diff --git a/compiler/forget/src/CompilerPipeline.ts b/compiler/forget/src/CompilerPipeline.ts
index b148da1b99..4e0a8bb4f8 100644
--- a/compiler/forget/src/CompilerPipeline.ts
+++ b/compiler/forget/src/CompilerPipeline.ts
@@ -56,7 +56,8 @@ export function* run(
   func: NodePath<t.FunctionDeclaration>,
   config?: EnvironmentConfig | null
 ): Generator<CompilerPipelineValue, t.FunctionDeclaration> {
-  const hir = lower(func, new Environment(config ?? null)).unwrap();
+  const env = new Environment(config ?? null);
+  const hir = lower(func, env).unwrap();
   yield log({ kind: "hir", name: "HIR", value: hir });
 
   mergeConsecutiveBlocks(hir);
diff --git a/compiler/forget/src/HIR/BuildHIR.ts b/compiler/forget/src/HIR/BuildHIR.ts
index 36f338f37f..9e6ffa7fd9 100644
--- a/compiler/forget/src/HIR/BuildHIR.ts
+++ b/compiler/forget/src/HIR/BuildHIR.ts
@@ -36,7 +36,7 @@ import {
   SpreadPattern,
   ThrowTerminal,
 } from "./HIR";
-import HIRBuilder from "./HIRBuilder";
+import HIRBuilder, { Bindings } from "./HIRBuilder";
 
 // *******************************************************************************************
 // *******************************************************************************************
@@ -58,11 +58,12 @@ import HIRBuilder from "./HIRBuilder";
 export function lower(
   func: NodePath<t.Function>,
   env: Environment,
+  bindings: Bindings | null = null,
   capturedRefs: t.Identifier[] = [],
   // the outermost function being compiled, in case lower() is called recursively (for lambdas)
   parent: NodePath<t.Function> | null = null
 ): Result<HIRFunction, CompilerError> {
-  const builder = new HIRBuilder(env, parent ?? func, capturedRefs);
+  const builder = new HIRBuilder(env, parent ?? func, bindings, capturedRefs);
   const context: Place[] = [];
 
   for (const ref of capturedRefs ?? []) {
@@ -2134,6 +2135,7 @@ function lowerFunctionExpression(
   const lowering = lower(
     expr,
     builder.environment,
+    builder.bindings,
     [...builder.context, ...captured.identifiers],
     builder.parentFunction
   );
diff --git a/compiler/forget/src/HIR/HIRBuilder.ts b/compiler/forget/src/HIR/HIRBuilder.ts
index b4b2c147f3..de09951927 100644
--- a/compiler/forget/src/HIR/HIRBuilder.ts
+++ b/compiler/forget/src/HIR/HIRBuilder.ts
@@ -71,6 +71,11 @@ function newBlock(id: BlockId, kind: BlockKind): WipBlock {
   return { id, kind, instructions: [] };
 }
 
+export type Bindings = Map<
+  string,
+  { node: t.Identifier; identifier: Identifier }
+>;
+
 /**
  * Helper class for constructing a CFG
  */
@@ -80,8 +85,7 @@ export default class HIRBuilder {
   #entry: BlockId;
   #scopes: Array<Scope> = [];
   #context: t.Identifier[];
-  #bindings: Map<string, { node: t.Identifier; identifier: Identifier }> =
-    new Map();
+  #bindings: Bindings;
   #env: Environment;
   parentFunction: NodePath<t.Function>;
   errors: CompilerError = new CompilerError();
@@ -94,6 +98,10 @@ export default class HIRBuilder {
     return this.#context;
   }
 
+  get bindings(): Bindings {
+    return this.#bindings;
+  }
+
   get environment(): Environment {
     return this.#env;
   }
@@ -101,11 +109,13 @@ export default class HIRBuilder {
   constructor(
     env: Environment,
     parentFunction: NodePath<t.Function>, // the outermost function being compiled
-    context: t.Identifier[]
+    bindings: Bindings | null = null,
+    context: t.Identifier[] | null = null
   ) {
     this.#env = env;
+    this.#bindings = bindings ?? new Map();
     this.parentFunction = parentFunction;
-    this.#context = context;
+    this.#context = context ?? [];
     this.#entry = makeBlockId(env.nextBlockId);
     this.#current = newBlock(this.#entry, "block");
   }
diff --git a/compiler/forget/src/__tests__/fixtures/compiler/capturing-func-alias-receiver-computed-mutate.expect.md b/compiler/forget/src/__tests__/fixtures/compiler/capturing-func-alias-receiver-computed-mutate.expect.md
index fbfc6a5241..3bd06433c5 100644
--- a/compiler/forget/src/__tests__/fixtures/compiler/capturing-func-alias-receiver-computed-mutate.expect.md
+++ b/compiler/forget/src/__tests__/fixtures/compiler/capturing-func-alias-receiver-computed-mutate.expect.md
@@ -26,8 +26,8 @@ function component(a) {
     const x = { a };
     y = {};
     (function () {
-      let a = y;
-      a["x"] = x;
+      let a_0 = y;
+      a_0["x"] = x;
     })();
     mutate(y);
     $[0] = a;
diff --git a/compiler/forget/src/__tests__/fixtures/compiler/capturing-func-alias-receiver-mutate.expect.md b/compiler/forget/src/__tests__/fixtures/compiler/capturing-func-alias-receiver-mutate.expect.md
index f51e9d2f5c..51d77c8f9b 100644
--- a/compiler/forget/src/__tests__/fixtures/compiler/capturing-func-alias-receiver-mutate.expect.md
+++ b/compiler/forget/src/__tests__/fixtures/compiler/capturing-func-alias-receiver-mutate.expect.md
@@ -26,8 +26,8 @@ function component(a) {
     const x = { a };
     y = {};
     (function () {
-      let a = y;
-      a.x = x;
+      let a_0 = y;
+      a_0.x = x;
     })();
     mutate(y);
     $[0] = a;
diff --git a/compiler/forget/src/__tests__/fixtures/compiler/capturing-function-member-expr-call.expect.md b/compiler/forget/src/__tests__/fixtures/compiler/capturing-function-member-expr-call.expect.md
index 235dae8c08..45a6c8314c 100644
--- a/compiler/forget/src/__tests__/fixtures/compiler/capturing-function-member-expr-call.expect.md
+++ b/compiler/forget/src/__tests__/fixtures/compiler/capturing-function-member-expr-call.expect.md
@@ -19,9 +19,9 @@ function component({ mutator }) {
 ## Code
 
 ```javascript
-function component(t26) {
+function component(t24) {
   const $ = React.unstable_useMemoCache(7);
-  const { mutator } = t26;
+  const { mutator } = t24;
   const c_0 = $[0] !== mutator;
   let t0;
   if (c_0) {
diff --git a/compiler/forget/src/__tests__/fixtures/compiler/capturing-function-shadow-captured.expect.md b/compiler/forget/src/__tests__/fixtures/compiler/capturing-function-shadow-captured.expect.md
index d2bdb712f7..56dda6c008 100644
--- a/compiler/forget/src/__tests__/fixtures/compiler/capturing-function-shadow-captured.expect.md
+++ b/compiler/forget/src/__tests__/fixtures/compiler/capturing-function-shadow-captured.expect.md
@@ -21,8 +21,8 @@ function component(a) {
   let t0;
   if ($[0] === Symbol.for("react.memo_cache_sentinel")) {
     t0 = function () {
-      let z;
-      mutate(z);
+      let z_0;
+      mutate(z_0);
     };
     $[0] = t0;
   } else {
diff --git a/compiler/forget/src/__tests__/fixtures/compiler/inadvertent-mutability-readonly-lambda.expect.md b/compiler/forget/src/__tests__/fixtures/compiler/inadvertent-mutability-readonly-lambda.expect.md
index 242c736227..64be9e6ec9 100644
--- a/compiler/forget/src/__tests__/fixtures/compiler/inadvertent-mutability-readonly-lambda.expect.md
+++ b/compiler/forget/src/__tests__/fixtures/compiler/inadvertent-mutability-readonly-lambda.expect.md
@@ -27,7 +27,7 @@ function Component(props) {
   const c_0 = $[0] !== setValue;
   let t0;
   if (c_0) {
-    t0 = (e) => setValue((value) => value + e.target.value);
+    t0 = (e) => setValue((value_0) => value_0 + e.target.value);
     $[0] = setValue;
     $[1] = t0;
   } else {
diff --git a/compiler/forget/src/__tests__/fixtures/compiler/nested-function-shadowed-identifiers.expect.md b/compiler/forget/src/__tests__/fixtures/compiler/nested-function-shadowed-identifiers.expect.md
new file mode 100644
index 0000000000..d817bb902c
--- /dev/null
+++ b/compiler/forget/src/__tests__/fixtures/compiler/nested-function-shadowed-identifiers.expect.md
@@ -0,0 +1,52 @@
+
+## Input
+
+```javascript
+function Component(props) {
+  const [x, setX] = useState(null);
+
+  const onChange = (e) => {
+    let x = null; // intentionally shadow the original x
+    setX((currentX) => currentX + x); // intentionally refer to shadowed x
+  };
+
+  return <input value={x} onChange={onChange} />;
+}
+
+```
+
+## Code
+
+```javascript
+function Component(props) {
+  const $ = React.unstable_useMemoCache(5);
+  const [x, setX] = useState(null);
+  const c_0 = $[0] !== setX;
+  let t0;
+  if (c_0) {
+    t0 = (e) => {
+      let x_0 = null; // intentionally shadow the original x
+      setX((currentX) => currentX + x_0); // intentionally refer to shadowed x
+    };
+    $[0] = setX;
+    $[1] = t0;
+  } else {
+    t0 = $[1];
+  }
+  const onChange = t0;
+  const c_2 = $[2] !== x;
+  const c_3 = $[3] !== onChange;
+  let t1;
+  if (c_2 || c_3) {
+    t1 = <input value={x} onChange={onChange} />;
+    $[2] = x;
+    $[3] = onChange;
+    $[4] = t1;
+  } else {
+    t1 = $[4];
+  }
+  return t1;
+}
+
+```
+      
\ No newline at end of file
diff --git a/compiler/forget/src/__tests__/fixtures/compiler/nested-function-shadowed-identifiers.js b/compiler/forget/src/__tests__/fixtures/compiler/nested-function-shadowed-identifiers.js
new file mode 100644
index 0000000000..30bbc1ba72
--- /dev/null
+++ b/compiler/forget/src/__tests__/fixtures/compiler/nested-function-shadowed-identifiers.js
@@ -0,0 +1,10 @@
+function Component(props) {
+  const [x, setX] = useState(null);
+
+  const onChange = (e) => {
+    let x = null; // intentionally shadow the original x
+    setX((currentX) => currentX + x); // intentionally refer to shadowed x
+  };
+
+  return <input value={x} onChange={onChange} />;
+}