diff --git a/pkgs/racket-pkgs/racket-doc/scribblings/reference/stx-trans.scrbl b/pkgs/racket-pkgs/racket-doc/scribblings/reference/stx-trans.scrbl
index bf8416864b..e153c38eb9 100644
--- a/pkgs/racket-pkgs/racket-doc/scribblings/reference/stx-trans.scrbl
+++ b/pkgs/racket-pkgs/racket-doc/scribblings/reference/stx-trans.scrbl
@@ -223,10 +223,11 @@ in a sub-expression, expansions stops for the sub-expression. If
 @racket[letrec-syntaxes+values], @racket[#%app],
 @racket[#%expression], @racket[#%top], and
 @racket[#%variable-reference] are added to @racket[stop-ids].  If
-@racket[#%app], @racket[#%top], or @racket[#%datum] appears in
-@racket[stop-ids], then application, top-level variable reference, and
+@racket[#%app] or @racket[#%datum] appears in
+@racket[stop-ids], then application and
 literal data expressions without the respective explicit form are not
-wrapped with the explicit form. If @racket[stop-ids] is @racket[#f]
+wrapped with the explicit form, and @racket[#%top] wrappers are
+never added (even with an empty @racket[stop-ids] list). If @racket[stop-ids] is @racket[#f]
 instead of a list, then @racket[stx] is expanded only as long as the
 outermost form of @racket[stx] is a macro (i.e., expansion does not
 proceed to sub-expressions). A fully expanded form can include the
@@ -290,7 +291,11 @@ generated value onto that list.
        fully)]))
 
 (show 1)
-]}
+]
+
+@history[#:changed "6.0.1.3" @elem{Changed treatment of @racket[#%top]
+                                   so that it is never introduced as
+                                   an explicit wrapper.}]}
 
 
 @defproc[(syntax-local-expand-expression [stx syntax?])
diff --git a/pkgs/racket-pkgs/racket-doc/scribblings/reference/syntax.scrbl b/pkgs/racket-pkgs/racket-doc/scribblings/reference/syntax.scrbl
index 2c23f8cc41..b008cdb8bb 100644
--- a/pkgs/racket-pkgs/racket-doc/scribblings/reference/syntax.scrbl
+++ b/pkgs/racket-pkgs/racket-doc/scribblings/reference/syntax.scrbl
@@ -1614,16 +1614,18 @@ x
 
 @defform[(#%top . id)]{
 
-Refers to a module-level or top-level definition that could bind
-@racket[id], even if @racket[id] has a local binding in its context.
+Refers to a module-level or top-level definition. If @racket[id] has a
+local binding in its context, then @racket[(#%top . id)] refers to a
+top-level definition, but a reference to a top-level definition is
+disallowed within a module.
 
 Within a @racket[module] form, @racket[(#%top . id)] expands to just
 @racket[id]---with the obligation that @racket[id] is defined within
-the module. At @tech{phase level} 0, @racket[(#%top . id)] is an
-immediate syntax error if @racket[id] is not bound. At @tech{phase
-level} 1 and higher, a syntax error is reported if @racket[id] is not
-defined at the corresponding phase by the end of @racket[module]-body
-@tech{partial expansion}.
+the module and has no local binding in its context. At @tech{phase
+level} 0, @racket[(#%top . id)] is an immediate syntax error if
+@racket[id] is not bound. At @tech{phase level} 1 and higher, a syntax
+error is reported if @racket[id] is not defined at the corresponding
+phase by the end of @racket[module]-body @tech{partial expansion}.
 
 See also @secref["expand-steps"] for information on how the expander
 introduces @racketidfont{#%top} identifiers.
diff --git a/pkgs/racket-pkgs/racket-test/tests/racket/macro.rktl b/pkgs/racket-pkgs/racket-test/tests/racket/macro.rktl
index 6bba645745..c7220d6e85 100644
--- a/pkgs/racket-pkgs/racket-test/tests/racket/macro.rktl
+++ b/pkgs/racket-pkgs/racket-test/tests/racket/macro.rktl
@@ -1031,6 +1031,60 @@
     (eval `(require 'm)))
   (test "2\n" get-output-string o))
 
+;; ----------------------------------------
+;; Lifting should not introduce `#%top` around
+;; the reference to the lifted identifier:
+
+(module lifting-doesnt-introduce-top-wrapper racket
+  ;; do the lifting
+  (define-syntax (m stx)
+    (syntax-local-lift-expression #'(+ 1 1)))
+
+  ;; catch the lift, try to put definitions in a let
+  (define-syntax (catch stx)
+    (syntax-case stx ()
+      [(_ body)
+       (syntax-case (local-expand/capture-lifts #'body (syntax-local-context) null)
+           (define-values begin)
+         [(begin (define-values (x ...) e ...) ... exp)
+          #'(let () (define-values (x ...) e ...) ... exp)])]))
+
+  (define z (catch (+ 1 (m))))
+
+  (provide z))
+
+(test 3 dynamic-require ''lifting-doesnt-introduce-top-wrapper 'z)
+
+
+(parameterize ([current-namespace (make-base-namespace)])
+  (eval '(require (for-syntax racket/base)))
+  (eval '(define-syntax (m stx)
+           (syntax-local-lift-expression #'(+ 1 1))))
+  (eval '(define-syntax (catch stx)
+           (syntax-case stx ()
+             [(_ body)
+              (syntax-case (local-expand/capture-lifts #'body (syntax-local-context) null)
+                  (define-values begin)
+                [(begin (define-values (x ...) e ...) ... exp)
+                 #'(let () (define-values (x ...) e ...) ... exp)])])))
+  (test 3 eval '(catch (+ 1 (m)))))
+
+(let-syntax ([m (lambda (stx)
+                  (define e (local-expand #'nonsuch 'expression null))
+                  (unless (identifier? e)
+                    (error 'test "bad expansion: ~e" e))
+                  #'(void))])
+  (m))
+(let-syntax ([m (lambda (stx)
+                  (define e (local-expand #'(#%top . nonsuch) 'expression null))
+                  (syntax-case e (#%top)
+                    [(#%top . id)
+                     (identifier? #'id)
+                     #'(void)]
+                    [else
+                     (error 'test "bad expansion: ~e" e)]))])
+  (m))
+
 ;; ----------------------------------------
 
 (report-errs)
diff --git a/pkgs/racket-pkgs/racket-test/tests/racket/syntax.rktl b/pkgs/racket-pkgs/racket-test/tests/racket/syntax.rktl
index cabb689011..38a355b48a 100644
--- a/pkgs/racket-pkgs/racket-test/tests/racket/syntax.rktl
+++ b/pkgs/racket-pkgs/racket-test/tests/racket/syntax.rktl
@@ -1288,6 +1288,16 @@
 (define x 5)
 (test 5 '#%top (#%top . x))
 
+(syntax-test #'(module m racket/base
+                 (define x 1)
+                 (let ([x 2]) (#%top . x))))
+
+(module ok-top-reference-within-module racket/base
+  (define x 1)
+  (define z (let ([y 2]) (#%top . x)))
+  (provide z))
+(test 1 dynamic-require ''ok-top-reference-within-module 'z)
+
 ;; ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
 ;; Tests related to bytecode optimizer.
 ;; The (if (let ([x M]) (if x x N)) ...)
diff --git a/racket/src/racket/src/compile.c b/racket/src/racket/src/compile.c
index 361f104de5..4b769001dd 100644
--- a/racket/src/racket/src/compile.c
+++ b/racket/src/racket/src/compile.c
@@ -4815,9 +4815,15 @@ scheme_compile_expand_expr(Scheme_Object *form, Scheme_Comp_Env *env,
       }
       return f(form, env, rec, drec);
     } else {
-      name = scheme_stx_taint_disarm(form, NULL);
-      form = scheme_datum_to_syntax(scheme_make_pair(stx, name), form, form, 0, 2);
-      SCHEME_EXPAND_OBSERVE_TAG(rec[drec].observer, form);
+      if (!rec[drec].comp
+          && (rec[drec].depth == -2) /* local-expand */
+          && SAME_OBJ(SCHEME_STX_VAL(stx), top_symbol)) {
+        rec[drec].pre_unwrapped = 1;
+      } else {
+        name = scheme_stx_taint_disarm(form, NULL);
+        form = scheme_datum_to_syntax(scheme_make_pair(stx, name), form, form, 0, 2);
+        SCHEME_EXPAND_OBSERVE_TAG(rec[drec].observer, form);
+      }
 
       if (SAME_TYPE(SCHEME_TYPE(var), scheme_syntax_compiler_type)) {
 	if (rec[drec].comp) {
@@ -5329,7 +5335,7 @@ top_expand(Scheme_Object *form, Scheme_Comp_Env *env, Scheme_Expand_Info *erec,
   SCHEME_EXPAND_OBSERVE_PRIM_TOP(erec[drec].observer);
   c = check_top(form, env, erec, drec, &need_bound_check);
 
-  if (need_bound_check)
+  if (env->genv->module)
     return c; /* strip `#%top' prefix */
 
   return form;