diff --git a/pkgs/development/interpreters/python/pypy/2.7/default.nix b/pkgs/development/interpreters/python/pypy/2.7/default.nix
index 76464d5412e..213f5dabe79 100644
--- a/pkgs/development/interpreters/python/pypy/2.7/default.nix
+++ b/pkgs/development/interpreters/python/pypy/2.7/default.nix
@@ -6,7 +6,7 @@ assert zlibSupport -> zlib != null;
 
 let
 
-  majorVersion = "5.3.1";
+  majorVersion = "5.4.0";
   version = "${majorVersion}";
   libPrefix = "pypy${majorVersion}";
 
@@ -18,7 +18,7 @@ let
 
     src = fetchurl {
       url = "https://bitbucket.org/pypy/pypy/get/release-pypy${pythonVersion}-v${version}.tar.bz2";
-      sha256 = "19cq2ngkh5q5jxwhw81rd6p0qna73z85jfik88w0856k5aj86yha";
+      sha256 = "1jm4ak6rbqhdhm8gjbd5hanabskbyzhzvjcl93fj0i017yirw88i";
     };
 
    # http://bugs.python.org/issue27369
@@ -32,6 +32,14 @@ let
       patch lib-python/2.7/test/test_pyexpat.py < '${expatch}'
     '';
 
+    # Increase recursion limit. This patch is not needed on pypy > 5.4.0
+    patches = [
+      (fetchurl {
+        url = "https://bitbucket.org/pypy/pypy/commits/a5db0f4359abb3f64b6d7ed83202e1cb0de37fb2/raw/";
+        sha256 = "07nvqjhj0kl67f3kjwhmybaqg6089ps3q8r0si1lgk3gyb56ygn0";
+      })
+    ];
+
     buildInputs = [ bzip2 openssl pkgconfig pythonFull libffi ncurses expat sqlite tk tcl xlibsWrapper libX11 makeWrapper gdbm db ]
       ++ stdenv.lib.optional (stdenv ? cc && stdenv.cc.libc != null) stdenv.cc.libc
       ++ stdenv.lib.optional zlibSupport zlib;