diff --git a/pkg/reconciler/route/route.go b/pkg/reconciler/route/route.go
index 95985bd8ff30..0102b1a7aeab 100644
--- a/pkg/reconciler/route/route.go
+++ b/pkg/reconciler/route/route.go
@@ -233,6 +233,10 @@ func (c *Reconciler) reconcile(ctx context.Context, r *v1alpha1.Route) error {
 	traffic, err := c.configureTraffic(ctx, r, clusterLocalServiceNames)
 	if traffic == nil || err != nil {
 		// Traffic targets aren't ready, no need to configure child resources.
+		// Need to update ObservedGeneration, otherwise Route's Ready state won't
+		// be propagated to Service and the Service's RoutesReady will stay in
+		// 'Unknown'.
+		r.Status.ObservedGeneration = r.Generation
 		return err
 	}
 
diff --git a/test/e2e/image_pull_error_test.go b/test/e2e/image_pull_error_test.go
index 8b84d57e26a0..660eb9f540a4 100644
--- a/test/e2e/image_pull_error_test.go
+++ b/test/e2e/image_pull_error_test.go
@@ -56,7 +56,7 @@ func TestImagePullError(t *testing.T) {
 	names.Config = serviceresourcenames.Configuration(svc)
 
 	err = v1a1test.WaitForServiceState(clients.ServingAlphaClient, names.Service, func(r *v1alpha1.Service) (bool, error) {
-		cond := r.Status.GetCondition(v1alpha1.ConfigurationConditionReady)
+		cond := r.Status.GetCondition(v1alpha1.ServiceConditionConfigurationsReady)
 		if cond != nil && !cond.IsUnknown() {
 			if cond.IsFalse() {
 				if cond.Reason == "RevisionFailed" {
diff --git a/test/e2e/pod_schedule_error_test.go b/test/e2e/pod_schedule_error_test.go
index c04b629dc154..5131cb123fad 100644
--- a/test/e2e/pod_schedule_error_test.go
+++ b/test/e2e/pod_schedule_error_test.go
@@ -72,7 +72,7 @@ func TestPodScheduleError(t *testing.T) {
 	names.Config = serviceresourcenames.Configuration(svc)
 
 	err = v1a1test.WaitForServiceState(clients.ServingAlphaClient, names.Service, func(r *v1alpha1.Service) (bool, error) {
-		cond := r.Status.GetCondition(v1alpha1.ConfigurationConditionReady)
+		cond := r.Status.GetCondition(v1alpha1.ServiceConditionConfigurationsReady)
 		if cond != nil && !cond.IsUnknown() {
 			if strings.Contains(cond.Message, errorMsg) && cond.IsFalse() {
 				return true, nil
diff --git a/test/e2e/route_service_test.go b/test/e2e/route_service_test.go
new file mode 100644
index 000000000000..84c094473c53
--- /dev/null
+++ b/test/e2e/route_service_test.go
@@ -0,0 +1,84 @@
+// +build e2e
+
+/*
+Copyright 2019 The Knative Authors
+
+Licensed under the Apache License, Version 2.0 (the "License");
+you may not use this file except in compliance with the License.
+You may obtain a copy of the License at
+
+    http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing, software
+distributed under the License is distributed on an "AS IS" BASIS,
+WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+See the License for the specific language governing permissions and
+limitations under the License.
+*/
+
+package e2e
+
+import (
+	"testing"
+
+	"knative.dev/serving/pkg/apis/serving/v1alpha1"
+	"knative.dev/serving/pkg/apis/serving/v1beta1"
+	"knative.dev/serving/test"
+	v1a1test "knative.dev/serving/test/v1alpha1"
+	"knative.dev/pkg/test/logstream"
+	serviceresourcenames "knative.dev/serving/pkg/reconciler/service/resources/names"
+	. "knative.dev/serving/pkg/testing/v1alpha1"
+)
+
+// TestRoutesNotReady tests the scenario that when Route's status is
+// Ready == False, the Service's RoutesReady value should change from
+// Unknown to False
+func TestRoutesNotReady(t *testing.T) {
+	t.Parallel()
+	cancel := logstream.Start(t)
+	defer cancel()
+
+	clients := Setup(t)
+
+	names := test.ResourceNames{
+		Service: test.ObjectNameForTest(t),
+		Image:   test.PizzaPlanet1,
+	}
+
+	test.CleanupOnInterrupt(func() { test.TearDown(clients, names) })
+	defer test.TearDown(clients, names)
+
+	withTrafficSpec := WithInlineRouteSpec(v1alpha1.RouteSpec{
+		Traffic: []v1alpha1.TrafficTarget{
+			{
+				TrafficTarget: v1beta1.TrafficTarget{
+					RevisionName: "foobar",  // Invalid revision name. This allows Revision creation to succeed and Route configuration to fail
+					Percent:      100,
+				},
+			},
+		},
+	})
+
+	t.Log("Creating a new Service with an invalid traffic target.")
+	svc, err := v1a1test.CreateLatestService(t, clients, names, withTrafficSpec)
+	if err != nil {
+		t.Fatalf("Failed to create initial Service %q: %#v", names.Service, err)
+	}
+
+	t.Logf("Waiting for Service %q ObservedGeneration to match Generation, and status transition to Ready == False.", names.Service)
+	if err := v1a1test.WaitForServiceState(clients.ServingAlphaClient, names.Service, v1a1test.IsServiceNotReady, "ServiceIsNotReady"); err != nil {
+		t.Fatalf("Failed waiting for Service %q to transition to Ready == False: %#v", names.Service, err)
+	}
+
+	t.Logf("Validating Route %q has reconciled to Ready == False.", serviceresourcenames.Route(svc))
+	// Check Route is not ready
+	if err = v1a1test.CheckRouteState(clients.ServingAlphaClient, serviceresourcenames.Route(svc), v1a1test.IsRouteNotReady); err != nil {
+		t.Fatalf("The Route %q was marked as Ready to serve traffic but it should not be: %#v", serviceresourcenames.Route(svc), err)
+	}
+
+	// Wait for RoutesReady to become False
+	t.Logf("Validating Service %q has reconciled to RoutesReady == False.", names.Service)
+	if err = v1a1test.CheckServiceState(clients.ServingAlphaClient, names.Service, v1a1test.IsServiceRoutesNotReady); err != nil {
+		t.Fatalf("Service %q was not marked RoutesReady  == False: %#v", names.Service, err)
+	}
+}
diff --git a/test/v1alpha1/service.go b/test/v1alpha1/service.go
index 6752e53bd7e6..ec2999f79502 100644
--- a/test/v1alpha1/service.go
+++ b/test/v1alpha1/service.go
@@ -33,6 +33,7 @@ import (
 	"knative.dev/pkg/test/logging"
 	"knative.dev/serving/pkg/apis/serving/v1alpha1"
 	serviceresourcenames "knative.dev/serving/pkg/reconciler/service/resources/names"
+	corev1 "k8s.io/api/core/v1"
 
 	ptest "knative.dev/pkg/test"
 	rtesting "knative.dev/serving/pkg/testing/v1alpha1"
@@ -346,8 +347,14 @@ func IsServiceReady(s *v1alpha1.Service) (bool, error) {
 	return s.Generation == s.Status.ObservedGeneration && s.Status.IsReady(), nil
 }
 
-// IsServiceNotReady will check the status conditions of the service and return true if the service is
-// not ready.
+// IsServiceNotReady checks the Ready status condition of the service and returns true only if Ready is set to False.
 func IsServiceNotReady(s *v1alpha1.Service) (bool, error) {
-	return s.Generation == s.Status.ObservedGeneration && !s.Status.IsReady(), nil
+	result := s.Status.GetCondition(v1alpha1.ServiceConditionReady)
+	return s.Generation == s.Status.ObservedGeneration && result != nil && result.Status == corev1.ConditionFalse, nil
+}
+
+// IsServiceRoutesNotReady checks the RoutesReady status of the service and returns true only if RoutesReady is set to False.
+func IsServiceRoutesNotReady(s *v1alpha1.Service) (bool, error) {
+	result := s.Status.GetCondition(v1alpha1.ServiceConditionRoutesReady)
+	return s.Generation == s.Status.ObservedGeneration && result != nil && result.Status == corev1.ConditionFalse, nil
 }