diff --git a/atom/src/atomdict.cpp b/atom/src/atomdict.cpp
index 85c24718..05756d92 100644
--- a/atom/src/atomdict.cpp
+++ b/atom/src/atomdict.cpp
@@ -157,7 +157,8 @@ PyObject* AtomDict_setdefault( AtomDict* self, PyObject* args )
 	{
 		return 0;
 	}
-	return cppy::incref( dfv );
+	// Get the dictionary from the dict itself in case it was corced.
+	return cppy::incref( PyDict_GetItem( pyobject_cast( self ), key ) );
 }
 
 
diff --git a/releasenotes.rst b/releasenotes.rst
index 0295cb68..46fc974e 100644
--- a/releasenotes.rst
+++ b/releasenotes.rst
@@ -5,6 +5,7 @@ Atom Release Notes
 ------------------
 
 - fix generation of Value member from union containing object/Any PR #198
+- fix setdefault method of atomdict to return the actually stored item PR #197
 
 0.9.0 - 21/02/2023
 ------------------
diff --git a/tests/test_atomdict.py b/tests/test_atomdict.py
index 01f135fc..c049c761 100644
--- a/tests/test_atomdict.py
+++ b/tests/test_atomdict.py
@@ -11,7 +11,7 @@
 """
 import pytest
 
-from atom.api import Atom, Dict, Int, atomdict
+from atom.api import Atom, Dict, Int, List, atomdict, atomlist
 
 
 @pytest.fixture
@@ -149,6 +149,16 @@ def test_setdefault(atom_dict):
         atom_dict.fullytyped.setdefault(2, "")
 
 
+def test_setdefault_coercion():
+    class A(Atom):
+        d = Dict(int, List(int))
+
+    a = A()
+    content = a.d.setdefault(1, [])
+    assert isinstance(content, atomlist)
+    assert content is a.d[1]
+
+
 def test_update(atom_dict):
     """Test update a dict."""
     atom_dict.untyped.update({"": 1})