diff --git a/compiler/packages/babel-plugin-react-compiler/src/Entrypoint/Pipeline.ts b/compiler/packages/babel-plugin-react-compiler/src/Entrypoint/Pipeline.ts
index 831d1ca38054e..fe97c8d642f60 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/Entrypoint/Pipeline.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/Entrypoint/Pipeline.ts
@@ -130,6 +130,7 @@ function run(
     mode,
     config,
     contextIdentifiers,
+    func,
     logger,
     filename,
     code,
diff --git a/compiler/packages/babel-plugin-react-compiler/src/HIR/BuildHIR.ts b/compiler/packages/babel-plugin-react-compiler/src/HIR/BuildHIR.ts
index b9f82eea18e9f..cfb15fb595ccc 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/BuildHIR.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/BuildHIR.ts
@@ -70,12 +70,14 @@ import {BuiltInArrayId} from './ObjectShape';
 export function lower(
   func: NodePath<t.Function>,
   env: Environment,
+  // Bindings captured from the outer function, in case lower() is called recursively (for lambdas)
   bindings: Bindings | null = null,
   capturedRefs: Array<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, bindings, capturedRefs);
+  const builder = new HIRBuilder(env, {
+    bindings,
+    context: capturedRefs,
+  });
   const context: HIRFunction['context'] = [];
 
   for (const ref of capturedRefs ?? []) {
@@ -215,7 +217,7 @@ export function lower(
   return Ok({
     id,
     params,
-    fnType: parent == null ? env.fnType : 'Other',
+    fnType: bindings == null ? env.fnType : 'Other',
     returnTypeAnnotation: null, // TODO: extract the actual return type node if present
     returnType: makeType(),
     body: builder.build(),
@@ -3417,7 +3419,7 @@ function lowerFunction(
     | t.ObjectMethod
   >,
 ): LoweredFunction | null {
-  const componentScope: Scope = builder.parentFunction.scope;
+  const componentScope: Scope = builder.environment.parentFunction.scope;
   const capturedContext = gatherCapturedContext(expr, componentScope);
 
   /*
@@ -3428,13 +3430,10 @@ function lowerFunction(
    * This isn't a problem in practice because use Babel's scope analysis to
    * identify the correct references.
    */
-  const lowering = lower(
-    expr,
-    builder.environment,
-    builder.bindings,
-    [...builder.context, ...capturedContext],
-    builder.parentFunction,
-  );
+  const lowering = lower(expr, builder.environment, builder.bindings, [
+    ...builder.context,
+    ...capturedContext,
+  ]);
   let loweredFunc: HIRFunction;
   if (lowering.isErr()) {
     lowering
@@ -3456,7 +3455,7 @@ function lowerExpressionToTemporary(
   return lowerValueToTemporary(builder, value);
 }
 
-function lowerValueToTemporary(
+export function lowerValueToTemporary(
   builder: HIRBuilder,
   value: InstructionValue,
 ): Place {
diff --git a/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectHoistablePropertyLoads.ts b/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectHoistablePropertyLoads.ts
index ea7268c573379..a11822538f54f 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectHoistablePropertyLoads.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectHoistablePropertyLoads.ts
@@ -241,7 +241,10 @@ type PropertyPathNode =
 class PropertyPathRegistry {
   roots: Map<IdentifierId, RootNode> = new Map();
 
-  getOrCreateIdentifier(identifier: Identifier): PropertyPathNode {
+  getOrCreateIdentifier(
+    identifier: Identifier,
+    reactive: boolean,
+  ): PropertyPathNode {
     /**
      * Reads from a statically scoped variable are always safe in JS,
      * with the exception of TDZ (not addressed by this pass).
@@ -255,12 +258,19 @@ class PropertyPathRegistry {
         optionalProperties: new Map(),
         fullPath: {
           identifier,
+          reactive,
           path: [],
         },
         hasOptional: false,
         parent: null,
       };
       this.roots.set(identifier.id, rootNode);
+    } else {
+      CompilerError.invariant(reactive === rootNode.fullPath.reactive, {
+        reason:
+          '[HoistablePropertyLoads] Found inconsistencies in `reactive` flag when deduping identifier reads within the same scope',
+        loc: identifier.loc,
+      });
     }
     return rootNode;
   }
@@ -278,6 +288,7 @@ class PropertyPathRegistry {
         parent: parent,
         fullPath: {
           identifier: parent.fullPath.identifier,
+          reactive: parent.fullPath.reactive,
           path: parent.fullPath.path.concat(entry),
         },
         hasOptional: parent.hasOptional || entry.optional,
@@ -293,7 +304,7 @@ class PropertyPathRegistry {
      * so all subpaths of a PropertyLoad should already exist
      * (e.g. a.b is added before a.b.c),
      */
-    let currNode = this.getOrCreateIdentifier(n.identifier);
+    let currNode = this.getOrCreateIdentifier(n.identifier, n.reactive);
     if (n.path.length === 0) {
       return currNode;
     }
@@ -315,10 +326,11 @@ function getMaybeNonNullInInstruction(
   instr: InstructionValue,
   context: CollectHoistablePropertyLoadsContext,
 ): PropertyPathNode | null {
-  let path = null;
+  let path: ReactiveScopeDependency | null = null;
   if (instr.kind === 'PropertyLoad') {
     path = context.temporaries.get(instr.object.identifier.id) ?? {
       identifier: instr.object.identifier,
+      reactive: instr.object.reactive,
       path: [],
     };
   } else if (instr.kind === 'Destructure') {
@@ -381,7 +393,7 @@ function collectNonNullsInBlocks(
   ) {
     const identifier = fn.params[0].identifier;
     knownNonNullIdentifiers.add(
-      context.registry.getOrCreateIdentifier(identifier),
+      context.registry.getOrCreateIdentifier(identifier, true),
     );
   }
   const nodes = new Map<
@@ -616,9 +628,11 @@ function reduceMaybeOptionalChains(
     changed = false;
 
     for (const original of optionalChainNodes) {
-      let {identifier, path: origPath} = original.fullPath;
-      let currNode: PropertyPathNode =
-        registry.getOrCreateIdentifier(identifier);
+      let {identifier, path: origPath, reactive} = original.fullPath;
+      let currNode: PropertyPathNode = registry.getOrCreateIdentifier(
+        identifier,
+        reactive,
+      );
       for (let i = 0; i < origPath.length; i++) {
         const entry = origPath[i];
         // If the base is known to be non-null, replace with a non-optional load
diff --git a/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectOptionalChainDependencies.ts b/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectOptionalChainDependencies.ts
index cb787d04d0623..75dad4c1bfe63 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectOptionalChainDependencies.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectOptionalChainDependencies.ts
@@ -290,6 +290,7 @@ function traverseOptionalBlock(
     );
     baseObject = {
       identifier: maybeTest.instructions[0].value.place.identifier,
+      reactive: maybeTest.instructions[0].value.place.reactive,
       path,
     };
     test = maybeTest.terminal;
@@ -391,6 +392,7 @@ function traverseOptionalBlock(
   );
   const load = {
     identifier: baseObject.identifier,
+    reactive: baseObject.reactive,
     path: [
       ...baseObject.path,
       {
diff --git a/compiler/packages/babel-plugin-react-compiler/src/HIR/DeriveMinimalDependenciesHIR.ts b/compiler/packages/babel-plugin-react-compiler/src/HIR/DeriveMinimalDependenciesHIR.ts
index 7f6fb9e88f817..7819ab39b2c69 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/DeriveMinimalDependenciesHIR.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/DeriveMinimalDependenciesHIR.ts
@@ -25,8 +25,9 @@ export class ReactiveScopeDependencyTreeHIR {
    * `identifier.path`, or `identifier?.path` is in this map, it is safe to
    * evaluate (non-optional) PropertyLoads from.
    */
-  #hoistableObjects: Map<Identifier, HoistableNode> = new Map();
-  #deps: Map<Identifier, DependencyNode> = new Map();
+  #hoistableObjects: Map<Identifier, HoistableNode & {reactive: boolean}> =
+    new Map();
+  #deps: Map<Identifier, DependencyNode & {reactive: boolean}> = new Map();
 
   /**
    * @param hoistableObjects a set of paths from which we can safely evaluate
@@ -35,9 +36,10 @@ export class ReactiveScopeDependencyTreeHIR {
    * duplicates when traversing the CFG.
    */
   constructor(hoistableObjects: Iterable<ReactiveScopeDependency>) {
-    for (const {path, identifier} of hoistableObjects) {
+    for (const {path, identifier, reactive} of hoistableObjects) {
       let currNode = ReactiveScopeDependencyTreeHIR.#getOrCreateRoot(
         identifier,
+        reactive,
         this.#hoistableObjects,
         path.length > 0 && path[0].optional ? 'Optional' : 'NonNull',
       );
@@ -70,7 +72,8 @@ export class ReactiveScopeDependencyTreeHIR {
 
   static #getOrCreateRoot<T extends string>(
     identifier: Identifier,
-    roots: Map<Identifier, TreeNode<T>>,
+    reactive: boolean,
+    roots: Map<Identifier, TreeNode<T> & {reactive: boolean}>,
     defaultAccessType: T,
   ): TreeNode<T> {
     // roots can always be accessed unconditionally in JS
@@ -79,9 +82,16 @@ export class ReactiveScopeDependencyTreeHIR {
     if (rootNode === undefined) {
       rootNode = {
         properties: new Map(),
+        reactive,
         accessType: defaultAccessType,
       };
       roots.set(identifier, rootNode);
+    } else {
+      CompilerError.invariant(reactive === rootNode.reactive, {
+        reason: '[DeriveMinimalDependenciesHIR] Conflicting reactive root flag',
+        description: `Identifier ${printIdentifier(identifier)}`,
+        loc: GeneratedSource,
+      });
     }
     return rootNode;
   }
@@ -92,9 +102,10 @@ export class ReactiveScopeDependencyTreeHIR {
    * safe-to-evaluate subpath
    */
   addDependency(dep: ReactiveScopeDependency): void {
-    const {identifier, path} = dep;
+    const {identifier, reactive, path} = dep;
     let depCursor = ReactiveScopeDependencyTreeHIR.#getOrCreateRoot(
       identifier,
+      reactive,
       this.#deps,
       PropertyAccessType.UnconditionalAccess,
     );
@@ -172,7 +183,13 @@ export class ReactiveScopeDependencyTreeHIR {
   deriveMinimalDependencies(): Set<ReactiveScopeDependency> {
     const results = new Set<ReactiveScopeDependency>();
     for (const [rootId, rootNode] of this.#deps.entries()) {
-      collectMinimalDependenciesInSubtree(rootNode, rootId, [], results);
+      collectMinimalDependenciesInSubtree(
+        rootNode,
+        rootNode.reactive,
+        rootId,
+        [],
+        results,
+      );
     }
 
     return results;
@@ -294,25 +311,24 @@ type HoistableNode = TreeNode<'Optional' | 'NonNull'>;
 type DependencyNode = TreeNode<PropertyAccessType>;
 
 /**
- * TODO: this is directly pasted from DeriveMinimalDependencies. Since we no
- * longer have conditionally accessed nodes, we can simplify
- *
  * Recursively calculates minimal dependencies in a subtree.
  * @param node DependencyNode representing a dependency subtree.
  * @returns a minimal list of dependencies in this subtree.
  */
 function collectMinimalDependenciesInSubtree(
   node: DependencyNode,
+  reactive: boolean,
   rootIdentifier: Identifier,
   path: Array<DependencyPathEntry>,
   results: Set<ReactiveScopeDependency>,
 ): void {
   if (isDependency(node.accessType)) {
-    results.add({identifier: rootIdentifier, path});
+    results.add({identifier: rootIdentifier, reactive, path});
   } else {
     for (const [childName, childNode] of node.properties) {
       collectMinimalDependenciesInSubtree(
         childNode,
+        reactive,
         rootIdentifier,
         [
           ...path,
diff --git a/compiler/packages/babel-plugin-react-compiler/src/HIR/Environment.ts b/compiler/packages/babel-plugin-react-compiler/src/HIR/Environment.ts
index 6e6643cd1d68f..27b578b3c7834 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/Environment.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/Environment.ts
@@ -47,7 +47,7 @@ import {
   ShapeRegistry,
   addHook,
 } from './ObjectShape';
-import {Scope as BabelScope} from '@babel/traverse';
+import {Scope as BabelScope, NodePath} from '@babel/traverse';
 import {TypeSchema} from './TypeSchema';
 
 export const ReactElementSymbolSchema = z.object({
@@ -675,6 +675,7 @@ export class Environment {
 
   #contextIdentifiers: Set<t.Identifier>;
   #hoistedIdentifiers: Set<t.Identifier>;
+  parentFunction: NodePath<t.Function>;
 
   constructor(
     scope: BabelScope,
@@ -682,6 +683,7 @@ export class Environment {
     compilerMode: CompilerMode,
     config: EnvironmentConfig,
     contextIdentifiers: Set<t.Identifier>,
+    parentFunction: NodePath<t.Function>, // the outermost function being compiled
     logger: Logger | null,
     filename: string | null,
     code: string | null,
@@ -740,6 +742,7 @@ export class Environment {
       this.#moduleTypes.set(REANIMATED_MODULE_NAME, reanimatedModuleType);
     }
 
+    this.parentFunction = parentFunction;
     this.#contextIdentifiers = contextIdentifiers;
     this.#hoistedIdentifiers = new Set();
   }
diff --git a/compiler/packages/babel-plugin-react-compiler/src/HIR/HIR.ts b/compiler/packages/babel-plugin-react-compiler/src/HIR/HIR.ts
index 99b8c189ee0fd..1699a0fc3d292 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/HIR.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/HIR.ts
@@ -1568,6 +1568,18 @@ export type DependencyPathEntry = {
 export type DependencyPath = Array<DependencyPathEntry>;
 export type ReactiveScopeDependency = {
   identifier: Identifier;
+  /**
+   * Reflects whether the base identifier is reactive. Note that some reactive
+   * objects may have non-reactive properties, but we do not currently track
+   * this.
+   *
+   * ```js
+   * // Technically, result[0] is reactive and result[1] is not.
+   * // Currently, both dependencies would be marked as reactive.
+   * const result = useState();
+   * ```
+   */
+  reactive: boolean;
   path: DependencyPath;
 };
 
diff --git a/compiler/packages/babel-plugin-react-compiler/src/HIR/HIRBuilder.ts b/compiler/packages/babel-plugin-react-compiler/src/HIR/HIRBuilder.ts
index 44dd34b7d6cae..9ed37bb2fc85f 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/HIRBuilder.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/HIRBuilder.ts
@@ -110,7 +110,6 @@ export default class HIRBuilder {
   #bindings: Bindings;
   #env: Environment;
   #exceptionHandlerStack: Array<BlockId> = [];
-  parentFunction: NodePath<t.Function>;
   errors: CompilerError = new CompilerError();
   /**
    * Traversal context: counts the number of `fbt` tag parents
@@ -136,16 +135,17 @@ export default class HIRBuilder {
 
   constructor(
     env: Environment,
-    parentFunction: NodePath<t.Function>, // the outermost function being compiled
-    bindings: Bindings | null = null,
-    context: Array<t.Identifier> | null = null,
+    options?: {
+      bindings?: Bindings | null;
+      context?: Array<t.Identifier>;
+      entryBlockKind?: BlockKind;
+    },
   ) {
     this.#env = env;
-    this.#bindings = bindings ?? new Map();
-    this.parentFunction = parentFunction;
-    this.#context = context ?? [];
+    this.#bindings = options?.bindings ?? new Map();
+    this.#context = options?.context ?? [];
     this.#entry = makeBlockId(env.nextBlockId);
-    this.#current = newBlock(this.#entry, 'block');
+    this.#current = newBlock(this.#entry, options?.entryBlockKind ?? 'block');
   }
 
   currentBlockKind(): BlockKind {
@@ -239,7 +239,7 @@ export default class HIRBuilder {
 
     // Check if the binding is from module scope
     const outerBinding =
-      this.parentFunction.scope.parent.getBinding(originalName);
+      this.#env.parentFunction.scope.parent.getBinding(originalName);
     if (babelBinding === outerBinding) {
       const path = babelBinding.path;
       if (path.isImportDefaultSpecifier()) {
@@ -293,7 +293,7 @@ export default class HIRBuilder {
     const binding = this.#resolveBabelBinding(path);
     if (binding) {
       // Check if the binding is from module scope, if so return null
-      const outerBinding = this.parentFunction.scope.parent.getBinding(
+      const outerBinding = this.#env.parentFunction.scope.parent.getBinding(
         path.node.name,
       );
       if (binding === outerBinding) {
@@ -376,7 +376,7 @@ export default class HIRBuilder {
   }
 
   // Terminate the current block w the given terminal, and start a new block
-  terminate(terminal: Terminal, nextBlockKind: BlockKind | null): void {
+  terminate(terminal: Terminal, nextBlockKind: BlockKind | null): BlockId {
     const {id: blockId, kind, instructions} = this.#current;
     this.#completed.set(blockId, {
       kind,
@@ -390,6 +390,7 @@ export default class HIRBuilder {
       const nextId = this.#env.nextBlockId;
       this.#current = newBlock(nextId, nextBlockKind);
     }
+    return blockId;
   }
 
   /*
@@ -746,6 +747,11 @@ function getReversePostorderedBlocks(func: HIR): HIR['blocks'] {
      * (eg bb2 then bb1), we ensure that they get reversed back to the correct order.
      */
     const block = func.blocks.get(blockId)!;
+    CompilerError.invariant(block != null, {
+      reason: '[HIRBuilder] Unexpected null block',
+      description: `expected block ${blockId} to exist`,
+      loc: GeneratedSource,
+    });
     const successors = [...eachTerminalSuccessor(block.terminal)].reverse();
     const fallthrough = terminalFallthrough(block.terminal);
 
diff --git a/compiler/packages/babel-plugin-react-compiler/src/HIR/PropagateScopeDependenciesHIR.ts b/compiler/packages/babel-plugin-react-compiler/src/HIR/PropagateScopeDependenciesHIR.ts
index 96b9e51710887..91b7712b881fc 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/PropagateScopeDependenciesHIR.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/PropagateScopeDependenciesHIR.ts
@@ -316,6 +316,7 @@ function collectTemporariesSidemapImpl(
         ) {
           temporaries.set(lvalue.identifier.id, {
             identifier: value.place.identifier,
+            reactive: value.place.reactive,
             path: [],
           });
         }
@@ -369,11 +370,13 @@ function getProperty(
   if (resolvedDependency == null) {
     property = {
       identifier: object.identifier,
+      reactive: object.reactive,
       path: [{property: propertyName, optional}],
     };
   } else {
     property = {
       identifier: resolvedDependency.identifier,
+      reactive: resolvedDependency.reactive,
       path: [...resolvedDependency.path, {property: propertyName, optional}],
     };
   }
@@ -532,6 +535,7 @@ export class DependencyCollectionContext {
     this.visitDependency(
       this.#temporaries.get(place.identifier.id) ?? {
         identifier: place.identifier,
+        reactive: place.reactive,
         path: [],
       },
     );
@@ -596,6 +600,7 @@ export class DependencyCollectionContext {
     ) {
       maybeDependency = {
         identifier: maybeDependency.identifier,
+        reactive: maybeDependency.reactive,
         path: [],
       };
     }
@@ -617,7 +622,11 @@ export class DependencyCollectionContext {
         identifier =>
           identifier.declarationId === place.identifier.declarationId,
       ) &&
-      this.#checkValidDependency({identifier: place.identifier, path: []})
+      this.#checkValidDependency({
+        identifier: place.identifier,
+        reactive: place.reactive,
+        path: [],
+      })
     ) {
       currentScope.reassignments.add(place.identifier);
     }
diff --git a/compiler/packages/babel-plugin-react-compiler/src/Inference/InferReactivePlaces.ts b/compiler/packages/babel-plugin-react-compiler/src/Inference/InferReactivePlaces.ts
index b05b292124c72..88faccd8cf3b6 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/Inference/InferReactivePlaces.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/Inference/InferReactivePlaces.ts
@@ -26,6 +26,7 @@ import {
 import {PostDominator} from '../HIR/Dominator';
 import {
   eachInstructionLValue,
+  eachInstructionOperand,
   eachInstructionValueOperand,
   eachTerminalOperand,
 } from '../HIR/visitors';
@@ -292,7 +293,7 @@ export function inferReactivePlaces(fn: HIRFunction): void {
         let hasReactiveInput = false;
         /*
          * NOTE: we want to mark all operands as reactive or not, so we
-         * avoid short-circuting here
+         * avoid short-circuiting here
          */
         for (const operand of eachInstructionValueOperand(value)) {
           const reactive = reactiveIdentifiers.isReactive(operand);
@@ -375,6 +376,41 @@ export function inferReactivePlaces(fn: HIRFunction): void {
       }
     }
   } while (reactiveIdentifiers.snapshot());
+
+  function propagateReactivityToInnerFunctions(
+    fn: HIRFunction,
+    isOutermost: boolean,
+  ): void {
+    for (const [, block] of fn.body.blocks) {
+      for (const instr of block.instructions) {
+        if (!isOutermost) {
+          for (const operand of eachInstructionOperand(instr)) {
+            reactiveIdentifiers.isReactive(operand);
+          }
+        }
+        if (
+          instr.value.kind === 'ObjectMethod' ||
+          instr.value.kind === 'FunctionExpression'
+        ) {
+          propagateReactivityToInnerFunctions(
+            instr.value.loweredFunc.func,
+            false,
+          );
+        }
+      }
+      if (!isOutermost) {
+        for (const operand of eachTerminalOperand(block.terminal)) {
+          reactiveIdentifiers.isReactive(operand);
+        }
+      }
+    }
+  }
+
+  /**
+   * Propagate reactivity for inner functions, as we eventually hoist and dedupe
+   * dependency instructions for scopes.
+   */
+  propagateReactivityToInnerFunctions(fn, true);
 }
 
 /*
diff --git a/compiler/packages/babel-plugin-react-compiler/src/ReactiveScopes/MergeReactiveScopesThatInvalidateTogether.ts b/compiler/packages/babel-plugin-react-compiler/src/ReactiveScopes/MergeReactiveScopesThatInvalidateTogether.ts
index 08d2212d86b95..6f2d97ff8e528 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/ReactiveScopes/MergeReactiveScopesThatInvalidateTogether.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/ReactiveScopes/MergeReactiveScopesThatInvalidateTogether.ts
@@ -456,6 +456,7 @@ function canMergeScopes(
       new Set(
         [...current.scope.declarations.values()].map(declaration => ({
           identifier: declaration.identifier,
+          reactive: true,
           path: [],
         })),
       ),