diff --git a/CHANGELOG.md b/CHANGELOG.md
index 04be99080b..068f425d3f 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -23,6 +23,7 @@ This project adheres to [Semantic Versioning](https://semver.org/).
 - Fix indent of delegated super type entry (`indent`) ([#1210](https://github.com/pinterest/ktlint/issues/1210))
 - Improve indentation of closing quotes of a multiline raw string literal (`indent`) ([#1262](https://github.com/pinterest/ktlint/pull/1262))
 - Fix false positive indentation (`parameter-list-wrapping`, `argument-list-wrapping`) ([#897](https://github.com/pinterest/ktlint/issues/897), [#1045](https://github.com/pinterest/ktlint/issues/1045), [#1119](https://github.com/pinterest/ktlint/issues/1119), [#1255](https://github.com/pinterest/ktlint/issues/1255), [#1267](https://github.com/pinterest/ktlint/issues/1267), [#1319](https://github.com/pinterest/ktlint/issues/1319), [#1320](https://github.com/pinterest/ktlint/issues/1320), [#1337](https://github.com/pinterest/ktlint/issues/1337)
+- Force a single line function type inside a nullable type to a separate line when the max line length is exceeded (`parameter-list-wrapping`) ([#1255](https://github.com/pinterest/ktlint/issues/1255))
 
 ### Changed
 - Update Kotlin version to `1.6.0` release
diff --git a/ktlint-ruleset-standard/src/main/kotlin/com/pinterest/ktlint/ruleset/standard/ParameterListWrappingRule.kt b/ktlint-ruleset-standard/src/main/kotlin/com/pinterest/ktlint/ruleset/standard/ParameterListWrappingRule.kt
index 6d96cb4d54..26c6def709 100644
--- a/ktlint-ruleset-standard/src/main/kotlin/com/pinterest/ktlint/ruleset/standard/ParameterListWrappingRule.kt
+++ b/ktlint-ruleset-standard/src/main/kotlin/com/pinterest/ktlint/ruleset/standard/ParameterListWrappingRule.kt
@@ -51,11 +51,49 @@ class ParameterListWrappingRule : Rule("parameter-list-wrapping") {
         if (indentConfig.disabled) {
             return
         }
+
+        node
+            .takeIf { it.elementType == NULLABLE_TYPE }
+            ?.takeUnless {
+                // skip when max line length not set or does not exceed max line length
+                maxLineLength <= 0 || (node.column - 1 + node.textLength) <= maxLineLength
+            }?.findChildByType(FUNCTION_TYPE)
+            ?.findChildByType(VALUE_PARAMETER_LIST)
+            ?.takeIf { it.findChildByType(VALUE_PARAMETER) != null }
+            ?.takeUnless { it.textContains('\n') }
+            ?.let {
+                node
+                    .children()
+                    .forEach {
+                        when (it.elementType) {
+                            LPAR -> {
+                                emit(
+                                    it.startOffset,
+                                    "Parameter of nullable type should be on a separate line (unless the type fits on a single line)",
+                                    true
+                                )
+                                if (autoCorrect) {
+                                    (it as LeafElement).upsertWhitespaceAfterMe("\n${indentConfig.indent}")
+                                }
+                            }
+                            RPAR -> {
+                                emit(it.startOffset, errorMessage(it), true)
+                                if (autoCorrect) {
+                                    (it as LeafElement).upsertWhitespaceBeforeMe("\n")
+                                }
+                            }
+                        }
+                    }
+            }
+
         if (node.elementType == VALUE_PARAMETER_LIST &&
             // skip when there are no parameters
             node.firstChildNode?.treeNext?.elementType != RPAR &&
             // skip lambda parameters
-            node.treeParent?.elementType != FUNCTION_LITERAL
+            node.treeParent?.elementType != FUNCTION_LITERAL &&
+            // skip when function type is wrapped in a nullable type [which was already when processing the nullable
+            // type node itself.
+            !(node.treeParent.elementType == FUNCTION_TYPE && node.treeParent?.treeParent?.elementType == NULLABLE_TYPE)
         ) {
             // each parameter should be on a separate line if
             // - at least one of the parameters is
diff --git a/ktlint-ruleset-standard/src/test/kotlin/com/pinterest/ktlint/ruleset/standard/ParameterListWrappingRuleTest.kt b/ktlint-ruleset-standard/src/test/kotlin/com/pinterest/ktlint/ruleset/standard/ParameterListWrappingRuleTest.kt
index f947b94bc2..d596cc2f2e 100644
--- a/ktlint-ruleset-standard/src/test/kotlin/com/pinterest/ktlint/ruleset/standard/ParameterListWrappingRuleTest.kt
+++ b/ktlint-ruleset-standard/src/test/kotlin/com/pinterest/ktlint/ruleset/standard/ParameterListWrappingRuleTest.kt
@@ -476,4 +476,28 @@ class ParameterListWrappingRuleTest {
             """.trimIndent()
         assertThat(ParameterListWrappingRule().lint(code)).isEmpty()
     }
+
+    @Test
+    fun `Issue 1255 - Given a variable declaration for nullable function type which exceeds the max-line-length then wrap the function type to a new line`() {
+        val code =
+            """
+            var changesListener: ((width: Double?, depth: Double?, length: Double?, area: Double?) -> Unit)? = null
+            """.trimIndent()
+        val formattedCode =
+            """
+            var changesListener: (
+                (width: Double?, depth: Double?, length: Double?, area: Double?) -> Unit
+            )? = null
+            """.trimIndent()
+        assertThat(
+            ParameterListWrappingRule().lint(
+                code,
+                userData = mapOf("max_line_length" to "80")
+            )
+        ).containsExactly(
+            LintError(1, 22, "parameter-list-wrapping", "Parameter of nullable type should be on a separate line (unless the type fits on a single line)"),
+            LintError(1, 95, "parameter-list-wrapping", """Missing newline before ")"""")
+        )
+        assertThat(ParameterListWrappingRule().format(code, userData = mapOf("max_line_length" to "80"))).isEqualTo(formattedCode)
+    }
 }