diff --git a/kernel/init.c b/kernel/init.c
index dd9f3d7258f5..b004eea2d588 100644
--- a/kernel/init.c
+++ b/kernel/init.c
@@ -313,13 +313,24 @@ static int do_device_init(const struct device *dev)
 
 	if (dev->ops.init != NULL) {
 		rc = dev->ops.init(dev);
-		/* Mark device initialized. If initialization
-		 * failed, record the error condition.
+		/* If initialization failed, record in dev->state->init_res
+		 * the POSITIVE value of the resulting errno
 		 */
 		if (rc != 0) {
+			/* device's init function should return:
+			 *   0 on success
+			 *   a negative value on failure (-errno)
+			 * errno value maps to an uint8_t range as of now.
+			 */
+			__ASSERT(rc >= -UINT8_MAX && rc < 0, "device %s init: invalid error (%d)",
+				 dev->name, rc);
+
 			if (rc < 0) {
 				rc = -rc;
 			}
+			/* handle error value overflow in production
+			 * this is likely a bug in the device's init function. Signals it
+			 */
 			if (rc > UINT8_MAX) {
 				rc = UINT8_MAX;
 			}
@@ -327,6 +338,7 @@ static int do_device_init(const struct device *dev)
 		}
 	}
 
+	/* device initialization has been invoked */
 	dev->state->initialized = true;
 
 	if (rc == 0) {
@@ -334,7 +346,10 @@ static int do_device_init(const struct device *dev)
 		(void)pm_device_runtime_auto_enable(dev);
 	}
 
-	return rc;
+	/* here, the value of rc is either 0 or +errno
+	 * flip the sign to return a negative value on failure as expected
+	 */
+	return -rc;
 }
 
 /**
diff --git a/tests/kernel/device/app.overlay b/tests/kernel/device/app.overlay
index ac77f271cc55..e15aa106e377 100644
--- a/tests/kernel/device/app.overlay
+++ b/tests/kernel/device/app.overlay
@@ -66,6 +66,13 @@
 		zephyr,deferred-init;
 	};
 
+	fakedeferdriver@F9000000 {
+		compatible = "fakedeferdriver";
+		reg = <0xF9000000 0x2000>;
+		status = "okay";
+		zephyr,deferred-init;
+	};
+
 	fakedomain_0: fakedomain_0 {
 		compatible = "fakedomain";
 		status = "okay";
diff --git a/tests/kernel/device/src/main.c b/tests/kernel/device/src/main.c
index 2479a366ec9e..7afd19c229d5 100644
--- a/tests/kernel/device/src/main.c
+++ b/tests/kernel/device/src/main.c
@@ -24,6 +24,7 @@
 
 #define FAKEDEFERDRIVER0	DEVICE_DT_GET(DT_PATH(fakedeferdriver_e7000000))
 #define FAKEDEFERDRIVER1	DEVICE_DT_GET(DT_PATH(fakedeferdriver_e8000000))
+#define FAKEDEFERDRIVER2        DEVICE_DT_GET(DT_PATH(fakedeferdriver_f9000000))
 
 /* A device without init call */
 DEVICE_DEFINE(dummy_noinit, DUMMY_NOINIT, NULL, NULL, NULL, NULL,
@@ -39,6 +40,12 @@ DEVICE_DT_DEFINE(DT_INST(1, fakedeferdriver), NULL, NULL, NULL, NULL,
 	      POST_KERNEL, CONFIG_KERNEL_INIT_PRIORITY_DEFAULT,
 	      &fakedeferdriverapi);
 
+/* fake devices used to test deferred initialization failure */
+static int fakedeferdriver_init(const struct device *dev);
+
+DEVICE_DT_DEFINE(DT_INST(2, fakedeferdriver), fakedeferdriver_init, NULL, NULL, NULL, POST_KERNEL,
+		 CONFIG_KERNEL_INIT_PRIORITY_DEFAULT, NULL);
+
 /**
  * @brief Test cases to verify device objects
  *
@@ -415,6 +422,38 @@ ZTEST(device, test_deferred_init)
 	zassert_true(device_is_ready(FAKEDEFERDRIVER0));
 }
 
+static int fakedeferdriver_init(const struct device *dev)
+{
+	return -EIO;
+}
+
+/**
+ * @brief Test deferred initialization error
+ *
+ * @details Verify device_init error cases and expected device states
+ *
+ * - case -errno: if the device initialization fails
+ * - case -EALREADY: if the device is already initialized.
+ *
+ * @see device_init
+ * @ingroup kernel_device_tests
+ */
+ZTEST(device, test_deferred_init_failure)
+{
+	int ret;
+	const struct device *dev = FAKEDEFERDRIVER2;
+
+	zassert_false(device_is_ready(dev));
+	ret = device_init(dev);
+	zassert_equal(ret, -EIO);
+	zassert_false(device_is_ready(dev));
+	zassert_equal(dev->state->init_res, EIO);
+
+	ret = device_init(dev);
+	zassert_equal(ret, -EALREADY);
+	zassert_equal(dev->state->init_res, EIO);
+}
+
 ZTEST(device, test_device_api)
 {
 	const struct device *dev;