diff --git a/doc/source/whatsnew/v1.2.0.rst b/doc/source/whatsnew/v1.2.0.rst
index 690e6b8f725ad..73493bbeb0eac 100644
--- a/doc/source/whatsnew/v1.2.0.rst
+++ b/doc/source/whatsnew/v1.2.0.rst
@@ -380,7 +380,7 @@ Categorical
 ^^^^^^^^^^^
 - :meth:`Categorical.fillna` will always return a copy, will validate a passed fill value regardless of whether there are any NAs to fill, and will disallow a ``NaT`` as a fill value for numeric categories (:issue:`36530`)
 - Bug in :meth:`Categorical.__setitem__` that incorrectly raised when trying to set a tuple value (:issue:`20439`)
--
+- Bug in :meth:`CategoricalIndex.equals` incorrectly casting non-category entries to ``np.nan`` (:issue:`37667`)
 
 Datetimelike
 ^^^^^^^^^^^^
diff --git a/pandas/core/indexes/category.py b/pandas/core/indexes/category.py
index 525c41bae8b51..085d2f5e832a2 100644
--- a/pandas/core/indexes/category.py
+++ b/pandas/core/indexes/category.py
@@ -20,7 +20,7 @@
     pandas_dtype,
 )
 from pandas.core.dtypes.dtypes import CategoricalDtype
-from pandas.core.dtypes.missing import is_valid_nat_for_dtype, notna
+from pandas.core.dtypes.missing import is_valid_nat_for_dtype, isna, notna
 
 from pandas.core import accessor
 from pandas.core.arrays.categorical import Categorical, contains
@@ -263,6 +263,7 @@ def _is_dtype_compat(self, other) -> Categorical:
             values = other
             if not is_list_like(values):
                 values = [values]
+
             cat = Categorical(other, dtype=self.dtype)
             other = CategoricalIndex(cat)
             if not other.isin(values).all():
@@ -271,6 +272,12 @@ def _is_dtype_compat(self, other) -> Categorical:
                 )
             other = other._values
 
+            if not ((other == values) | (isna(other) & isna(values))).all():
+                # GH#37667 see test_equals_non_category
+                raise TypeError(
+                    "categories must match existing categories when appending"
+                )
+
         return other
 
     def equals(self, other: object) -> bool:
@@ -291,13 +298,10 @@ def equals(self, other: object) -> bool:
 
         try:
             other = self._is_dtype_compat(other)
-            if isinstance(other, type(self)):
-                other = other._data
-            return self._data.equals(other)
         except (TypeError, ValueError):
-            pass
+            return False
 
-        return False
+        return self._data.equals(other)
 
     # --------------------------------------------------------------------
     # Rendering Methods
diff --git a/pandas/tests/indexes/categorical/test_category.py b/pandas/tests/indexes/categorical/test_category.py
index cf2430d041d88..324a2535bc465 100644
--- a/pandas/tests/indexes/categorical/test_category.py
+++ b/pandas/tests/indexes/categorical/test_category.py
@@ -444,6 +444,14 @@ def test_equals_categorical_unordered(self):
         assert not a.equals(c)
         assert not b.equals(c)
 
+    def test_equals_non_category(self):
+        # GH#37667 Case where other contains a value not among ci's
+        #  categories ("D") and also contains np.nan
+        ci = CategoricalIndex(["A", "B", np.nan, np.nan])
+        other = Index(["A", "B", "D", np.nan])
+
+        assert not ci.equals(other)
+
     def test_frame_repr(self):
         df = pd.DataFrame({"A": [1, 2, 3]}, index=CategoricalIndex(["a", "b", "c"]))
         result = repr(df)