diff --git a/python/ray/data/grouped_data.py b/python/ray/data/grouped_data.py
index 42b9340d699..89398469dc0 100644
--- a/python/ray/data/grouped_data.py
+++ b/python/ray/data/grouped_data.py
@@ -1,3 +1,4 @@
+from collections.abc import Iterator as IteratorABC
 from functools import partial
 from typing import Any, Callable, Dict, Iterable, Iterator, List, Optional, Tuple, Union
 
@@ -538,7 +539,10 @@ def std(
 
 
 def _apply_udf_to_groups(
-    udf: Callable[[DataBatch, ...], DataBatch],
+    udf: Union[
+        Callable[[DataBatch, ...], DataBatch],
+        Callable[[DataBatch, ...], Iterator[DataBatch]],
+    ],
     block: Block,
     keys: List[str],
     batch_format: Optional[str],
@@ -548,7 +552,8 @@ def _apply_udf_to_groups(
     """Apply UDF to groups of rows having the same set of values of the specified
     columns (keys).
 
-    NOTE: This function is defined at module level to avoid capturing closures and make it serializable."""
+    NOTE: This function is defined at module level to avoid capturing closures and make it serializable.
+    """
     block_accessor = BlockAccessor.for_block(block)
 
     boundaries = block_accessor._get_group_boundaries_sorted(keys)
@@ -560,7 +565,17 @@ def _apply_udf_to_groups(
         # Convert corresponding block of each group to batch format here,
         # because the block format here can be different from batch format
         # (e.g. block is Arrow format, and batch is NumPy format).
-        yield udf(group_block_accessor.to_batch_format(batch_format), *args, **kwargs)
+        result = udf(
+            group_block_accessor.to_batch_format(batch_format), *args, **kwargs
+        )
+
+        # Check if the UDF returned an iterator/generator.
+        if isinstance(result, IteratorABC):
+            # If so, yield each item from the iterator.
+            yield from result
+        else:
+            # Otherwise, yield the single result.
+            yield result
 
 
 # Backwards compatibility alias.
diff --git a/python/ray/data/tests/test_groupby_e2e.py b/python/ray/data/tests/test_groupby_e2e.py
index bd0017125e6..fb1c1795a72 100644
--- a/python/ray/data/tests/test_groupby_e2e.py
+++ b/python/ray/data/tests/test_groupby_e2e.py
@@ -1,7 +1,7 @@
 import itertools
 import random
 import time
-from typing import Optional
+from typing import Iterator, Optional
 
 import numpy as np
 import pandas as pd
@@ -1142,6 +1142,40 @@ def func(x, y):
     assert "MapBatches(func)" in ds.__repr__()
 
 
+def test_map_groups_generator_udf(ray_start_regular_shared_2_cpus):
+    """
+    Tests that map_groups supports UDFs that return generators (iterators).
+    """
+    ds = ray.data.from_items(
+        [
+            {"group": 1, "data": 10},
+            {"group": 1, "data": 20},
+            {"group": 2, "data": 30},
+        ]
+    )
+
+    def generator_udf(df: pd.DataFrame) -> Iterator[pd.DataFrame]:
+        # For each group, yield two DataFrames.
+        # 1. A DataFrame where 'data' is multiplied by 2.
+        yield df.assign(data=df["data"] * 2)
+        # 2. A DataFrame where 'data' is multiplied by 3.
+        yield df.assign(data=df["data"] * 3)
+
+    # Apply the generator UDF to the grouped data.
+    result_ds = ds.groupby("group").map_groups(generator_udf)
+
+    # The final dataset should contain all results from all yields.
+    # Group 1 -> data: [20, 40] and [30, 60]
+    # Group 2 -> data: [60] and [90]
+    expected_data = sorted([20, 40, 30, 60, 60, 90])
+
+    # Collect and sort the actual data to ensure correctness regardless of order.
+    actual_data = sorted([row["data"] for row in result_ds.take_all()])
+
+    assert actual_data == expected_data
+    assert result_ds.count() == 6
+
+
 if __name__ == "__main__":
     import sys