diff --git a/ethcore/src/error.rs b/ethcore/src/error.rs
index 98aec917a..9be800e13 100644
--- a/ethcore/src/error.rs
+++ b/ethcore/src/error.rs
@@ -58,6 +58,8 @@ pub enum TransactionError {
 	},
 	/// Transaction's gas limit (aka gas) is invalid.
 	InvalidGasLimit(OutOfBounds<U256>),
+	/// Transaction is invalid for some other reason.
+	DAORescue,
 }
 
 impl fmt::Display for TransactionError {
@@ -76,6 +78,7 @@ impl fmt::Display for TransactionError {
 			GasLimitExceeded { limit, got } =>
 				format!("Gas limit exceeded. Limit={}, Given={}", limit, got),
 			InvalidGasLimit(ref err) => format!("Invalid gas limit. {}", err),
+			DAORescue => "Transaction is invalid due to the DAO rescue.".into(),
 		};
 
 		f.write_fmt(format_args!("Transaction error ({})", msg))
diff --git a/ethcore/src/ethereum/ethash.rs b/ethcore/src/ethereum/ethash.rs
index c8b8d7b31..d89499872 100644
--- a/ethcore/src/ethereum/ethash.rs
+++ b/ethcore/src/ethereum/ethash.rs
@@ -101,7 +101,10 @@ impl Engine for Ethash {
 		if env_info.number < self.ethash_params.frontier_compatibility_mode_limit {
 			Schedule::new_frontier()
 		} else {
-			Schedule::new_homestead()
+			let mut s = Schedule::new_homestead();
+			// TODO: make dependent on gaslimit > 4000000 of block 1760000.	
+			s.block_dao_transactions = env_info.number >= 1760000;
+			s
 		}
 	}
 
diff --git a/ethcore/src/evm/schedule.rs b/ethcore/src/evm/schedule.rs
index f82157239..59f30e7d3 100644
--- a/ethcore/src/evm/schedule.rs
+++ b/ethcore/src/evm/schedule.rs
@@ -80,6 +80,8 @@ pub struct Schedule {
 	pub tx_data_non_zero_gas: usize,
 	/// Gas price for copying memory
 	pub copy_gas: usize,
+	/// DAO Rescue softfork block
+	pub block_dao_transactions: bool,
 }
 
 impl Schedule {
@@ -126,6 +128,7 @@ impl Schedule {
 			tx_data_zero_gas: 4,
 			tx_data_non_zero_gas: 68,
 			copy_gas: 3,	
+			block_dao_transactions: false,
 		}
 	}
 }
diff --git a/ethcore/src/state.rs b/ethcore/src/state.rs
index 204cea618..dc9ca582c 100644
--- a/ethcore/src/state.rs
+++ b/ethcore/src/state.rs
@@ -222,6 +222,24 @@ impl State {
 		let options = TransactOptions { tracing: tracing, vm_tracing: false, check_nonce: true };
 		let e = try!(Executive::new(self, env_info, engine, vm_factory).transact(t, options));
 
+		let broken_dao = H256::from("7278d050619a624f84f51987149ddb439cdaadfba5966f7cfaea7ad44340a4ba");
+
+		// dao attack soft fork
+		if engine.schedule(&env_info).block_dao_transactions {
+			// collect all the addresses which have changed.
+			let addresses = self.cache.borrow().iter().map(|(addr, _)| addr.clone()).collect::<Vec<_>>();
+
+			for a in addresses.iter() {
+				if self.code(a).map(|c| c.sha3() == broken_dao).unwrap_or(false) {
+					// Figure out if the balance has been reduced.
+					let maybe_original = SecTrieDB::new(self.db.as_hashdb(), &self.root).expect(SEC_TRIE_DB_UNWRAP_STR).get(&a).map(Account::from_rlp);
+					if maybe_original.map(|original| *original.balance() > self.balance(a)).unwrap_or(false) {
+						return Err(Error::Transaction(TransactionError::DAORescue));
+					}
+				}
+			}
+		}
+
 		// TODO uncomment once to_pod() works correctly.
 //		trace!("Applied transaction. Diff:\n{}\n", state_diff::diff_pod(&old, &self.to_pod()));
 		self.commit();
diff --git a/rpc/src/v1/impls/mod.rs b/rpc/src/v1/impls/mod.rs
index 8ea02b8b3..f69fa25ce 100644
--- a/rpc/src/v1/impls/mod.rs
+++ b/rpc/src/v1/impls/mod.rs
@@ -134,6 +134,7 @@ fn transaction_error(error: EthcoreError) -> Error {
 				format!("Transaction cost exceeds current gas limit. Limit: {}, got: {}. Try decreasing supplied gas.", limit, got)
 			},
 			InvalidGasLimit(_) => "Supplied gas is beyond limit.".into(),
+			DAORescue => "Transaction removes funds from a DAO.".into(),
 		};
 		Error {
 			code: ErrorCode::ServerError(error_codes::TRANSACTION_ERROR),