System and method for controlling exhaust flow from an internal combustion engine

A system for controlling exhaust flow from an internal combustion engine powering a marine propulsion device includes a primary exhaust conduit having an upstream end receiving exhaust gas from the internal combustion engine and a downstream end discharging exhaust gas to a body of water via a gearcase housing. A bypass exhaust conduit has an upstream end receiving exhaust gas from the primary exhaust conduit and a downstream end discharging exhaust gas from a bypass outlet of the marine propulsion device. A bypass valve is selectively openable to allow exhaust gas to flow through the bypass conduit. A control module is in signal communication with the bypass valve. The control module opens the bypass valve to divert the exhaust gas through the bypass conduit and out the bypass outlet in response to selection of a control mode of the marine propulsion device other than a default lever control mode.