diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/error.invalid-setState-in-useMemo-indirect-useCallback.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/error.invalid-setState-in-useMemo-indirect-useCallback.expect.md
new file mode 100644
index 0000000000..acf84652b2
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/error.invalid-setState-in-useMemo-indirect-useCallback.expect.md
@@ -0,0 +1,38 @@
+
+## Input
+
+```javascript
+import {useCallback} from 'react';
+
+function useKeyedState({key, init}) {
+  const [prevKey, setPrevKey] = useState(key);
+  const [state, setState] = useState(init);
+
+  const fn = useCallback(() => {
+    setPrevKey(key);
+    setState(init);
+  });
+
+  useMemo(() => {
+    fn();
+  }, [key, init]);
+
+  return state;
+}
+
+```
+
+
+## Error
+
+```
+  11 |
+  12 |   useMemo(() => {
+> 13 |     fn();
+     |     ^^ InvalidReact: Calling setState from useMemo may trigger an infinite loop. (https://react.dev/reference/react/useState) (13:13)
+  14 |   }, [key, init]);
+  15 |
+  16 |   return state;
+```
+          
+      
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/error.invalid-setState-in-useMemo-indirect-useCallback.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/error.invalid-setState-in-useMemo-indirect-useCallback.js
new file mode 100644
index 0000000000..dbdf5f5a4d
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/error.invalid-setState-in-useMemo-indirect-useCallback.js
@@ -0,0 +1,17 @@
+import {useCallback} from 'react';
+
+function useKeyedState({key, init}) {
+  const [prevKey, setPrevKey] = useState(key);
+  const [state, setState] = useState(init);
+
+  const fn = useCallback(() => {
+    setPrevKey(key);
+    setState(init);
+  });
+
+  useMemo(() => {
+    fn();
+  }, [key, init]);
+
+  return state;
+}