diff --git a/NEWS.md b/NEWS.md
index fafa931f7..a7e4987c2 100644
--- a/NEWS.md
+++ b/NEWS.md
@@ -1,5 +1,9 @@
 # testthat (development version)
 
+* `source_file()`, which is used by various parts of the helper and 
+  setup/teardown machinery, now reports the file name in the case of 
+  errors (#1704).
+
 * New `vignette("special-files")` describes the various special files
   that testthat uses (#1638).
 
diff --git a/R/source.R b/R/source.R
index b6fc90286..68f1f08a0 100644
--- a/R/source.R
+++ b/R/source.R
@@ -36,7 +36,15 @@ source_file <- function(path, env = test_env(), chdir = TRUE,
   if (wrap) {
     invisible(test_code(NULL, exprs, env))
   } else {
-    invisible(eval(exprs, env))
+    withCallingHandlers(
+      invisible(eval(exprs, env)),
+      error = function(err) {
+        abort(
+          paste0("In path: ", encodeString(path, quote = '"')),
+          parent = err
+        )
+      }
+    )
   }
 }
 
@@ -45,7 +53,9 @@ source_file <- function(path, env = test_env(), chdir = TRUE,
 source_dir <- function(path, pattern = "\\.[rR]$", env = test_env(),
                        chdir = TRUE, wrap = TRUE) {
   files <- normalizePath(sort(dir(path, pattern, full.names = TRUE)))
-  lapply(files, source_file, env = env, chdir = chdir, wrap = wrap)
+  lapply(files, function(path) {
+    source_file(path, env = env, chdir = chdir, wrap = wrap)
+  })
 }
 
 #' @rdname source_file
diff --git a/tests/testthat/_snaps/source.md b/tests/testthat/_snaps/source.md
new file mode 100644
index 000000000..99623a8d2
--- /dev/null
+++ b/tests/testthat/_snaps/source.md
@@ -0,0 +1,10 @@
+# source_file wraps error
+
+    Code
+      source_file(test_path("reporters/error-setup.R"), wrap = FALSE)
+    Condition
+      Error in `source_file()`:
+      ! In path: "reporters/error-setup.R"
+      Caused by error in `h()`:
+      ! !
+
diff --git a/tests/testthat/test-source.R b/tests/testthat/test-source.R
index d5eb1f251..591e67a3b 100644
--- a/tests/testthat/test-source.R
+++ b/tests/testthat/test-source.R
@@ -39,3 +39,9 @@ test_that("source_file always uses UTF-8 encoding", {
   run_test("German_Germany.1252")
   run_test(Sys.getlocale("LC_CTYPE"))
 })
+
+test_that("source_file wraps error", {
+  expect_snapshot(error = TRUE, {
+    source_file(test_path("reporters/error-setup.R"), wrap = FALSE)
+  })
+})