<RDF xmlns="http://www.w3.org/1999/02/22-rdf-syntax-ns#"
+     xmlns:em="http://www.mozilla.org/2004/em-rdf#">
+
+  <Description about="urn:mozilla:install-manifest">
+    <em:id>bug421396@tests.mozilla.org</em:id>
+    <em:version>1.0</em:version>
+    
+    <em:targetApplication>
+      <Description>
+        <em:id>xpcshell@tests.mozilla.org</em:id>
+        <em:minVersion>1</em:minVersion>
+        <em:maxVersion>1</em:maxVersion>
+      </Description>
+    </em:targetApplication>
+    
+    <!-- Front End MetaData -->
+    <em:name>bug421396 test</em:name>
+
+  </Description>      
+</RDF>
diff --git a/toolkit/mozapps/extensions/test/unit/test_bug421396.js b/toolkit/mozapps/extensions/test/unit/test_bug421396.js
new file mode 100644
index 000000000000..87d6c49ff880
--- /dev/null
+++ b/toolkit/mozapps/extensions/test/unit/test_bug421396.js
@@ -0,0 +1,255 @@
+/* ***** BEGIN LICENSE BLOCK *****
+ * Version: MPL 1.1/GPL 2.0/LGPL 2.1
+ *
+ * The contents of this file are subject to the Mozilla Public License Version
+ * 1.1 (the "License"); you may not use this file except in compliance with
+ * the License. You may obtain a copy of the License at
+ * http://www.mozilla.org/MPL/
+ *
+ * Software distributed under the License is distributed on an "AS IS" basis,
+ * WITHOUT WARRANTY OF ANY KIND, either express or implied. See the License
+ * for the specific language governing rights and limitations under the
+ * License.
+ *
+ * The Original Code is mozilla.org code.
+ *
+ * The Initial Developer of the Original Code is
+ *      Dave Townsend <dtownsend@oxymoronical.com>.
+ *
+ * Portions created by the Initial Developer are Copyright (C) 2008
+ * the Initial Developer. All Rights Reserved.
+ *
+ * Contributor(s):
+ *
+ * Alternatively, the contents of this file may be used under the terms of
+ * either the GNU General Public License Version 2 or later (the "GPL"), or
+ * the GNU Lesser General Public License Version 2.1 or later (the "LGPL"),
+ * in which case the provisions of the GPL or the LGPL are applicable instead
+ * of those above. If you wish to allow use of your version of this file only
+ * under the terms of either the GPL or the LGPL, and not to allow others to
+ * use your version of this file under the terms of the MPL, indicate your
+ * decision by deleting the provisions above and replace them with the notice
+ * and other provisions required by the GPL or the LGPL. If you do not delete
+ * the provisions above, a recipient may use your version of this file under
+ * the terms of any one of the MPL, the GPL or the LGPL.
+ *
+ * ***** END LICENSE BLOCK *****
+ */
+
+const TESTID = "bug421396@tests.mozilla.org";
+var INSTALLED = true;
+
+// This creates a fake directory that cannot be modified. Nothing exists inside
+// the directory.
+function RestrictedPath(source, isVisible) {
+  this.source = source;
+  this.isVisible = isVisible;
+}
+
+// This doesn't implement all of nsIFile and nsILocalFile, just enough to keep
+// the EM happy.
+RestrictedPath.prototype = {
+  // A real nsIFile that this shadows
+  source: null,
+  // If this file is visible or not. Only the main directory for the addon is visible.
+  isVisible: null,
+
+  append: function(node) {
+    this.source.append(node);
+    this.isVisible = false;
+  },
+
+  normalize: function() {
+    this.source.normalize();
+  },
+
+  create: function(type, permissions) {
+    if (this.isVisible)
+      throw Components.errors.NS_ERROR_FILE_ALREADY_EXISTS;
+    throw Components.errors.NS_ERROR_FILE_ACCESS_DENIED;
+  },
+
+  get leafName() {
+    return this.source.leafName;
+  },
+
+  copyTo: function(parentdir, name) {
+    throw Components.errors.NS_ERROR_FILE_ACCESS_DENIED;
+  },
+
+  copyToFollowingLinks: function(parentdir, name) {
+    throw Components.errors.NS_ERROR_FILE_ACCESS_DENIED;
+  },
+  
+  moveTo: function(parentdir, name) {
+    throw Components.errors.NS_ERROR_FILE_ACCESS_DENIED;
+  },
+
+  remove: function(recursive) {
+    if (this.isVisible)
+      throw Components.errors.NS_ERROR_FILE_ACCESS_DENIED;
+    throw Components.errors.NS_ERROR_FILE_NOT_FOUND;
+  },
+
+  get lastModifiedTime() {
+    if (this.isVisible)
+      return Date.now();
+    throw Components.errors.NS_ERROR_FILE_NOT_FOUND;
+  },
+
+  get lastModifiedTimeOfLink() {
+    return this.lastModifiedTime;
+  },
+
+  get path() { return this.source.path; },
+  exists: function() { return this.isVisible; },
+  isDirectory: function() { return this.isVisible; },
+  isFile: function() { return !this.isVisible; },
+
+  clone: function() {
+    return new RestrictedPath(this.source.clone(), this.isVisible);
+  },
+
+  get parent() {
+    return new RestrictedPath(this.source.parent, false);
+  },
+
+  getRelativeDescriptor: function(basedir) {
+    return this.source.getRelativeDescriptor(basedir);
+  },
+
+  QueryInterface: function(iid) {
+    if (iid.equals(Components.interfaces.nsIFile)
+     || iid.equals(Components.interfaces.nsILocalFile)
+     || iid.equals(Components.interfaces.nsISupports))
+      return this;
+
+    throw Components.results.NS_ERROR_NO_INTERFACE;
+  }
+};
+
+function DirectoryEnumerator(files) {
+  this.files = files;
+  this.pos = 0;
+}
+
+DirectoryEnumerator.prototype = {
+  pos: null,
+  files: null,
+
+  get nextFile() {
+    if (this.pos < this.files.length)
+      return this.files[this.pos++];
+    return null;
+  },
+  
+  close: function() {
+  }
+};
+
+var InstallLocation = {
+  name: "test-location",
+  location: null,
+  restricted: null,
+  canAccess: null,
+  priority: Components.interfaces.nsIInstallLocation.PRIORITY_APP_SYSTEM_GLOBAL,
+
+  get itemLocations() {
+    return new DirectoryEnumerator([ this.getItemLocation(TESTID) ]);
+  },
+
+  getItemLocation: function(id) {
+    if (id == TESTID) {
+      var file = do_get_file("toolkit/mozapps/extensions/test/unit/data/test_bug421396");
+      if (INSTALLED)
+        return file;
+      // If we are simulating after the extension is "removed" then return the
+      // empty undeletable directory.
+      return new RestrictedPath(file, true);
+    }
+    var file = do_get_file("toolkit/mozapps/extensions/test");
+    file.append("INVALIDNAME");
+    file.append(id);
+    return file;
+  },
+
+  getIDForLocation: function(file) {
+    if (file.leafName == "test_bug421396")
+      return TESTID;
+    return file.leafName;
+  },
+
+  getItemFile: function(id, filePath) {
+    var itemLocation = this.getItemLocation(id).clone();
+    var parts = filePath.split("/");
+    for (var i = 0; i < parts.length; ++i)
+      itemLocation.append(parts[i]);
+    return itemLocation;
+  },
+
+  itemIsManagedIndependently: function(id) {
+    return false;
+  },
+
+  stageFile: function(file, id) {
+    throw Components.results.NS_ERROR_NOT_IMPLEMENTED;
+  },
+
+  getStageFile: function(id) {
+    return null;
+  },
+
+  removeFile: function(file) {
+    throw Components.results.NS_ERROR_NOT_IMPLEMENTED;
+  },
+
+  QueryInterface: function(iid) {
+    if (iid.equals(Components.interfaces.nsIInstallLocation)
+     || iid.equals(Components.interfaces.nsISupports))
+      return this;
+
+    throw Components.results.NS_ERROR_NO_INTERFACE;
+  }
+}
+
+var InstallLocationFactory = {
+  createInstance: function (outer, iid) {
+    if (outer != null)
+      throw Components.results.NS_ERROR_NO_AGGREGATION;
+    return InstallLocation.QueryInterface(iid);
+  }
+};
+
+const IL_CID = Components.ID("{6bdd8320-57c7-4f19-81ad-c32fdfc2b423}");
+const IL_CONTRACT = "@tests.mozilla.org/installlocation;1";
+var registrar = Components.manager.QueryInterface(Components.interfaces.nsIComponentRegistrar);
+registrar.registerFactory(IL_CID, "Test Install Location",
+                          IL_CONTRACT, InstallLocationFactory);
+
+var categoryManager = Components.classes["@mozilla.org/categorymanager;1"]
+                                .getService(Components.interfaces.nsICategoryManager);
+categoryManager.addCategoryEntry("extension-install-locations", "test-location",
+                                 IL_CONTRACT, false, true);
+
+function run_test()
+{
+  // EM needs to be running.
+  createAppInfo("xpcshell@tests.mozilla.org", "XPCShell", "1", "1.9");
+  startupEM();
+  // Addon in the fake location should be installed now.
+  do_check_neq(gEM.getItemForID(TESTID), null);
+
+  // Mark the add-on as uninstalled and restart ot pickup the change.
+  INSTALLED = false;
+  restartEM();
+
+  do_check_eq(gEM.getItemForID(TESTID), null);
+  // Test install something.
+  gEM.installItemFromFile(do_get_addon("test_bug397778"), NS_INSTALL_LOCATION_APPPROFILE);
+  do_check_neq(gEM.getItemForID("bug397778@tests.mozilla.org"), null);
+  restartEM();
+
+  do_check_eq(gEM.getItemForID(TESTID), null);
+  do_check_neq(gEM.getItemForID("bug397778@tests.mozilla.org"), null);
+}
+