diff --git a/CHANGELOG.md b/CHANGELOG.md
index 775a417..d54ec0c 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -6,6 +6,7 @@
 
 * Synchronous reads for improved performance for large payloads ([#134](https://github.com/microsoft/durabletask-mssql/pull/134)) - contributed by [@bhugot](https://github.com/bhugot)
 * Fix for sub-orchestration handling over gRPC ([#149](https://github.com/microsoft/durabletask-mssql/pull/149))
+* Fix continue-as-new data corruption race condition ([#150](https://github.com/microsoft/durabletask-mssql/pull/150))
 
 ## v1.1.0
 
diff --git a/src/DurableTask.SqlServer/Scripts/logic.sql b/src/DurableTask.SqlServer/Scripts/logic.sql
index e24deff..c9b968b 100644
--- a/src/DurableTask.SqlServer/Scripts/logic.sql
+++ b/src/DurableTask.SqlServer/Scripts/logic.sql
@@ -635,6 +635,7 @@ BEGIN
 
     DECLARE @InputPayloadID uniqueidentifier
     DECLARE @CustomStatusPayloadID uniqueidentifier
+    DECLARE @ExistingOutputPayloadID uniqueidentifier
     DECLARE @ExistingCustomStatusPayload varchar(MAX)
     DECLARE @ExistingExecutionID varchar(50)
 
@@ -644,6 +645,7 @@ BEGIN
     SELECT TOP 1 
         @InputPayloadID = I.[InputPayloadID],
         @CustomStatusPayloadID = I.[CustomStatusPayloadID],
+        @ExistingOutputPayloadID = I.[OutputPayloadID],
         @ExistingCustomStatusPayload = P.[Text],
         @ExistingExecutionID = I.[ExecutionID]
     FROM Payloads P RIGHT OUTER JOIN Instances I ON
@@ -652,15 +654,24 @@ BEGIN
         P.[PayloadID] = I.[CustomStatusPayloadID]
     WHERE I.[TaskHub] = @TaskHub AND I.[InstanceID] = @InstanceID
 
-    -- ContinueAsNew case: delete all existing runtime state (history and payloads)
+    -- ContinueAsNew case: delete all existing runtime state (history and payloads), but be careful
+    -- not to delete payloads of unprocessed state, like new events.
     DECLARE @IsContinueAsNew BIT = 0
     IF @ExistingExecutionID IS NOT NULL AND @ExistingExecutionID <> @ExecutionID
     BEGIN
+        DECLARE @PayloadIDsToDelete TABLE ([PayloadID] uniqueidentifier NULL)
+        INSERT INTO @PayloadIDsToDelete
+        VALUES (@InputPayloadID), (@CustomStatusPayloadID), (@ExistingOutputPayloadID)
+
         DELETE FROM History
+        OUTPUT DELETED.[DataPayloadID] INTO @PayloadIDsToDelete
         WHERE [TaskHub] = @TaskHub AND [InstanceID] = @InstanceID
 
         DELETE FROM Payloads
-        WHERE [TaskHub] = @TaskHub AND [InstanceID] = @InstanceID
+        WHERE
+            [TaskHub] = @TaskHub AND
+            [InstanceID] = @InstanceID AND
+            [PayloadID] IN (SELECT [PayloadID] FROM @PayloadIDsToDelete)
 
         -- The existing payload got purged in the previous statement 
         SET @ExistingCustomStatusPayload = NULL
diff --git a/test/DurableTask.SqlServer.AzureFunctions.Tests/CoreScenarios.cs b/test/DurableTask.SqlServer.AzureFunctions.Tests/CoreScenarios.cs
index de67911..824db25 100644
--- a/test/DurableTask.SqlServer.AzureFunctions.Tests/CoreScenarios.cs
+++ b/test/DurableTask.SqlServer.AzureFunctions.Tests/CoreScenarios.cs
@@ -77,7 +77,7 @@ public async Task CanOrchestrateEntities()
         }
 
         [Fact]
-        public async Task CanInteractWithEntities()
+        public async Task CanClientInteractWithEntities()
         {
             IDurableClient client = this.GetDurableClient();
 
@@ -98,6 +98,14 @@ await Task.WhenAll(
             Assert.Equal(7, result.EntityState);
         }
 
+        [Fact]
+        public async Task CanOrchestrationInteractWithEntities()
+        {
+            DurableOrchestrationStatus status = await this.RunOrchestrationAsync(nameof(Functions.IncrementThenGet));
+            Assert.Equal(OrchestrationRuntimeStatus.Completed, status.RuntimeStatus);
+            Assert.Equal(1, (int)status.Output);
+        }
+
         [Fact]
         public async Task SingleInstanceQuery()
         {
diff --git a/test/DurableTask.SqlServer.AzureFunctions.Tests/Functions.cs b/test/DurableTask.SqlServer.AzureFunctions.Tests/Functions.cs
index 104e6fe..e7e86cf 100644
--- a/test/DurableTask.SqlServer.AzureFunctions.Tests/Functions.cs
+++ b/test/DurableTask.SqlServer.AzureFunctions.Tests/Functions.cs
@@ -114,6 +114,26 @@ public static void Counter([EntityTrigger] IDurableEntityContext ctx)
             }
         }
 
+        [FunctionName(nameof(IncrementThenGet))]
+        public static async Task<int> IncrementThenGet([OrchestrationTrigger] IDurableOrchestrationContext context)
+        {
+            // Key needs to be pseudo-random to avoid conflicts with multiple test runs.
+            string key = context.NewGuid().ToString().Substring(0, 8);
+            EntityId entityId = new EntityId(nameof(Counter), key);
+
+            context.SignalEntity(entityId, "add", 1);
+
+            // Invoking a sub-orchestration as a regression test for https://github.com/microsoft/durabletask-mssql/issues/146
+            return await context.CallSubOrchestratorAsync<int>(nameof(GetEntityAsync), entityId);
+        }
+
+        [FunctionName(nameof(GetEntityAsync))]
+        public static async Task<int> GetEntityAsync([OrchestrationTrigger] IDurableOrchestrationContext context)
+        {
+            EntityId entityId = context.GetInput<EntityId>();
+            return await context.CallEntityAsync<int>(entityId, "get");
+        }
+
         [FunctionName(nameof(WaitForEvent))]
         public static Task<object> WaitForEvent([OrchestrationTrigger] IDurableOrchestrationContext ctx)
         {
diff --git a/test/DurableTask.SqlServer.Tests/Utils/SharedTestHelpers.cs b/test/DurableTask.SqlServer.Tests/Utils/SharedTestHelpers.cs
index 6c9a13d..f0e43bc 100644
--- a/test/DurableTask.SqlServer.Tests/Utils/SharedTestHelpers.cs
+++ b/test/DurableTask.SqlServer.Tests/Utils/SharedTestHelpers.cs
@@ -84,6 +84,8 @@ public static async Task<object> ExecuteSqlAsync(string commandText, string conn
         public static async Task InitializeDatabaseAsync(string schema = DefaultSchema)
         {
             var options = new SqlOrchestrationServiceSettings(GetDefaultConnectionString(), schemaName: schema);
+            options.CreateDatabaseIfNotExists = true;
+
             var service = new SqlOrchestrationService(options);
             await service.CreateIfNotExistsAsync();
         }