diff --git a/subxt/src/backend/unstable/mod.rs b/subxt/src/backend/unstable/mod.rs
index 6610e5f903..fb1437352d 100644
--- a/subxt/src/backend/unstable/mod.rs
+++ b/subxt/src/backend/unstable/mod.rs
@@ -436,10 +436,26 @@ impl<T: Config + Send + Sync + 'static> Backend<T> for UnstableBackend<T> {
         &self,
         extrinsic: &[u8],
     ) -> Result<StreamOfResults<TransactionStatus<T::Hash>>, Error> {
-        // First, subscribe to all new block hashes
-        let mut new_blocks = self.follow_handle.subscribe().events().filter_map(|ev| {
+        // We care about new and finalized block hashes.
+        enum SeenBlock<Ref> {
+            New(Ref),
+            Finalized(Vec<Ref>),
+        }
+        enum SeenBlockMarker {
+            New,
+            Finalized,
+        }
+
+        // First, subscribe to all new and finalized block refs.
+        // - we subscribe to new refs so that when we see `BestChainBlockIncluded`, we
+        //   can try to return a block ref for the best block.
+        // - we subscribe to finalized refs so that when we see `Finalized`, we can
+        //   guarantee that when we return here, the finalized block we report has been
+        //   reported from chainHead_follow already.
+        let mut seen_blocks_sub = self.follow_handle.subscribe().events().filter_map(|ev| {
             std::future::ready(match ev {
-                FollowEvent::NewBlock(ev) => Some(ev.block_hash),
+                FollowEvent::NewBlock(ev) => Some(SeenBlock::New(ev.block_hash)),
+                FollowEvent::Finalized(ev) => Some(SeenBlock::Finalized(ev.finalized_block_hashes)),
                 _ => None,
             })
         });
@@ -453,8 +469,9 @@ impl<T: Config + Send + Sync + 'static> Backend<T> for UnstableBackend<T> {
         let mut seen_blocks = HashMap::new();
         let mut done = false;
 
-        // If we see the finalized event, we start waiting until we find a block that
-        // matches, so we can guarantee to return a pinned block hash.
+        // If we see the finalized event, we start waiting until we find a finalized block that
+        // matches, so we can guarantee to return a pinned block hash and be properly in sync
+        // with chainHead_follow.
         let mut finalized_hash: Option<T::Hash> = None;
 
         // Now we can attempt to associate tx events with pinned blocks.
@@ -465,17 +482,34 @@ impl<T: Config + Send + Sync + 'static> Backend<T> for UnstableBackend<T> {
                     return Poll::Ready(None);
                 }
 
-                // Save any pinned blocks. Keep doing this until no more, so that we always have the most uptodate
-                // pinned blocks when we are looking at our tx events.
-                if let Poll::Ready(Some(block_ref)) = new_blocks.poll_next_unpin(cx) {
-                    seen_blocks.insert(block_ref.hash(), block_ref);
+                // Make a note of new or finalized blocks that have come in since we started the TX.
+                if let Poll::Ready(Some(seen_block)) = seen_blocks_sub.poll_next_unpin(cx) {
+                    match seen_block {
+                        SeenBlock::New(block_ref) => {
+                            // Optimization: once we have a `finalized_hash`, we only care about finalized
+                            // block refs now and can avoid bothering to save new blocks.
+                            if finalized_hash.is_none() {
+                                seen_blocks
+                                    .insert(block_ref.hash(), (SeenBlockMarker::New, block_ref));
+                            }
+                        }
+                        SeenBlock::Finalized(block_refs) => {
+                            for block_ref in block_refs {
+                                seen_blocks.insert(
+                                    block_ref.hash(),
+                                    (SeenBlockMarker::Finalized, block_ref),
+                                );
+                            }
+                        }
+                    }
                     continue;
                 }
 
                 // If we have a finalized hash, we are done looking for tx events and we are just waiting
                 // for a pinned block with a matching hash (which must appear eventually given it's finalized).
                 if let Some(hash) = &finalized_hash {
-                    if let Some(block_ref) = seen_blocks.remove(hash) {
+                    if let Some((SeenBlockMarker::Finalized, block_ref)) = seen_blocks.remove(hash)
+                    {
                         // Found it! Hand back the event with a pinned block. We're done.
                         done = true;
                         let ev = TransactionStatus::InFinalizedBlock {
@@ -483,7 +517,7 @@ impl<T: Config + Send + Sync + 'static> Backend<T> for UnstableBackend<T> {
                         };
                         return Poll::Ready(Some(Ok(ev)));
                     } else {
-                        // Keep waiting for more new blocks until we find it (get rid of any other block refs
+                        // Keep waiting for more finalized blocks until we find it (get rid of any other block refs
                         // now, since none of them were what we were looking for anyway).
                         seen_blocks.clear();
                         continue;
@@ -517,8 +551,8 @@ impl<T: Config + Send + Sync + 'static> Backend<T> for UnstableBackend<T> {
                         // block that likely isn't accessible. We have no guarantee that a best
                         // block on the node a tx was sent to will ever be known about on the
                         // chainHead_follow subscription.
-                        let block_ref = match seen_blocks.get(&block.hash).cloned() {
-                            Some(block_ref) => block_ref.into(),
+                        let block_ref = match seen_blocks.get(&block.hash) {
+                            Some((_, block_ref)) => block_ref.clone().into(),
                             None => BlockRef::from_hash(block.hash),
                         };
                         TransactionStatus::InBestBlock { hash: block_ref }