diff --git a/crates/extension/src/wasm_host.rs b/crates/extension/src/wasm_host.rs
index e4c97d2213244c386ef9ee60028ed76ea65e922f..51b306f1ff3c3b13752f44bdd550670e65581970 100644
--- a/crates/extension/src/wasm_host.rs
+++ b/crates/extension/src/wasm_host.rs
@@ -198,13 +198,15 @@ pub fn parse_wasm_extension_version(
     extension_id: &str,
     wasm_bytes: &[u8],
 ) -> Result<SemanticVersion> {
+    let mut version = None;
+
     for part in wasmparser::Parser::new(0).parse_all(wasm_bytes) {
-        if let wasmparser::Payload::CustomSection(s) = part? {
+        if let wasmparser::Payload::CustomSection(s) =
+            part.context("error parsing wasm extension")?
+        {
             if s.name() == "zed:api-version" {
-                let version = parse_wasm_extension_version_custom_section(s.data());
-                if let Some(version) = version {
-                    return Ok(version);
-                } else {
+                version = parse_wasm_extension_version_custom_section(s.data());
+                if version.is_none() {
                     bail!(
                         "extension {} has invalid zed:api-version section: {:?}",
                         extension_id,
@@ -214,7 +216,13 @@ pub fn parse_wasm_extension_version(
             }
         }
     }
-    bail!("extension {} has no zed:api-version section", extension_id)
+
+    // The reason we wait until we're done parsing all of the Wasm bytes to return the version
+    // is to work around a panic that can happen inside of Wasmtime when the bytes are invalid.
+    //
+    // By parsing the entirety of the Wasm bytes before we return, we're able to detect this problem
+    // earlier as an `Err` rather than as a panic.
+    version.ok_or_else(|| anyhow!("extension {} has no zed:api-version section", extension_id))
 }
 
 fn parse_wasm_extension_version_custom_section(data: &[u8]) -> Option<SemanticVersion> {