It is important to understand why some students are able to bounce back following setbacks, while others become de-motivated and suffer negative consequences. This study tests a model which places students' beliefs about ability (Dweck & Leggett, 1988) as a key factor which may influence students' motivational response to setbacks and achievement. A survey was conducted among second semester university students in Indonesia (N = 123, mean age 18.67 years, 81% female) enrolled in a challenging statistics course. Beliefs about intelligence, about academic ability, and goal orientation were measured at the beginning of the semester, while effort attribution and de-motivation were measured one week after the mid-term examination grades were announced. Mid-term and final examination grades were obtained from the course instructor, while first semester GPA (as an index of prior ability) was obtained from the university register. Path analysis indicated that growth mindset about academic ability (but not about intelligence) prompted the adoption of mastery goals and effort attribution, which buffered against demotivation in the face of academic setback, which in turn led to better academic achievement. This motivational pattern became more pronounced among students who experienced setback in their mid-term exam.