diff --git a/src/bitcoinrpc.cpp b/src/bitcoinrpc.cpp
index a1e7d14dc..3fe9f7eb9 100644
--- a/src/bitcoinrpc.cpp
+++ b/src/bitcoinrpc.cpp
@@ -238,7 +238,7 @@ static const CRPCCommand vRPCCommands[] =
     { "getdifficulty",          &getdifficulty,          true,      false,      false },
     { "getnetworkhashps",       &getnetworkhashps,       true,      false,      false },
     { "getgenerate",            &getgenerate,            true,      false,      false },
-    { "setgenerate",            &setgenerate,            true,      false,      true },
+    { "setgenerate",            &setgenerate,            true,      true,       false },
     { "gethashespersec",        &gethashespersec,        true,      false,      false },
     { "getinfo",                &getinfo,                true,      false,      false },
     { "getmininginfo",          &getmininginfo,          true,      false,      false },
diff --git a/src/init.cpp b/src/init.cpp
index b2e7ddf33..16eccc6de 100644
--- a/src/init.cpp
+++ b/src/init.cpp
@@ -112,7 +112,7 @@ void Shutdown()
     ShutdownRPCMining();
     if (pwalletMain)
         bitdb.Flush(false);
-    GenerateBitcoins(false, NULL);
+    GenerateBitcoins(false, NULL, 0);
     StopNode();
     {
         LOCK(cs_main);
@@ -1050,7 +1050,7 @@ bool AppInit2(boost::thread_group& threadGroup, bool fForceServer)
 
     // Generate coins in the background
     if (pwalletMain)
-        GenerateBitcoins(GetBoolArg("-gen", false), pwalletMain);
+        GenerateBitcoins(GetBoolArg("-gen", false), pwalletMain, GetArg("-genproclimit", -1));
 
     // ********************************************************* Step 12: finished
 
diff --git a/src/miner.cpp b/src/miner.cpp
index 97f434851..b01b60cc3 100644
--- a/src/miner.cpp
+++ b/src/miner.cpp
@@ -650,11 +650,10 @@ void static BitcoinMiner(CWallet *pwallet)
     }
 }
 
-void GenerateBitcoins(bool fGenerate, CWallet* pwallet)
+void GenerateBitcoins(bool fGenerate, CWallet* pwallet, int nThreads)
 {
     static boost::thread_group* minerThreads = NULL;
 
-    int nThreads = GetArg("-genproclimit", -1);
     if (nThreads < 0) {
         if (Params().NetworkID() == CChainParams::REGTEST)
             nThreads = 1;
diff --git a/src/miner.h b/src/miner.h
index 4879f55d5..26151f6cd 100644
--- a/src/miner.h
+++ b/src/miner.h
@@ -16,7 +16,7 @@ class CScript;
 class CWallet;
 
 /** Run the miner threads */
-void GenerateBitcoins(bool fGenerate, CWallet* pwallet);
+void GenerateBitcoins(bool fGenerate, CWallet* pwallet, int nThreads);
 /** Generate a new block, without valid proof-of-work */
 CBlockTemplate* CreateNewBlock(const CScript& scriptPubKeyIn);
 CBlockTemplate* CreateNewBlockWithKey(CReserveKey& reservekey);
diff --git a/src/rpcmining.cpp b/src/rpcmining.cpp
index e4fa7ed85..16c8a504b 100644
--- a/src/rpcmining.cpp
+++ b/src/rpcmining.cpp
@@ -133,6 +133,7 @@ Value setgenerate(const Array& params, bool fHelp)
             "\nArguments:\n"
             "1. generate         (boolean, required) Set to true to turn on generation, off to turn off.\n"
             "2. genproclimit     (numeric, optional) Set the processor limit for when generation is on. Can be -1 for unlimited.\n"
+            "                    Note: in -regtest mode, genproclimit controls how many blocks are generated immediately.\n"
             "\nExamples:\n"
             "\nSet the generation on with a limit of one processor\n"
             + HelpExampleCli("setgenerate", "true 1") +
@@ -144,21 +145,55 @@ Value setgenerate(const Array& params, bool fHelp)
             + HelpExampleRpc("setgenerate", "true, 1")
         );
 
+    if (pwalletMain == NULL)
+        throw JSONRPCError(RPC_METHOD_NOT_FOUND, "Method not found (disabled)");
+
     bool fGenerate = true;
     if (params.size() > 0)
         fGenerate = params[0].get_bool();
 
+    int nGenProcLimit = -1;
     if (params.size() > 1)
     {
-        int nGenProcLimit = params[1].get_int();
-        mapArgs["-genproclimit"] = itostr(nGenProcLimit);
+        nGenProcLimit = params[1].get_int();
         if (nGenProcLimit == 0)
             fGenerate = false;
     }
-    mapArgs["-gen"] = (fGenerate ? "1" : "0");
 
-    assert(pwalletMain != NULL);
-    GenerateBitcoins(fGenerate, pwalletMain);
+    // -regtest mode: don't return until nGenProcLimit blocks are generated
+    if (fGenerate && Params().NetworkID() == CChainParams::REGTEST)
+    {
+        int nHeightStart = 0;
+        int nHeightEnd = 0;
+        int nHeight = 0;
+        int nGenerate = (nGenProcLimit > 0 ? nGenProcLimit : 1);
+        {   // Don't keep cs_main locked
+            LOCK(cs_main);
+            nHeightStart = chainActive.Height();
+            nHeight = nHeightStart;
+            nHeightEnd = nHeightStart+nGenerate;
+        }
+        int nHeightLast = -1;
+        while (nHeight < nHeightEnd)
+        {
+            if (nHeightLast != nHeight)
+            {
+                nHeightLast = nHeight;
+                GenerateBitcoins(fGenerate, pwalletMain, 1);
+            }
+            MilliSleep(1);
+            {   // Don't keep cs_main locked
+                LOCK(cs_main);
+                nHeight = chainActive.Height();
+            }
+        }
+    }
+    else // Not -regtest: start generate thread, return immediately
+    {
+        mapArgs["-gen"] = (fGenerate ? "1" : "0");
+        GenerateBitcoins(fGenerate, pwalletMain, nGenProcLimit);
+    }
+
     return Value::null;
 }