diff --git a/pkgs/racket-test-core/tests/racket/letrec.rktl b/pkgs/racket-test-core/tests/racket/letrec.rktl
index 82fe86bff1..0df5bcf664 100644
--- a/pkgs/racket-test-core/tests/racket/letrec.rktl
+++ b/pkgs/racket-test-core/tests/racket/letrec.rktl
@@ -159,5 +159,13 @@
                         ((offsets) (map quad-super-type (list 1))))
           offsets)))
 
+(err/rt-test
+ (let ()
+   (define (wrap x) x)
+   (letrec ([f (wrap (lambda () (g)))]
+            [g (let ([g2 (lambda () (letrec ([x x]) x))])
+                 g2)])
+     (f)))
+ letrec-exn?)
 
 (report-errs)
diff --git a/racket/src/racket/src/letrec_check.c b/racket/src/racket/src/letrec_check.c
index 3c811b85e6..45657773de 100644
--- a/racket/src/racket/src/letrec_check.c
+++ b/racket/src/racket/src/letrec_check.c
@@ -392,6 +392,13 @@ static Scheme_Object *letrec_check_local(Scheme_Object *o, Letrec_Check_Frame *f
         ls = (Scheme_Object *)make_deferred_expr_closure(o, frame);
         ls = scheme_make_pair(ls, outer_frame->def[dpos]);
         outer_frame->def[dpos] = ls;
+
+        /* But if we're trying to propagate to a variable that was
+           already referenced, we need to treat this one as
+           referenced, too */
+        if ((outer_frame->ref[dpos] & LET_APPLY_USE)
+            && in_frame->ref)
+          in_frame->ref[in_position] |= LET_APPLY_USE;
       }
     }
   }