diff --git a/CHANGELOG.md b/CHANGELOG.md
index adbc01ffa..d9d561d70 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -15,6 +15,7 @@ This project adheres to [Semantic Versioning](http://semver.org/).
 ### Fixed
 
 - Fix `max-affected` preference not failing with RPC when `handling=strict` by @taimoorzaeem in #4100
+- Fix `jwt-aud` config not failing when set to an invalid URI by @taimoorzaeem in #4132
 - Fix a property definition's type in OpenAPI not showing the correct base type of a recursive domain by @laurenceisla in #4136
 - Fix regression that makes full-text search not work on domain types based on `tsvector` by @laurenceisla in #4135
 
diff --git a/src/PostgREST/Config.hs b/src/PostgREST/Config.hs
index 5709fab7f..f6d08dd5c 100644
--- a/src/PostgREST/Config.hs
+++ b/src/PostgREST/Config.hs
@@ -48,7 +48,7 @@ import Data.List.NonEmpty      (fromList, toList)
 import Data.Maybe              (fromJust)
 import Data.Scientific         (floatingOrInteger)
 import Jose.Jwk                (Jwk, JwkSet)
-import Network.URI             (escapeURIString,
+import Network.URI             (escapeURIString, isURI,
                                 isUnescapedInURIComponent)
 import Numeric                 (readOct, showOct)
 import System.Environment      (getEnvironment)
@@ -281,7 +281,7 @@ parser optPath env dbSettings roleSettings roleIsolationLvl =
     <*> (fromMaybe "postgresql://" <$> optString "db-uri")
     <*> pure optPath
     <*> pure Nothing
-    <*> optString "jwt-aud"
+    <*> optStringOrURI "jwt-aud"
     <*> parseRoleClaimKey "jwt-role-claim-key" "role-claim-key"
     <*> (fmap encodeUtf8 <$> optString "jwt-secret")
     <*> (fromMaybe False <$> optWithAlias
@@ -407,6 +407,20 @@ parser optPath env dbSettings roleSettings roleIsolationLvl =
     optStringEmptyable :: C.Key -> C.Parser C.Config (Maybe Text)
     optStringEmptyable k = overrideFromDbOrEnvironment C.optional k coerceText
 
+    optStringOrURI :: C.Key -> C.Parser C.Config (Maybe Text)
+    optStringOrURI k = do
+      stringOrURI <- mfilter (/= "") <$> overrideFromDbOrEnvironment C.optional k coerceText
+      -- If the string contains ':' then it should
+      -- be a valid URI according to RFC 3986
+      case stringOrURI of
+        Just s  -> if T.isInfixOf ":" s then validateURI s else return (Just s)
+        Nothing -> return Nothing
+      where
+        validateURI :: Text -> C.Parser C.Config (Maybe Text)
+        validateURI s = if isURI (T.unpack s)
+                          then return $ Just s
+                          else fail "jwt-aud should be a string or a valid URI"
+
     optInt :: (Read i, Integral i) => C.Key -> C.Parser C.Config (Maybe i)
     optInt k = join <$> overrideFromDbOrEnvironment C.optional k coerceInt
 
diff --git a/test/io/fixtures.yaml b/test/io/fixtures.yaml
index e0e8f04c5..ee00182cc 100644
--- a/test/io/fixtures.yaml
+++ b/test/io/fixtures.yaml
@@ -41,12 +41,11 @@ cli:
     use_defaultenv: true
     env:
       PGRST_SERVER_UNIX_SOCKET_MODE: '778'
-# TODO: Bug needs to be fixed
-#  - name: invalid jwt-aud
-#    expect: error
-#    use_defaultenv: true
-#    env:
-#      PGRST_JWT_AUD: 'htp:/@@localhorst.invalid'
+  - name: invalid jwt-aud
+    expect: error
+    use_defaultenv: true
+    env:
+      PGRST_JWT_AUD: 'http://%%localhorst.invalid'
   - name: invalid log-level
     expect: error
     use_defaultenv: true
diff --git a/test/io/test_cli.py b/test/io/test_cli.py
index ec163f8d3..522d2ea8e 100644
--- a/test/io/test_cli.py
+++ b/test/io/test_cli.py
@@ -277,3 +277,15 @@ def test_schema_cache_snapshot(baseenv, key, snapshot_yaml):
         Dumper=yaml.SafeDumper if key == "dbTimezones" else ExtraNewLinesDumper,
     )
     assert formatted == snapshot_yaml
+
+
+def test_jwt_aud_config_set_to_invalid_uri(defaultenv):
+    "PostgREST should exit with an error message in output if jwt-aud config is set to an invalid URI"
+    env = {
+        **defaultenv,
+        "PGRST_JWT_AUD": "foo://%%$$^^.com",
+    }
+
+    with pytest.raises(PostgrestError):
+        dump = cli(["--dump-config"], env=env).split("\n")
+        assert "jwt-aud should be a string or a valid URI" in dump