diff --git a/CHANGELOG b/CHANGELOG
index 965089c85..67054d240 100644
--- a/CHANGELOG
+++ b/CHANGELOG
@@ -1,6 +1,8 @@
 Changes between 2.2.4 and 2.2.5.dev
 -----------------------------------
 
+- fix issue160: a failing setup of an xfail-marked tests should
+  be reported as xfail (not xpass)
 - fix issue128: show captured output when capsys/capfd are used
 - pluginmanager.register(...) now raises ValueError if the
   plugin has been already registered or the name is taken
diff --git a/_pytest/skipping.py b/_pytest/skipping.py
index fe7a523bd..176bfb4eb 100644
--- a/_pytest/skipping.py
+++ b/_pytest/skipping.py
@@ -110,6 +110,7 @@ class MarkEvaluator:
         return expl
 
 
+@pytest.mark.tryfirst
 def pytest_runtest_setup(item):
     if not isinstance(item, pytest.Function):
         return
diff --git a/testing/test_skipping.py b/testing/test_skipping.py
index 3de87f65b..603046ad6 100644
--- a/testing/test_skipping.py
+++ b/testing/test_skipping.py
@@ -556,3 +556,19 @@ def test_default_markers(testdir):
         "*xfail(*conditions, reason=None, run=True)*expected failure*",
     ])
 
+
+def test_xfail_test_setup_exception(testdir):
+    testdir.makeconftest("""
+            def pytest_runtest_setup():
+                0 / 0
+        """)
+    p = testdir.makepyfile("""
+            import pytest
+            @pytest.mark.xfail
+            def test_func():
+                assert 0
+        """)
+    result = testdir.runpytest(p)
+    assert result.ret == 0
+    assert 'xfailed' in result.stdout.str()
+    assert 'xpassed' not in result.stdout.str()
diff --git a/tox.ini b/tox.ini
index 407d5bc5d..60ea37c72 100644
--- a/tox.ini
+++ b/tox.ini
@@ -77,4 +77,4 @@ rsyncdirs=tox.ini pytest.py _pytest testing
 python_files=test_*.py *_test.py
 python_classes=Test Acceptance
 python_functions=test
-pep8ignore = E401
+pep8ignore = E401 E225 E261 E128 E124