diff --git a/packages/playwright/src/index.ts b/packages/playwright/src/index.ts
index b1e14b7810c68..7be86bc7b87e9 100644
--- a/packages/playwright/src/index.ts
+++ b/packages/playwright/src/index.ts
@@ -877,16 +877,34 @@ async function installScreencastTitleUpdater(testInfo: TestInfoImpl, context: Br
   const fontSize = testAnnotate.fontSize ?? 14;
   const level = testAnnotate.level ?? 'step';
 
-  const updateOverlay = async () => {
+  const doUpdateOverlay = async () => {
     const parts = level === 'step' ? [...testTitle, ...stepStack] : testTitle;
     const html = createTestOverlay(parts, position, fontSize);
     for (const page of context.pages()) {
-      await overlays.get(page)?.dispose();
-      overlays.delete(page);
-      const disposable = await page.screencast.showOverlay(html);
-      overlays.set(page, disposable);
+      // The annotation is cosmetic, and the page list is a snapshot: a page that closes
+      // while we are updating it must not fail the test sitting at a step boundary.
+      try {
+        await overlays.get(page)?.dispose();
+        overlays.delete(page);
+        const disposable = await page.screencast.showOverlay(html);
+        overlays.set(page, disposable);
+      } catch (error) {
+        debugLogger.log('error', `failed to update the video annotation overlay: ${error}`);
+      }
     }
   };
+
+  // Updates come from step callbacks and from the 'page' event, and each one removes the
+  // previous overlay before adding a new one. Serialize them: an update that starts while
+  // another is mid-flight finds nothing to remove and leaves a stale overlay in the page
+  // for the rest of the recording.
+  let pendingUpdate = Promise.resolve();
+  const updateOverlay = () => {
+    const update = pendingUpdate.then(doUpdateOverlay);
+    // Keep the chain going when an update fails, but still report the failure to the caller.
+    pendingUpdate = update.catch(() => {});
+    return update;
+  };
   testInfo._onUserStepBegin = async title => {
     stepStack.push(title);
     await updateOverlay();
@@ -896,8 +914,8 @@ async function installScreencastTitleUpdater(testInfo: TestInfoImpl, context: Br
     await updateOverlay();
   };
 
-  context.on('page', async () => {
-    void updateOverlay();
+  context.on('page', () => {
+    void updateOverlay().catch(() => {});
   });
   await updateOverlay();
 }
diff --git a/tests/playwright-test/playwright.video-annotate.spec.ts b/tests/playwright-test/playwright.video-annotate.spec.ts
new file mode 100644
index 0000000000000..275142deca52a
--- /dev/null
+++ b/tests/playwright-test/playwright.video-annotate.spec.ts
@@ -0,0 +1,93 @@
+/**
+ * Copyright (c) Microsoft Corporation.
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ * http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+import { test, expect } from './playwright-test-fixtures';
+
+const configWithTestAnnotation = `
+  module.exports = { use: { video: { mode: 'on', show: { test: { level: 'step' } } } } };
+`;
+
+test('should show file, test title and step in the annotation overlay', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'playwright.config.ts': configWithTestAnnotation,
+    'a.test.ts': `
+      import { test, expect } from '@playwright/test';
+
+      async function overlays(page) {
+        return await page.locator('.x-pw-user-overlay').evaluateAll(
+            els => els.map(el => el.innerText.split('\\n')));
+      }
+
+      test('my test', async ({ page }) => {
+        await test.step('first step', async () => {
+          expect(await overlays(page)).toEqual([['a.test.ts', 'my test', 'first step']]);
+        });
+        expect(await overlays(page)).toEqual([['a.test.ts', 'my test']]);
+        await test.step('second step', async () => {
+          expect(await overlays(page)).toEqual([['a.test.ts', 'my test', 'second step']]);
+          await test.step('nested step', async () => {
+            expect(await overlays(page)).toEqual([['a.test.ts', 'my test', 'second step', 'nested step']]);
+          });
+        });
+      });
+    `,
+  }, { workers: 1 });
+
+  expect(result.exitCode).toBe(0);
+  expect(result.passed).toBe(1);
+});
+
+test('should not stack annotation overlays when a page opens during a step', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'playwright.config.ts': configWithTestAnnotation,
+    'a.test.ts': `
+      import { test, expect } from '@playwright/test';
+
+      test('my test', async ({ page, context }) => {
+        await test.step('first step', async () => {
+          const second = await context.newPage();
+          await expect(page.locator('.x-pw-user-overlay')).toHaveCount(1);
+          await expect(second.locator('.x-pw-user-overlay')).toHaveCount(1);
+        });
+      });
+    `,
+  }, { workers: 1 });
+
+  expect(result.exitCode).toBe(0);
+  expect(result.passed).toBe(1);
+});
+
+test('should not fail a step when a page closes while the overlay is updated', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'playwright.config.ts': configWithTestAnnotation,
+    'a.test.ts': `
+      import { test } from '@playwright/test';
+
+      test('my test', async ({ context, page }) => {
+        const pages = [];
+        for (let i = 0; i < 5; i++)
+          pages.push(await context.newPage());
+        const closed = Promise.all(pages.map(p => p.close()));
+        await test.step('first step', async () => {});
+        await test.step('second step', async () => {});
+        await closed;
+      });
+    `,
+  }, { workers: 1 });
+
+  expect(result.exitCode).toBe(0);
+  expect(result.passed).toBe(1);
+});