diff --git a/x/wasm/ibc.go b/x/wasm/ibc.go
index b310e04cc9..79e4fb2e80 100644
--- a/x/wasm/ibc.go
+++ b/x/wasm/ibc.go
@@ -1,6 +1,7 @@
 package wasm
 
 import (
+	"fmt"
 	"math"
 
 	errorsmod "cosmossdk.io/errors"
@@ -267,23 +268,38 @@ func (i IBCHandler) OnRecvPacket(
 		return channeltypes.NewErrorAcknowledgement(errorsmod.Wrapf(err, "contract port id"))
 	}
 	msg := wasmvmtypes.IBCPacketReceiveMsg{Packet: newIBCPacket(packet), Relayer: relayer.String()}
-	ack, err := i.keeper.OnRecvPacket(ctx, contractAddr, msg)
+
+	em := sdk.NewEventManager()
+	ack, err := i.keeper.OnRecvPacket(ctx.WithEventManager(em), contractAddr, msg)
 	if err != nil {
+		// the state gets reverted, we keep only wasm events that do not contain custom data
+		for _, e := range em.Events() {
+			if types.IsAcceptedEventOnRecvPacketErrorAck(e.Type) {
+				ctx.EventManager().EmitEvent(e)
+			}
+		}
+		// the `NewErrorAcknowledgement` redacts the error message, it is
+		// recommended by the ibc-module devs to log the raw error as event:
+		ctx.EventManager().EmitEvent(
+			sdk.NewEvent(
+				types.EventTypePacketRecv,
+				sdk.NewAttribute(sdk.AttributeKeyModule, types.ModuleName),
+				sdk.NewAttribute(types.AttributeKeyContractAddr, contractAddr.String()),
+				sdk.NewAttribute(types.AttributeKeyAckError, err.Error()), // contains original error message not redacted
+				sdk.NewAttribute(types.AttributeKeyAckSuccess, "false"),
+			))
 		return channeltypes.NewErrorAcknowledgement(err)
 	}
-	return ContractConfirmStateAck(ack)
-}
-
-var _ ibcexported.Acknowledgement = ContractConfirmStateAck{}
-
-type ContractConfirmStateAck []byte
-
-func (w ContractConfirmStateAck) Success() bool {
-	return true // always commit state
-}
-
-func (w ContractConfirmStateAck) Acknowledgement() []byte {
-	return w
+	// emit all contract and submessage events on success
+	ctx.EventManager().EmitEvents(em.Events())
+	ctx.EventManager().EmitEvent(
+		sdk.NewEvent(
+			types.EventTypePacketRecv,
+			sdk.NewAttribute(types.AttributeKeyContractAddr, contractAddr.String()),
+			sdk.NewAttribute(sdk.AttributeKeyModule, types.ModuleName),
+			sdk.NewAttribute(types.AttributeKeyAckSuccess, fmt.Sprintf("%t", ack.Success())),
+		))
+	return ack
 }
 
 // OnAcknowledgementPacket implements the IBCModule interface
diff --git a/x/wasm/keeper/relay.go b/x/wasm/keeper/relay.go
index fa1c4ac04f..c1106017e9 100644
--- a/x/wasm/keeper/relay.go
+++ b/x/wasm/keeper/relay.go
@@ -3,6 +3,9 @@ package keeper
 import (
 	"time"
 
+	channeltypes "github.com/cosmos/ibc-go/v7/modules/core/04-channel/types"
+	ibcexported "github.com/cosmos/ibc-go/v7/modules/core/exported"
+
 	errorsmod "cosmossdk.io/errors"
 	wasmvmtypes "github.com/CosmWasm/wasmvm/types"
 	"github.com/cosmos/cosmos-sdk/telemetry"
@@ -116,7 +119,7 @@ func (k Keeper) OnRecvPacket(
 	ctx sdk.Context,
 	contractAddr sdk.AccAddress,
 	msg wasmvmtypes.IBCPacketReceiveMsg,
-) ([]byte, error) {
+) (ibcexported.Acknowledgement, error) {
 	defer telemetry.MeasureSince(time.Now(), "wasm", "contract", "ibc-recv-packet")
 	contractInfo, codeInfo, prefixStore, err := k.contractInstance(ctx, contractAddr)
 	if err != nil {
@@ -130,13 +133,34 @@ func (k Keeper) OnRecvPacket(
 	res, gasUsed, execErr := k.wasmVM.IBCPacketReceive(codeInfo.CodeHash, env, msg, prefixStore, cosmwasmAPI, querier, ctx.GasMeter(), gas, costJSONDeserialization)
 	k.consumeRuntimeGas(ctx, gasUsed)
 	if execErr != nil {
-		panic(execErr)
+		panic(execErr) // let contract fully abort IBC receive in certain case
 	}
-	if res.Err != "" { // handle error case as before https://github.com/CosmWasm/wasmvm/commit/c300106fe5c9426a495f8e10821e00a9330c56c6
-		return nil, errorsmod.Wrap(types.ErrExecuteFailed, res.Err)
+	if res.Err != "" {
+		// return error ACK with non-redacted contract message
+		return channeltypes.Acknowledgement{
+			Response: &channeltypes.Acknowledgement_Error{Error: res.Err},
+		}, nil
 	}
 	// note submessage reply results can overwrite the `Acknowledgement` data
-	return k.handleContractResponse(ctx, contractAddr, contractInfo.IBCPortID, res.Ok.Messages, res.Ok.Attributes, res.Ok.Acknowledgement, res.Ok.Events)
+	data, err := k.handleContractResponse(ctx, contractAddr, contractInfo.IBCPortID, res.Ok.Messages, res.Ok.Attributes, res.Ok.Acknowledgement, res.Ok.Events)
+	if err != nil {
+		// submessage errors result in error ACK
+		return nil, err
+	}
+	// success ACK
+	return ContractConfirmStateAck(data), nil
+}
+
+var _ ibcexported.Acknowledgement = ContractConfirmStateAck{}
+
+type ContractConfirmStateAck []byte
+
+func (w ContractConfirmStateAck) Success() bool {
+	return true // always commit state
+}
+
+func (w ContractConfirmStateAck) Acknowledgement() []byte {
+	return w
 }
 
 // OnAckPacket calls the contract to handle the "acknowledgement" data which can contain success or failure of a packet
diff --git a/x/wasm/types/events.go b/x/wasm/types/events.go
index 442c3ed369..2e27a22322 100644
--- a/x/wasm/types/events.go
+++ b/x/wasm/types/events.go
@@ -17,8 +17,33 @@ const (
 	EventTypeGovContractResult      = "gov_contract_result"
 	EventTypeUpdateContractAdmin    = "update_contract_admin"
 	EventTypeUpdateCodeAccessConfig = "update_code_access_config"
+	EventTypePacketRecv             = "ibc_packet_received"
+	// add new types to IsAcceptedEventOnRecvPacketErrorAck
 )
 
+// IsAcceptedEventOnRecvPacketErrorAck returns true for all wasm event types that do not contain custom attributes
+func IsAcceptedEventOnRecvPacketErrorAck(s string) bool {
+	for _, v := range []string{
+		EventTypeStoreCode,
+		EventTypeInstantiate,
+		EventTypeExecute,
+		// EventTypeMigrate, not true as we rolled back
+		// EventTypePinCode, not relevant
+		// EventTypeUnpinCode, not relevant
+		EventTypeSudo,
+		EventTypeReply,
+		EventTypeGovContractResult,
+		// EventTypeUpdateContractAdmin, not true
+		// EventTypeUpdateCodeAccessConfig, not true
+		// EventTypePacketRecv, can not happen
+	} {
+		if s == v {
+			return true
+		}
+	}
+	return false
+}
+
 // event attributes returned from contract execution
 const (
 	AttributeReservedPrefix = "_"
@@ -31,4 +56,6 @@ const (
 	AttributeKeyNewAdmin            = "new_admin_address"
 	AttributeKeyCodePermission      = "code_permission"
 	AttributeKeyAuthorizedAddresses = "authorized_addresses"
+	AttributeKeyAckSuccess          = "success"
+	AttributeKeyAckError            = "error"
 )
diff --git a/x/wasm/types/exported_keepers.go b/x/wasm/types/exported_keepers.go
index dcf97cb2cc..4fa5c6ac59 100644
--- a/x/wasm/types/exported_keepers.go
+++ b/x/wasm/types/exported_keepers.go
@@ -4,6 +4,7 @@ import (
 	wasmvmtypes "github.com/CosmWasm/wasmvm/types"
 	sdk "github.com/cosmos/cosmos-sdk/types"
 	capabilitytypes "github.com/cosmos/cosmos-sdk/x/capability/types"
+	ibcexported "github.com/cosmos/ibc-go/v7/modules/core/exported"
 )
 
 // ViewKeeper provides read only operations
@@ -100,7 +101,7 @@ type IBCContractKeeper interface {
 		ctx sdk.Context,
 		contractAddr sdk.AccAddress,
 		msg wasmvmtypes.IBCPacketReceiveMsg,
-	) ([]byte, error)
+	) (ibcexported.Acknowledgement, error)
 	OnAckPacket(
 		ctx sdk.Context,
 		contractAddr sdk.AccAddress,