Exception propagation in Python refers to the process by which exceptions are raised and passed up the call stack until they are handled by an appropriate exception handler. When an error occurs in a program, Python looks for a corresponding try block that can catch the exception. If no such block is found in the current function, the exception propagates to the calling function, and this continues until it either finds a handler or reaches the top level of the program, resulting in an unhandled exception. Understanding exception propagation is crucial for writing robust and error-tolerant code.