diff --git a/mypy/binder.py b/mypy/binder.py
index d822aecec2f3..37c0b6bb9006 100644
--- a/mypy/binder.py
+++ b/mypy/binder.py
@@ -51,6 +51,9 @@ def __init__(self, id: int, conditional_frame: bool = False) -> None:
         # need this field.
         self.suppress_unreachable_warnings = False
 
+    def __repr__(self) -> str:
+        return f"Frame({self.id}, {self.types}, {self.unreachable}, {self.conditional_frame})"
+
 
 Assigns = DefaultDict[Expression, List[Tuple[Type, Optional[Type]]]]
 
@@ -63,7 +66,7 @@ class ConditionalTypeBinder:
 
     ```
     class A:
-        a = None          # type: Union[int, str]
+        a: Union[int, str] = None
     x = A()
     lst = [x]
     reveal_type(x.a)      # Union[int, str]
@@ -446,6 +449,7 @@ def top_frame_context(self) -> Iterator[Frame]:
         assert len(self.frames) == 1
         yield self.push_frame()
         self.pop_frame(True, 0)
+        assert len(self.frames) == 1
 
 
 def get_declaration(expr: BindableExpression) -> Type | None:
diff --git a/mypy/checker.py b/mypy/checker.py
index 09dc0a726b99..fd9ce02626bd 100644
--- a/mypy/checker.py
+++ b/mypy/checker.py
@@ -26,7 +26,7 @@
 
 import mypy.checkexpr
 from mypy import errorcodes as codes, message_registry, nodes, operators
-from mypy.binder import ConditionalTypeBinder, get_declaration
+from mypy.binder import ConditionalTypeBinder, Frame, get_declaration
 from mypy.checkmember import (
     MemberContext,
     analyze_decorator_or_funcbase_access,
@@ -41,7 +41,7 @@
 from mypy.errors import Errors, ErrorWatcher, report_internal_error
 from mypy.expandtype import expand_self_type, expand_type, expand_type_by_instance
 from mypy.join import join_types
-from mypy.literals import Key, literal, literal_hash
+from mypy.literals import Key, extract_var_from_literal_hash, literal, literal_hash
 from mypy.maptype import map_instance_to_supertype
 from mypy.meet import is_overlapping_erased_types, is_overlapping_types
 from mypy.message_registry import ErrorMessage
@@ -134,6 +134,7 @@
     is_final_node,
 )
 from mypy.options import Options
+from mypy.patterns import AsPattern, StarredPattern
 from mypy.plugin import CheckerPluginInterface, Plugin
 from mypy.scope import Scope
 from mypy.semanal import is_trivial_body, refers_to_fullname, set_callable_name
@@ -151,7 +152,7 @@
     restrict_subtype_away,
     unify_generic_callable,
 )
-from mypy.traverser import all_return_statements, has_return_statement
+from mypy.traverser import TraverserVisitor, all_return_statements, has_return_statement
 from mypy.treetransform import TransformVisitor
 from mypy.typeanal import check_for_explicit_any, has_any_from_unimported_type, make_optional_type
 from mypy.typeops import (
@@ -1207,6 +1208,20 @@ def check_func_def(
 
             # Type check body in a new scope.
             with self.binder.top_frame_context():
+                # Copy some type narrowings from an outer function when it seems safe enough
+                # (i.e. we can't find an assignment that might change the type of the
+                # variable afterwards).
+                new_frame: Frame | None = None
+                for frame in old_binder.frames:
+                    for key, narrowed_type in frame.types.items():
+                        key_var = extract_var_from_literal_hash(key)
+                        if key_var is not None and not self.is_var_redefined_in_outer_context(
+                            key_var, defn.line
+                        ):
+                            # It seems safe to propagate the type narrowing to a nested scope.
+                            if new_frame is None:
+                                new_frame = self.binder.push_frame()
+                            new_frame.types[key] = narrowed_type
                 with self.scope.push_function(defn):
                     # We suppress reachability warnings when we use TypeVars with value
                     # restrictions: we only want to report a warning if a certain statement is
@@ -1218,6 +1233,8 @@ def check_func_def(
                         self.binder.suppress_unreachable_warnings()
                     self.accept(item.body)
                 unreachable = self.binder.is_unreachable()
+                if new_frame is not None:
+                    self.binder.pop_frame(True, 0)
 
             if not unreachable:
                 if defn.is_generator or is_named_instance(
@@ -1310,6 +1327,23 @@ def check_func_def(
 
             self.binder = old_binder
 
+    def is_var_redefined_in_outer_context(self, v: Var, after_line: int) -> bool:
+        """Can the variable be assigned to at module top level or outer function?
+
+        Note that this doesn't do a full CFG analysis but uses a line number based
+        heuristic that isn't correct in some (rare) cases.
+        """
+        outers = self.tscope.outer_functions()
+        if not outers:
+            # Top-level function -- outer context is top level, and we can't reason about
+            # globals
+            return True
+        for outer in outers:
+            if isinstance(outer, FuncDef):
+                if find_last_var_assignment_line(outer.body, v) >= after_line:
+                    return True
+        return False
+
     def check_unbound_return_typevar(self, typ: CallableType) -> None:
         """Fails when the return typevar is not defined in arguments."""
         if isinstance(typ.ret_type, TypeVarType) and typ.ret_type in typ.variables:
@@ -7629,3 +7663,80 @@ def collapse_walrus(e: Expression) -> Expression:
     if isinstance(e, AssignmentExpr):
         return e.target
     return e
+
+
+def find_last_var_assignment_line(n: Node, v: Var) -> int:
+    """Find the highest line number of a potential assignment to variable within node.
+
+    This supports local and global variables.
+
+    Return -1 if no assignment was found.
+    """
+    visitor = VarAssignVisitor(v)
+    n.accept(visitor)
+    return visitor.last_line
+
+
+class VarAssignVisitor(TraverserVisitor):
+    def __init__(self, v: Var) -> None:
+        self.last_line = -1
+        self.lvalue = False
+        self.var_node = v
+
+    def visit_assignment_stmt(self, s: AssignmentStmt) -> None:
+        self.lvalue = True
+        for lv in s.lvalues:
+            lv.accept(self)
+        self.lvalue = False
+
+    def visit_name_expr(self, e: NameExpr) -> None:
+        if self.lvalue and e.node is self.var_node:
+            self.last_line = max(self.last_line, e.line)
+
+    def visit_member_expr(self, e: MemberExpr) -> None:
+        old_lvalue = self.lvalue
+        self.lvalue = False
+        super().visit_member_expr(e)
+        self.lvalue = old_lvalue
+
+    def visit_index_expr(self, e: IndexExpr) -> None:
+        old_lvalue = self.lvalue
+        self.lvalue = False
+        super().visit_index_expr(e)
+        self.lvalue = old_lvalue
+
+    def visit_with_stmt(self, s: WithStmt) -> None:
+        self.lvalue = True
+        for lv in s.target:
+            if lv is not None:
+                lv.accept(self)
+        self.lvalue = False
+        s.body.accept(self)
+
+    def visit_for_stmt(self, s: ForStmt) -> None:
+        self.lvalue = True
+        s.index.accept(self)
+        self.lvalue = False
+        s.body.accept(self)
+        if s.else_body:
+            s.else_body.accept(self)
+
+    def visit_assignment_expr(self, e: AssignmentExpr) -> None:
+        self.lvalue = True
+        e.target.accept(self)
+        self.lvalue = False
+        e.value.accept(self)
+
+    def visit_as_pattern(self, p: AsPattern) -> None:
+        if p.pattern is not None:
+            p.pattern.accept(self)
+        if p.name is not None:
+            self.lvalue = True
+            p.name.accept(self)
+            self.lvalue = False
+
+    def visit_starred_pattern(self, p: StarredPattern) -> None:
+        if p.capture is not None:
+            self.lvalue = True
+            p.capture.accept(self)
+            self.lvalue = False
diff --git a/mypy/fastparse.py b/mypy/fastparse.py
index b34b5cf0f7df..902bde110421 100644
--- a/mypy/fastparse.py
+++ b/mypy/fastparse.py
@@ -1766,7 +1766,8 @@ def visit_MatchStar(self, n: MatchStar) -> StarredPattern:
         if n.name is None:
             node = StarredPattern(None)
         else:
-            node = StarredPattern(NameExpr(n.name))
+            name = self.set_line(NameExpr(n.name), n)
+            node = StarredPattern(name)
 
         return self.set_line(node, n)
 
diff --git a/mypy/literals.py b/mypy/literals.py
index 9d91cf728b06..53ba559c56bb 100644
--- a/mypy/literals.py
+++ b/mypy/literals.py
@@ -139,6 +139,16 @@ def literal_hash(e: Expression) -> Key | None:
     return e.accept(_hasher)
 
 
+def extract_var_from_literal_hash(key: Key) -> Var | None:
+    """If key refers to a Var node, return it.
+
+    Return None otherwise.
+    """
+    if len(key) == 2 and key[0] == "Var" and isinstance(key[1], Var):
+        return key[1]
+    return None
+
+
 class _Hasher(ExpressionVisitor[Optional[Key]]):
     def visit_int_expr(self, e: IntExpr) -> Key:
         return ("Literal", e.value)
diff --git a/mypy/scope.py b/mypy/scope.py
index 19a690df8220..021dd9a7d8a5 100644
--- a/mypy/scope.py
+++ b/mypy/scope.py
@@ -21,6 +21,7 @@ def __init__(self) -> None:
         self.module: str | None = None
         self.classes: list[TypeInfo] = []
         self.function: FuncBase | None = None
+        self.functions: list[FuncBase] = []
         # Number of nested scopes ignored (that don't get their own separate targets)
         self.ignored = 0
 
@@ -65,12 +66,14 @@ def module_scope(self, prefix: str) -> Iterator[None]:
 
     @contextmanager
     def function_scope(self, fdef: FuncBase) -> Iterator[None]:
+        self.functions.append(fdef)
         if not self.function:
             self.function = fdef
         else:
             # Nested functions are part of the topmost function target.
             self.ignored += 1
         yield
+        self.functions.pop()
         if self.ignored:
             # Leave a scope that's included in the enclosing target.
             self.ignored -= 1
@@ -78,6 +81,9 @@ def function_scope(self, fdef: FuncBase) -> Iterator[None]:
             assert self.function
             self.function = None
 
+    def outer_functions(self) -> list[FuncBase]:
+        return self.functions[:-1]
+
     def enter_class(self, info: TypeInfo) -> None:
         """Enter a class target scope."""
         if not self.function:
diff --git a/test-data/unit/check-optional.test b/test-data/unit/check-optional.test
index 754c6b52ff19..8ccce5115aba 100644
--- a/test-data/unit/check-optional.test
+++ b/test-data/unit/check-optional.test
@@ -1040,3 +1040,292 @@ x: Optional[List[int]]
 if 3 in x:
     pass
 
+[case testNarrowedVariableInNestedFunctionBasic]
+from typing import Optional
+
+def can_narrow(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return reveal_type(x)  # N: Revealed type is "builtins.str"
+    nested()
+
+def foo(a): pass
+
+class C:
+    def can_narrow_in_method(self, x: Optional[str]) -> None:
+        if x is None:
+            x = "a"
+        def nested() -> str:
+            return reveal_type(x)  # N: Revealed type is "builtins.str"
+        # Reading the variable is fine
+        y = x
+        with foo(x):
+            foo(x)
+        for a in foo(x):
+            foo(x)
+        nested()
+
+def can_narrow_lambda(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    nested = lambda: x
+    reveal_type(nested())  # N: Revealed type is "builtins.str"
+
+def cannot_narrow_if_reassigned(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    if int():
+        x = None
+    nested()
+
+x: Optional[str] = "x"
+
+def narrow_global_in_func() -> None:
+    global x
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        # This should perhaps not be narrowed, since the nested function could outlive
+        # the outer function, and since other functions could also assign to x, but
+        # this seems like a minor issue.
+        return x
+    nested()
+
+x = "y"
+
+def narrowing_global_at_top_level_not_propagated() -> str:
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+
+[case testNarrowedVariableInNestedFunctionMore1]
+from typing import Optional, overload
+
+class C:
+    a: Optional[str]
+
+def attribute_narrowing(c: C) -> None:
+    # This case is not supported, since we can't keep track of assignments to attributes.
+    c.a = "x"
+    def nested() -> str:
+        return c.a  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    nested()
+
+def assignment_in_for(x: Optional[str]) -> None:
+    if x is None:
+        x = "e"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    for x in ["x"]:
+        pass
+
+def foo(): pass
+
+def assignment_in_with(x: Optional[str]) -> None:
+    if x is None:
+        x = "e"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    with foo() as x:
+        pass
+
+g: Optional[str]
+
+def assign_to_global() -> None:
+    global g
+    g = "x"
+    # This is unsafe, but we don't generate an error, for convenience. Besides,
+    # this is probably a very rare case.
+    def nested() -> str:
+        return g
+
+def assign_to_nonlocal(x: Optional[str]) -> None:
+    def nested() -> str:
+        nonlocal x
+
+        if x is None:
+            x = "a"
+
+        def nested2() -> str:
+            return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+
+        return nested2()
+    nested()
+    x = None
+
+def dec(f):
+    return f
+
+@dec
+def decorated_outer(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x
+    nested()
+
+@dec
+def decorated_outer_bad(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    x = None
+    nested()
+
+def decorated_inner(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    @dec
+    def nested() -> str:
+        return x
+    nested()
+
+def decorated_inner_bad(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    @dec
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    x = None
+    nested()
+
+@overload
+def overloaded_outer(x: None) -> None: ...
+@overload
+def overloaded_outer(x: str) -> None: ...
+def overloaded_outer(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x
+    nested()
+
+@overload
+def overloaded_outer_bad(x: None) -> None: ...
+@overload
+def overloaded_outer_bad(x: str) -> None: ...
+def overloaded_outer_bad(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    x = None
+    nested()
+
+[case testNarrowedVariableInNestedFunctionMore2]
+from typing import Optional
+
+def narrow_multiple(x: Optional[str], y: Optional[int]) -> None:
+    z: Optional[str] = x
+    if x is None:
+        x = ""
+    if y is None:
+        y = 1
+    if int():
+        if z is None:
+            z = ""
+        def nested() -> None:
+            a: str = x
+            b: int = y
+            c: str = z
+        nested()
+
+def narrow_multiple_partial(x: Optional[str], y: Optional[int]) -> None:
+    z: Optional[str] = x
+    if x is None:
+        x = ""
+    if isinstance(y, int):
+        if z is None:
+            z = ""
+        def nested() -> None:
+            a: str = x
+            b: int = y
+            c: str = z  # E: Incompatible types in assignment (expression has type "Optional[str]", variable has type "str")
+        z = None
+        nested()
+
+def multiple_nested_functions(x: Optional[str], y: Optional[str]) -> None:
+    if x is None:
+        x = ""
+    def nested1() -> str:
+        return x
+    if y is None:
+        y = ""
+    def nested2() -> str:
+        a: str = y
+        return x
+
+class C:
+    a: str
+    def __setitem__(self, key, value): pass
+
+def narrowed_variable_used_in_lvalue_but_not_assigned(c: Optional[C]) -> None:
+    if c is None:
+        c = C()
+    def nested() -> C:
+        return c
+    c.a = "x"
+    c[1] = 2
+    cc = C()
+    cc[c] = 3
+    nested()
+
+def narrow_with_multi_lvalues_1(x: Optional[str]) -> None:
+    if x is None:
+        x = ""
+
+    def nested() -> str:
+        return x
+
+    y = z = None
+
+def narrow_with_multi_lvalue_2(x: Optional[str]) -> None:
+    if x is None:
+        x = ""
+
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+
+    x = y = None
+
+def narrow_with_multi_lvalue_3(x: Optional[str]) -> None:
+    if x is None:
+        x = ""
+
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+
+    y = x = None
+
+def narrow_with_multi_assign_1(x: Optional[str]) -> None:
+    if x is None:
+        x = ""
+
+    def nested() -> str:
+        return x
+
+    y, z = None, None
+
+def narrow_with_multi_assign_2(x: Optional[str]) -> None:
+    if x is None:
+        x = ""
+
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+
+    x, y = None, None
+
+def narrow_with_multi_assign_3(x: Optional[str]) -> None:
+    if x is None:
+        x = ""
+
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+
+    y, x = None, None
+
+[builtins fixtures/isinstance.pyi]
diff --git a/test-data/unit/check-python310.test b/test-data/unit/check-python310.test
index fb83dda7ffab..15454fc3e216 100644
--- a/test-data/unit/check-python310.test
+++ b/test-data/unit/check-python310.test
@@ -1863,3 +1863,73 @@ def f() -> None:
     match y:
         case A():
             reveal_type(y.a)  # N: Revealed type is "builtins.int"
+
+[case testNarrowedVariableInNestedModifiedInMatch]
+# flags: --strict-optional
+from typing import Optional
+
+def match_stmt_error1(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    match object():
+        case str(x):
+            pass
+    nested()
+
+def foo(x): pass
+
+def match_stmt_ok1(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x
+    match foo(x):
+        case str(y):
+            z = x
+    nested()
+
+def match_stmt_error2(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    match [None]:
+        case [x]:
+            pass
+    nested()
+
+def match_stmt_error3(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    match {'a': None}:
+        case {'a': x}:
+            pass
+    nested()
+
+def match_stmt_error4(x: Optional[list[str]]) -> None:
+    if x is None:
+        x = ["a"]
+    def nested() -> list[str]:
+        return x  # E: Incompatible return value type (got "Optional[List[str]]", expected "List[str]")
+    match ["a"]:
+        case [*x]:
+            pass
+    nested()
+
+class C:
+    a: str
+
+def match_stmt_error5(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    match C():
+        case C(a=x):
+            pass
+    nested()
+[builtins fixtures/tuple.pyi]
diff --git a/test-data/unit/check-python38.test b/test-data/unit/check-python38.test
index bb1768d1d17d..4336cb4ca847 100644
--- a/test-data/unit/check-python38.test
+++ b/test-data/unit/check-python38.test
@@ -776,6 +776,28 @@ class C:
     [(j := i) for i in [1, 2, 3]]  # E: Assignment expression within a comprehension cannot be used in a class body
 [builtins fixtures/list.pyi]
 
+[case testNarrowedVariableInNestedModifiedInWalrus]
+# flags: --strict-optional
+from typing import Optional
+
+def walrus_with_nested_error(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x  # E: Incompatible return value type (got "Optional[str]", expected "str")
+    if x := None:
+        pass
+    nested()
+
+def walrus_with_nested_ok(x: Optional[str]) -> None:
+    if x is None:
+        x = "a"
+    def nested() -> str:
+        return x
+    if y := x:
+        pass
+    nested()
+
 [case testIgnoreWholeModule]
 # flags: --warn-unused-ignores
 # type: ignore