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 e29ef51ce0806..ea7268c573379 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectHoistablePropertyLoads.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/CollectHoistablePropertyLoads.ts
@@ -19,6 +19,7 @@ import {
   BasicBlock,
   BlockId,
   DependencyPathEntry,
+  FunctionExpression,
   GeneratedSource,
   getHookKind,
   HIRFunction,
@@ -30,6 +31,7 @@ import {
   PropertyLiteral,
   ReactiveScopeDependency,
   ScopeId,
+  TInstruction,
 } from './HIR';
 
 const DEBUG_PRINT = false;
@@ -127,6 +129,33 @@ export function collectHoistablePropertyLoads(
   });
 }
 
+export function collectHoistablePropertyLoadsInInnerFn(
+  fnInstr: TInstruction<FunctionExpression>,
+  temporaries: ReadonlyMap<IdentifierId, ReactiveScopeDependency>,
+  hoistableFromOptionals: ReadonlyMap<BlockId, ReactiveScopeDependency>,
+): ReadonlyMap<BlockId, BlockInfo> {
+  const fn = fnInstr.value.loweredFunc.func;
+  const initialContext: CollectHoistablePropertyLoadsContext = {
+    temporaries,
+    knownImmutableIdentifiers: new Set(),
+    hoistableFromOptionals,
+    registry: new PropertyPathRegistry(),
+    nestedFnImmutableContext: null,
+    assumedInvokedFns: fn.env.config.enableTreatFunctionDepsAsConditional
+      ? new Set()
+      : getAssumedInvokedFunctions(fn),
+  };
+  const nestedFnImmutableContext = new Set(
+    fn.context
+      .filter(place =>
+        isImmutableAtInstr(place.identifier, fnInstr.id, initialContext),
+      )
+      .map(place => place.identifier.id),
+  );
+  initialContext.nestedFnImmutableContext = nestedFnImmutableContext;
+  return collectHoistablePropertyLoadsImpl(fn, initialContext);
+}
+
 type CollectHoistablePropertyLoadsContext = {
   temporaries: ReadonlyMap<IdentifierId, ReactiveScopeDependency>;
   knownImmutableIdentifiers: ReadonlySet<IdentifierId>;
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 0dfa937f37f03..ea58b3c49425e 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/HIR.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/HIR.ts
@@ -1738,6 +1738,40 @@ export function isStableType(id: Identifier): boolean {
   );
 }
 
+export function isStableTypeContainer(id: Identifier): boolean {
+  const type_ = id.type;
+  if (type_.kind !== 'Object') {
+    return false;
+  }
+  return (
+    isUseStateType(id) || // setState
+    type_.shapeId === 'BuiltInUseActionState' || // setActionState
+    isUseReducerType(id) || // dispatcher
+    type_.shapeId === 'BuiltInUseTransition' // startTransition
+  );
+}
+
+export function evaluatesToStableTypeOrContainer(
+  env: Environment,
+  {value}: Instruction,
+): boolean {
+  if (value.kind === 'CallExpression' || value.kind === 'MethodCall') {
+    const callee =
+      value.kind === 'CallExpression' ? value.callee : value.property;
+
+    const calleeHookKind = getHookKind(env, callee.identifier);
+    switch (calleeHookKind) {
+      case 'useState':
+      case 'useReducer':
+      case 'useActionState':
+      case 'useRef':
+      case 'useTransition':
+        return true;
+    }
+  }
+  return false;
+}
+
 export function isUseEffectHookType(id: Identifier): boolean {
   return (
     id.type.kind === 'Function' && id.type.shapeId === 'BuiltInUseEffectHook'
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 934fd98f73daf..3d183e8e72c68 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/HIR/PropagateScopeDependenciesHIR.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/HIR/PropagateScopeDependenciesHIR.ts
@@ -116,7 +116,7 @@ export function propagateScopeDependenciesHIR(fn: HIRFunction): void {
   }
 }
 
-function findTemporariesUsedOutsideDeclaringScope(
+export function findTemporariesUsedOutsideDeclaringScope(
   fn: HIRFunction,
 ): ReadonlySet<DeclarationId> {
   /*
@@ -378,7 +378,7 @@ type Decl = {
   scope: Stack<ReactiveScope>;
 };
 
-class Context {
+export class DependencyCollectionContext {
   #declarations: Map<DeclarationId, Decl> = new Map();
   #reassignments: Map<Identifier, Decl> = new Map();
 
@@ -645,7 +645,10 @@ enum HIRValue {
   Terminal,
 }
 
-function handleInstruction(instr: Instruction, context: Context): void {
+export function handleInstruction(
+  instr: Instruction,
+  context: DependencyCollectionContext,
+): void {
   const {id, value, lvalue} = instr;
   context.declare(lvalue.identifier, {
     id,
@@ -708,7 +711,7 @@ function collectDependencies(
   temporaries: ReadonlyMap<IdentifierId, ReactiveScopeDependency>,
   processedInstrsInOptional: ReadonlySet<Instruction | Terminal>,
 ): Map<ReactiveScope, Array<ReactiveScopeDependency>> {
-  const context = new Context(
+  const context = new DependencyCollectionContext(
     usedOutsideDeclaringScope,
     temporaries,
     processedInstrsInOptional,
diff --git a/compiler/packages/babel-plugin-react-compiler/src/Inference/InferEffectDependencies.ts b/compiler/packages/babel-plugin-react-compiler/src/Inference/InferEffectDependencies.ts
index a70f49dacd13a..f1a584341912b 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/Inference/InferEffectDependencies.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/Inference/InferEffectDependencies.ts
@@ -22,18 +22,30 @@ import {
   ScopeId,
   ReactiveScopeDependency,
   Place,
+  ReactiveScope,
   ReactiveScopeDependencies,
+  Terminal,
   isUseRefType,
   isSetStateType,
   isFireFunctionType,
+  makeScopeId,
 } from '../HIR';
+import {collectHoistablePropertyLoadsInInnerFn} from '../HIR/CollectHoistablePropertyLoads';
+import {collectOptionalChainSidemap} from '../HIR/CollectOptionalChainDependencies';
+import {ReactiveScopeDependencyTreeHIR} from '../HIR/DeriveMinimalDependenciesHIR';
 import {DEFAULT_EXPORT} from '../HIR/Environment';
 import {
   createTemporaryPlace,
   fixScopeAndIdentifierRanges,
   markInstructionIds,
 } from '../HIR/HIRBuilder';
+import {
+  collectTemporariesSidemap,
+  DependencyCollectionContext,
+  handleInstruction,
+} from '../HIR/PropagateScopeDependenciesHIR';
 import {eachInstructionOperand, eachTerminalOperand} from '../HIR/visitors';
+import {empty} from '../Utils/Stack';
 import {getOrInsertWith} from '../Utils/utils';
 
 /**
@@ -62,10 +74,7 @@ export function inferEffectDependencies(fn: HIRFunction): void {
   const autodepFnLoads = new Map<IdentifierId, number>();
   const autodepModuleLoads = new Map<IdentifierId, Map<string, number>>();
 
-  const scopeInfos = new Map<
-    ScopeId,
-    {pruned: boolean; deps: ReactiveScopeDependencies; hasSingleInstr: boolean}
-  >();
+  const scopeInfos = new Map<ScopeId, ReactiveScopeDependencies>();
 
   const loadGlobals = new Set<IdentifierId>();
 
@@ -79,19 +88,18 @@ export function inferEffectDependencies(fn: HIRFunction): void {
   const reactiveIds = inferReactiveIdentifiers(fn);
 
   for (const [, block] of fn.body.blocks) {
-    if (
-      block.terminal.kind === 'scope' ||
-      block.terminal.kind === 'pruned-scope'
-    ) {
+    if (block.terminal.kind === 'scope') {
       const scopeBlock = fn.body.blocks.get(block.terminal.block)!;
-      scopeInfos.set(block.terminal.scope.id, {
-        pruned: block.terminal.kind === 'pruned-scope',
-        deps: block.terminal.scope.dependencies,
-        hasSingleInstr:
-          scopeBlock.instructions.length === 1 &&
-          scopeBlock.terminal.kind === 'goto' &&
-          scopeBlock.terminal.block === block.terminal.fallthrough,
-      });
+      if (
+        scopeBlock.instructions.length === 1 &&
+        scopeBlock.terminal.kind === 'goto' &&
+        scopeBlock.terminal.block === block.terminal.fallthrough
+      ) {
+        scopeInfos.set(
+          block.terminal.scope.id,
+          block.terminal.scope.dependencies,
+        );
+      }
     }
     const rewriteInstrs = new Map<InstructionId, Array<Instruction>>();
     for (const instr of block.instructions) {
@@ -173,22 +181,12 @@ export function inferEffectDependencies(fn: HIRFunction): void {
               fnExpr.lvalue.identifier.scope != null
                 ? scopeInfos.get(fnExpr.lvalue.identifier.scope.id)
                 : null;
-            CompilerError.invariant(scopeInfo != null, {
-              reason: 'Expected function expression scope to exist',
-              loc: value.loc,
-            });
-            if (scopeInfo.pruned || !scopeInfo.hasSingleInstr) {
-              /**
-               * TODO: retry pipeline that ensures effect function expressions
-               * are placed into their own scope
-               */
-              CompilerError.throwTodo({
-                reason:
-                  '[InferEffectDependencies] Expected effect function to have non-pruned scope and its scope to have exactly one instruction',
-                loc: fnExpr.loc,
-              });
+            let minimalDeps: Set<ReactiveScopeDependency>;
+            if (scopeInfo != null) {
+              minimalDeps = new Set(scopeInfo);
+            } else {
+              minimalDeps = inferMinimalDependencies(fnExpr);
             }
-
             /**
              * Step 1: push dependencies to the effect deps array
              *
@@ -196,8 +194,9 @@ export function inferEffectDependencies(fn: HIRFunction): void {
              * the `infer-effect-deps/pruned-nonreactive-obj` fixture for an
              * explanation.
              */
+
             const usedDeps = [];
-            for (const dep of scopeInfo.deps) {
+            for (const dep of minimalDeps) {
               if (
                 ((isUseRefType(dep.identifier) ||
                   isSetStateType(dep.identifier)) &&
@@ -422,3 +421,132 @@ function collectDepUsages(
 
   return sourceLocations;
 }
+
+function inferMinimalDependencies(
+  fnInstr: TInstruction<FunctionExpression>,
+): Set<ReactiveScopeDependency> {
+  const fn = fnInstr.value.loweredFunc.func;
+
+  const temporaries = collectTemporariesSidemap(fn, new Set());
+  const {
+    hoistableObjects,
+    processedInstrsInOptional,
+    temporariesReadInOptional,
+  } = collectOptionalChainSidemap(fn);
+
+  const hoistablePropertyLoads = collectHoistablePropertyLoadsInInnerFn(
+    fnInstr,
+    temporaries,
+    hoistableObjects,
+  );
+  const hoistableToFnEntry = hoistablePropertyLoads.get(fn.body.entry);
+  CompilerError.invariant(hoistableToFnEntry != null, {
+    reason:
+      '[InferEffectDependencies] Internal invariant broken: missing entry block',
+    loc: fnInstr.loc,
+  });
+
+  const dependencies = inferDependencies(
+    fnInstr,
+    new Map([...temporaries, ...temporariesReadInOptional]),
+    processedInstrsInOptional,
+  );
+
+  const tree = new ReactiveScopeDependencyTreeHIR(
+    [...hoistableToFnEntry.assumedNonNullObjects].map(o => o.fullPath),
+  );
+  for (const dep of dependencies) {
+    tree.addDependency({...dep});
+  }
+
+  return tree.deriveMinimalDependencies();
+}
+
+function inferDependencies(
+  fnInstr: TInstruction<FunctionExpression>,
+  temporaries: ReadonlyMap<IdentifierId, ReactiveScopeDependency>,
+  processedInstrsInOptional: ReadonlySet<Instruction | Terminal>,
+): Set<ReactiveScopeDependency> {
+  const fn = fnInstr.value.loweredFunc.func;
+  const context = new DependencyCollectionContext(
+    new Set(),
+    temporaries,
+    processedInstrsInOptional,
+  );
+  for (const dep of fn.context) {
+    context.declare(dep.identifier, {
+      id: makeInstructionId(0),
+      scope: empty(),
+    });
+  }
+  const placeholderScope: ReactiveScope = {
+    id: makeScopeId(0),
+    range: {
+      start: fnInstr.id,
+      end: makeInstructionId(fnInstr.id + 1),
+    },
+    dependencies: new Set(),
+    reassignments: new Set(),
+    declarations: new Map(),
+    earlyReturnValue: null,
+    merged: new Set(),
+    loc: GeneratedSource,
+  };
+  context.enterScope(placeholderScope);
+  inferDependenciesInFn(fn, context, temporaries);
+  context.exitScope(placeholderScope, false);
+  const resultUnfiltered = context.deps.get(placeholderScope);
+  CompilerError.invariant(resultUnfiltered != null, {
+    reason:
+      '[InferEffectDependencies] Internal invariant broken: missing scope dependencies',
+    loc: fn.loc,
+  });
+
+  const fnContext = new Set(fn.context.map(dep => dep.identifier.id));
+  const result = new Set<ReactiveScopeDependency>();
+  for (const dep of resultUnfiltered) {
+    if (fnContext.has(dep.identifier.id)) {
+      result.add(dep);
+    }
+  }
+
+  return result;
+}
+
+function inferDependenciesInFn(
+  fn: HIRFunction,
+  context: DependencyCollectionContext,
+  temporaries: ReadonlyMap<IdentifierId, ReactiveScopeDependency>,
+): void {
+  for (const [, block] of fn.body.blocks) {
+    // Record referenced optional chains in phis
+    for (const phi of block.phis) {
+      for (const operand of phi.operands) {
+        const maybeOptionalChain = temporaries.get(operand[1].identifier.id);
+        if (maybeOptionalChain) {
+          context.visitDependency(maybeOptionalChain);
+        }
+      }
+    }
+    for (const instr of block.instructions) {
+      if (
+        instr.value.kind === 'FunctionExpression' ||
+        instr.value.kind === 'ObjectMethod'
+      ) {
+        context.declare(instr.lvalue.identifier, {
+          id: instr.id,
+          scope: context.currentScope,
+        });
+        /**
+         * Recursively visit the inner function to extract dependencies
+         */
+        const innerFn = instr.value.loweredFunc.func;
+        context.enterInnerFn(instr as TInstruction<FunctionExpression>, () => {
+          inferDependenciesInFn(innerFn, context, temporaries);
+        });
+      } else {
+        handleInstruction(instr, context);
+      }
+    }
+  }
+}
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 e2deab15dbf0d..b05b292124c72 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/Inference/InferReactivePlaces.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/Inference/InferReactivePlaces.ts
@@ -9,14 +9,19 @@ import {CompilerError} from '..';
 import {
   BlockId,
   Effect,
+  Environment,
   HIRFunction,
   Identifier,
   IdentifierId,
+  Instruction,
   Place,
   computePostDominatorTree,
+  evaluatesToStableTypeOrContainer,
   getHookKind,
   isStableType,
+  isStableTypeContainer,
   isUseOperator,
+  isUseRefType,
 } from '../HIR';
 import {PostDominator} from '../HIR/Dominator';
 import {
@@ -31,6 +36,103 @@ import {
 import DisjointSet from '../Utils/DisjointSet';
 import {assertExhaustive} from '../Utils/utils';
 
+/**
+ * Side map to track and propagate sources of stability (i.e. hook calls such as
+ * `useRef()` and property reads such as `useState()[1]). Note that this
+ * requires forward data flow analysis since stability is not part of React
+ * Compiler's type system.
+ */
+class StableSidemap {
+  map: Map<IdentifierId, {isStable: boolean}> = new Map();
+  env: Environment;
+
+  constructor(env: Environment) {
+    this.env = env;
+  }
+
+  handleInstruction(instr: Instruction): void {
+    const {value, lvalue} = instr;
+
+    switch (value.kind) {
+      case 'CallExpression':
+      case 'MethodCall': {
+        /**
+         * Sources of stability are known hook calls
+         */
+        if (evaluatesToStableTypeOrContainer(this.env, instr)) {
+          if (isStableType(lvalue.identifier)) {
+            this.map.set(lvalue.identifier.id, {
+              isStable: true,
+            });
+          } else {
+            this.map.set(lvalue.identifier.id, {
+              isStable: false,
+            });
+          }
+        } else if (
+          this.env.config.enableTreatRefLikeIdentifiersAsRefs &&
+          isUseRefType(lvalue.identifier)
+        ) {
+          this.map.set(lvalue.identifier.id, {
+            isStable: true,
+          });
+        }
+        break;
+      }
+
+      case 'Destructure':
+      case 'PropertyLoad': {
+        /**
+         * PropertyLoads may from stable containers may also produce stable
+         * values. ComputedLoads are technically safe for now (as all stable
+         * containers have differently-typed elements), but are not handled as
+         * they should be rare anyways.
+         */
+        const source =
+          value.kind === 'Destructure'
+            ? value.value.identifier.id
+            : value.object.identifier.id;
+        const entry = this.map.get(source);
+        if (entry) {
+          for (const lvalue of eachInstructionLValue(instr)) {
+            if (isStableTypeContainer(lvalue.identifier)) {
+              this.map.set(lvalue.identifier.id, {
+                isStable: false,
+              });
+            } else if (isStableType(lvalue.identifier)) {
+              this.map.set(lvalue.identifier.id, {
+                isStable: true,
+              });
+            }
+          }
+        }
+        break;
+      }
+
+      case 'StoreLocal': {
+        const entry = this.map.get(value.value.identifier.id);
+        if (entry) {
+          this.map.set(lvalue.identifier.id, entry);
+          this.map.set(value.lvalue.place.identifier.id, entry);
+        }
+        break;
+      }
+
+      case 'LoadLocal': {
+        const entry = this.map.get(value.place.identifier.id);
+        if (entry) {
+          this.map.set(lvalue.identifier.id, entry);
+        }
+        break;
+      }
+    }
+  }
+
+  isStable(id: IdentifierId): boolean {
+    const entry = this.map.get(id);
+    return entry != null ? entry.isStable : false;
+  }
+}
 /*
  * Infers which `Place`s are reactive, ie may *semantically* change
  * over the course of the component/hook's lifetime. Places are reactive
@@ -111,6 +213,7 @@ import {assertExhaustive} from '../Utils/utils';
  */
 export function inferReactivePlaces(fn: HIRFunction): void {
   const reactiveIdentifiers = new ReactivityMap(findDisjointMutableValues(fn));
+  const stableIdentifierSources = new StableSidemap(fn.env);
   for (const param of fn.params) {
     const place = param.kind === 'Identifier' ? param : param.place;
     reactiveIdentifiers.markReactive(place);
@@ -184,6 +287,7 @@ export function inferReactivePlaces(fn: HIRFunction): void {
         }
       }
       for (const instruction of block.instructions) {
+        stableIdentifierSources.handleInstruction(instruction);
         const {value} = instruction;
         let hasReactiveInput = false;
         /*
@@ -218,7 +322,13 @@ export function inferReactivePlaces(fn: HIRFunction): void {
 
         if (hasReactiveInput) {
           for (const lvalue of eachInstructionLValue(instruction)) {
-            if (isStableType(lvalue.identifier)) {
+            /**
+             * Note that it's not correct to mark all stable-typed identifiers
+             * as non-reactive, since ternaries and other value blocks can
+             * produce reactive identifiers typed as these.
+             * (e.g. `props.cond ? setState1 : setState2`)
+             */
+            if (stableIdentifierSources.isStable(lvalue.identifier.id)) {
               continue;
             }
             reactiveIdentifiers.markReactive(lvalue);
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-granular-access.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-granular-access.expect.md
new file mode 100644
index 0000000000000..7099388378b32
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-granular-access.expect.md
@@ -0,0 +1,39 @@
+
+## Input
+
+```javascript
+// @inferEffectDependencies @panicThreshold(none)
+import {useEffect} from 'react';
+import {print} from 'shared-runtime';
+
+function Component({foo}) {
+  const arr = [];
+  // Taking either arr[0].value or arr as a dependency is reasonable
+  // as long as developers know what to expect.
+  useEffect(() => print(arr[0].value));
+  arr.push({value: foo});
+  return arr;
+}
+
+```
+
+## Code
+
+```javascript
+// @inferEffectDependencies @panicThreshold(none)
+import { useEffect } from "react";
+import { print } from "shared-runtime";
+
+function Component(t0) {
+  const { foo } = t0;
+  const arr = [];
+
+  useEffect(() => print(arr[0].value), [arr[0].value]);
+  arr.push({ value: foo });
+  return arr;
+}
+
+```
+      
+### Eval output
+(kind: exception) Fixture not implemented
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-granular-access.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-granular-access.js
new file mode 100644
index 0000000000000..fe00af39227e9
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-granular-access.js
@@ -0,0 +1,12 @@
+// @inferEffectDependencies @panicThreshold(none)
+import {useEffect} from 'react';
+import {print} from 'shared-runtime';
+
+function Component({foo}) {
+  const arr = [];
+  // Taking either arr[0].value or arr as a dependency is reasonable
+  // as long as developers know what to expect.
+  useEffect(() => print(arr[0].value));
+  arr.push({value: foo});
+  return arr;
+}
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-ref-access.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-ref-access.expect.md
new file mode 100644
index 0000000000000..d0532a495a941
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-ref-access.expect.md
@@ -0,0 +1,38 @@
+
+## Input
+
+```javascript
+// @inferEffectDependencies @panicThreshold(none)
+
+import {useEffect, useRef} from 'react';
+import {print} from 'shared-runtime';
+
+function Component({arrRef}) {
+  // Avoid taking arr.current as a dependency
+  useEffect(() => print(arrRef.current));
+  arrRef.current.val = 2;
+  return arrRef;
+}
+
+```
+
+## Code
+
+```javascript
+// @inferEffectDependencies @panicThreshold(none)
+
+import { useEffect, useRef } from "react";
+import { print } from "shared-runtime";
+
+function Component(t0) {
+  const { arrRef } = t0;
+
+  useEffect(() => print(arrRef.current), [arrRef]);
+  arrRef.current.val = 2;
+  return arrRef;
+}
+
+```
+      
+### Eval output
+(kind: exception) Fixture not implemented
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-ref-access.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-ref-access.js
new file mode 100644
index 0000000000000..ff2cda6b898de
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect-ref-access.js
@@ -0,0 +1,11 @@
+// @inferEffectDependencies @panicThreshold(none)
+
+import {useEffect, useRef} from 'react';
+import {print} from 'shared-runtime';
+
+function Component({arrRef}) {
+  // Avoid taking arr.current as a dependency
+  useEffect(() => print(arrRef.current));
+  arrRef.current.val = 2;
+  return arrRef;
+}
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect.expect.md
new file mode 100644
index 0000000000000..5da3ceca2225b
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect.expect.md
@@ -0,0 +1,34 @@
+
+## Input
+
+```javascript
+// @inferEffectDependencies @panicThreshold(none)
+import {useEffect} from 'react';
+
+function Component({foo}) {
+  const arr = [];
+  useEffect(() => arr.push(foo));
+  arr.push(2);
+  return arr;
+}
+
+```
+
+## Code
+
+```javascript
+// @inferEffectDependencies @panicThreshold(none)
+import { useEffect } from "react";
+
+function Component(t0) {
+  const { foo } = t0;
+  const arr = [];
+  useEffect(() => arr.push(foo), [arr, foo]);
+  arr.push(2);
+  return arr;
+}
+
+```
+      
+### Eval output
+(kind: exception) Fixture not implemented
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect.js
new file mode 100644
index 0000000000000..806ca5322f071
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/bailout-retry/mutate-after-useeffect.js
@@ -0,0 +1,9 @@
+// @inferEffectDependencies @panicThreshold(none)
+import {useEffect} from 'react';
+
+function Component({foo}) {
+  const arr = [];
+  useEffect(() => arr.push(foo));
+  arr.push(2);
+  return arr;
+}
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/reactive-ref-ternary.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/reactive-ref-ternary.expect.md
new file mode 100644
index 0000000000000..def392cd8427b
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/reactive-ref-ternary.expect.md
@@ -0,0 +1,69 @@
+
+## Input
+
+```javascript
+// @inferEffectDependencies
+import {useRef, useEffect} from 'react';
+import {print, mutate} from 'shared-runtime';
+
+function Component({cond}) {
+  const arr = useRef([]);
+  const other = useRef([]);
+  // Although arr and other are both stable, derived is not
+  const derived = cond ? arr : other;
+  useEffect(() => {
+    mutate(derived.current);
+    print(derived.current);
+  });
+  return arr;
+}
+
+```
+
+## Code
+
+```javascript
+import { c as _c } from "react/compiler-runtime"; // @inferEffectDependencies
+import { useRef, useEffect } from "react";
+import { print, mutate } from "shared-runtime";
+
+function Component(t0) {
+  const $ = _c(4);
+  const { cond } = t0;
+  let t1;
+  if ($[0] === Symbol.for("react.memo_cache_sentinel")) {
+    t1 = [];
+    $[0] = t1;
+  } else {
+    t1 = $[0];
+  }
+  const arr = useRef(t1);
+  let t2;
+  if ($[1] === Symbol.for("react.memo_cache_sentinel")) {
+    t2 = [];
+    $[1] = t2;
+  } else {
+    t2 = $[1];
+  }
+  const other = useRef(t2);
+
+  const derived = cond ? arr : other;
+  let t3;
+  if ($[2] !== derived) {
+    t3 = () => {
+      mutate(derived.current);
+      print(derived.current);
+    };
+    $[2] = derived;
+    $[3] = t3;
+  } else {
+    t3 = $[3];
+  }
+  useEffect(t3, [derived]);
+  return arr;
+}
+
+```
+      
+### Eval output
+(kind: exception) Fixture not implemented
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/reactive-ref-ternary.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/reactive-ref-ternary.js
new file mode 100644
index 0000000000000..93e5968a591ab
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-effect-dependencies/reactive-ref-ternary.js
@@ -0,0 +1,15 @@
+// @inferEffectDependencies
+import {useRef, useEffect} from 'react';
+import {print, mutate} from 'shared-runtime';
+
+function Component({cond}) {
+  const arr = useRef([]);
+  const other = useRef([]);
+  // Although arr and other are both stable, derived is not
+  const derived = cond ? arr : other;
+  useEffect(() => {
+    mutate(derived.current);
+    print(derived.current);
+  });
+  return arr;
+}
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/inline-jsx-transform.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/inline-jsx-transform.expect.md
index 01b1470f93c8b..8101ddb072378 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/inline-jsx-transform.expect.md
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/inline-jsx-transform.expect.md
@@ -83,10 +83,10 @@ export const FIXTURE_ENTRYPOINT = {
 import { c as _c2 } from "react/compiler-runtime"; // @inlineJsxTransform
 
 function Parent(t0) {
-  const $ = _c2(2);
+  const $ = _c2(3);
   const { children, ref } = t0;
   let t1;
-  if ($[0] !== children) {
+  if ($[0] !== children || $[1] !== ref) {
     if (DEV) {
       t1 = <div ref={ref}>{children}</div>;
     } else {
@@ -99,9 +99,10 @@ function Parent(t0) {
       };
     }
     $[0] = children;
-    $[1] = t1;
+    $[1] = ref;
+    $[2] = t1;
   } else {
-    t1 = $[1];
+    t1 = $[2];
   }
   return t1;
 }
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/error.todo-infer-deps-on-retry.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/error.todo-infer-deps-on-retry.expect.md
deleted file mode 100644
index 0384d3335ca57..0000000000000
--- a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/error.todo-infer-deps-on-retry.expect.md
+++ /dev/null
@@ -1,42 +0,0 @@
-
-## Input
-
-```javascript
-// @inferEffectDependencies @panicThreshold(none)
-import {useRef} from 'react';
-import {useSpecialEffect} from 'shared-runtime';
-
-/**
- * The retry pipeline disables memoization features, which means we need to
- * provide an alternate implementation of effect dependencies which does not
- * rely on memoization.
- */
-function useFoo({cond}) {
-  const ref = useRef();
-  const derived = cond ? ref.current : makeObject();
-  useSpecialEffect(() => {
-    log(derived);
-  }, [derived]);
-  return ref;
-}
-
-```
-
-
-## Error
-
-```
-  11 |   const ref = useRef();
-  12 |   const derived = cond ? ref.current : makeObject();
-> 13 |   useSpecialEffect(() => {
-     |   ^^^^^^^^^^^^^^^^^^^^^^^^
-> 14 |     log(derived);
-     | ^^^^^^^^^^^^^^^^^
-> 15 |   }, [derived]);
-     | ^^^^^^^^^^^^^^^^ InvalidReact: [InferEffectDependencies] React Compiler is unable to infer dependencies of this effect. This will break your build! To resolve, either pass your own dependency array or fix reported compiler bailout diagnostics.. (Bailout reason: Invariant: Expected function expression scope to exist (13:15)) (13:15)
-  16 |   return ref;
-  17 | }
-  18 |
-```
-          
-      
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/infer-deps-on-retry.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/infer-deps-on-retry.expect.md
new file mode 100644
index 0000000000000..42c800f8e55c0
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/infer-deps-on-retry.expect.md
@@ -0,0 +1,54 @@
+
+## Input
+
+```javascript
+// @inferEffectDependencies @panicThreshold(none)
+import {useRef} from 'react';
+import {useSpecialEffect} from 'shared-runtime';
+
+/**
+ * The retry pipeline disables memoization features, which means we need to
+ * provide an alternate implementation of effect dependencies which does not
+ * rely on memoization.
+ */
+function useFoo({cond}) {
+  const ref = useRef();
+  const derived = cond ? ref.current : makeObject();
+  useSpecialEffect(() => {
+    log(derived);
+  }, [derived]);
+  return ref;
+}
+
+```
+
+## Code
+
+```javascript
+// @inferEffectDependencies @panicThreshold(none)
+import { useRef } from "react";
+import { useSpecialEffect } from "shared-runtime";
+
+/**
+ * The retry pipeline disables memoization features, which means we need to
+ * provide an alternate implementation of effect dependencies which does not
+ * rely on memoization.
+ */
+function useFoo(t0) {
+  const { cond } = t0;
+  const ref = useRef();
+  const derived = cond ? ref.current : makeObject();
+  useSpecialEffect(
+    () => {
+      log(derived);
+    },
+    [derived],
+    [derived],
+  );
+  return ref;
+}
+
+```
+      
+### Eval output
+(kind: exception) Fixture not implemented
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/error.todo-infer-deps-on-retry.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/infer-deps-on-retry.js
similarity index 100%
rename from compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/error.todo-infer-deps-on-retry.js
rename to compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/transform-fire/bailout-retry/infer-deps-on-retry.js
diff --git a/fixtures/ssr/src/components/Chrome.js b/fixtures/ssr/src/components/Chrome.js
index 984c726a02652..b2a4a96c43fb5 100644
--- a/fixtures/ssr/src/components/Chrome.js
+++ b/fixtures/ssr/src/components/Chrome.js
@@ -4,6 +4,8 @@ import Theme, {ThemeToggleButton} from './Theme';
 
 import './Chrome.css';
 
+import LargeContent from './LargeContent';
+
 export default class Chrome extends Component {
   state = {theme: 'light'};
   render() {
@@ -25,7 +27,6 @@ export default class Chrome extends Component {
           />
           <Suspense fallback="Loading...">
             <Theme.Provider value={this.state.theme}>
-              {this.props.children}
               <div>
                 <ThemeToggleButton
                   onChange={theme => {
@@ -35,9 +36,14 @@ export default class Chrome extends Component {
                   }}
                 />
               </div>
+              {this.props.children}
             </Theme.Provider>
           </Suspense>
           <p>This should appear in the first paint.</p>
+          <Suspense fallback="Loading...">
+            <p>This content should not block paint.</p>
+            <LargeContent />
+          </Suspense>
           <script
             dangerouslySetInnerHTML={{
               __html: `assetManifest = ${JSON.stringify(assets)};`,
diff --git a/fixtures/ssr/src/components/LargeContent.js b/fixtures/ssr/src/components/LargeContent.js
new file mode 100644
index 0000000000000..d035fe2e8bb11
--- /dev/null
+++ b/fixtures/ssr/src/components/LargeContent.js
@@ -0,0 +1,243 @@
+import React, {Fragment} from 'react';
+
+export default function LargeContent() {
+  return (
+    <Fragment>
+      <p>
+        Lorem ipsum dolor sit amet, consectetur adipiscing elit. Mauris
+        porttitor tortor ac lectus faucibus, eget eleifend elit hendrerit.
+        Integer porttitor nisi in leo congue rutrum. Morbi sed ante posuere,
+        aliquam lorem ac, imperdiet orci. Duis malesuada gravida pharetra. Cras
+        facilisis arcu diam, id dictum lorem imperdiet a. Suspendisse aliquet
+        tempus tortor et ultricies. Aliquam libero velit, posuere tempus ante
+        sed, pellentesque tincidunt lorem. Nullam iaculis, eros a varius
+        aliquet, tortor felis tempor metus, nec cursus felis eros aliquam nulla.
+        Vivamus ut orci sed mauris congue lacinia. Cras eget blandit neque.
+        Pellentesque a massa in turpis ullamcorper volutpat vel at massa. Sed
+        ante est, auctor non diam non, vulputate ultrices metus. Maecenas dictum
+        fermentum quam id aliquam. Donec porta risus vitae pretium posuere.
+        Fusce facilisis eros in lacus tincidunt congue.
+      </p>
+      <p>
+        Pellentesque habitant morbi tristique senectus et netus et malesuada
+        fames ac turpis egestas. Phasellus dolor ante, iaculis vel nisl vitae,
+        ornare ornare orci. Praesent sit amet lobortis sapien. Suspendisse
+        pharetra posuere libero ut dapibus. Donec condimentum ante urna. Aliquam
+        laoreet tincidunt lacus, sed interdum tortor dapibus elementum. Nam sed
+        faucibus lorem. Suspendisse finibus, velit sed molestie finibus, risus
+        purus mollis ante, sit amet aliquet sapien nulla ut nibh. In eget ligula
+        metus. Duis in purus mattis, blandit magna nec, dictum nunc.
+      </p>
+      <p>
+        Sed convallis magna id tortor blandit dictum. Suspendisse in porttitor
+        neque. Integer quis metus consequat, rutrum est sit amet, finibus justo.
+        In hac habitasse platea dictumst. Nullam sagittis, risus sed vehicula
+        porta, sapien elit ultrices nibh, vel luctus odio tortor et ante. Sed
+        porta enim in hendrerit tristique. Pellentesque id feugiat libero, sit
+        amet tempor enim. Proin gravida nisl justo, vel ornare dolor bibendum
+        ac. Mauris scelerisque mattis facilisis. Praesent sodales augue mollis
+        orci vulputate aliquet. Mauris molestie luctus neque, sed congue elit
+        congue ut. Cras quis tortor augue. In auctor nulla vel turpis dapibus
+        egestas. Phasellus consequat rhoncus nisi sed dignissim. Quisque varius
+        justo non ex lobortis finibus cursus nec justo. Nulla erat neque,
+        commodo et sem convallis, tristique faucibus odio.
+      </p>
+      <p>
+        Ut condimentum volutpat sem, id accumsan augue placerat vel. Donec ac
+        efficitur turpis. Suspendisse pretium odio euismod sapien bibendum, sed
+        tempus est condimentum. Etiam nisl magna, consequat at ullamcorper at,
+        sollicitudin eu eros. In mattis ligula arcu. Sed eu consectetur turpis,
+        id molestie ligula. Vestibulum et venenatis enim. Donec condimentum
+        vitae nisi et placerat. Sed fringilla vehicula egestas. Proin
+        consectetur, nibh non ornare scelerisque, diam lorem cursus lectus, ut
+        mattis mauris purus id mi. Curabitur non ligula sit amet augue molestie
+        vulputate. Donec maximus magna at volutpat aliquet. Pellentesque
+        dignissim nulla eget odio eleifend tincidunt. Etiam diam lorem, ornare
+        vel scelerisque vel, iaculis id risus. Donec aliquet aliquam felis, ac
+        vehicula lacus suscipit vitae. Morbi eu ligula elit.
+      </p>
+      <p>
+        Praesent pellentesque, libero ut faucibus tempor, purus elit consequat
+        metus, in ornare nulla lectus at erat. Duis quis blandit turpis. Fusce
+        at ligula rutrum metus molestie tempor sit amet eu justo. Maecenas
+        tincidunt nisl nunc. Morbi ac metus tempor, pretium arcu vel, dapibus
+        velit. Nulla convallis ligula at porta mollis. Duis magna ante, mollis
+        eget nibh in, congue tempor dolor. Sed tincidunt sagittis arcu, in
+        ultricies neque tempor non. Suspendisse eget nunc neque. Nulla sit amet
+        odio volutpat, maximus purus id, dictum metus. Integer consequat, orci
+        nec ullamcorper porta, mauris libero vestibulum ipsum, nec tempor tellus
+        enim non nunc. Quisque nisl risus, dapibus sit amet purus nec, aliquam
+        finibus metus. Nullam condimentum urna viverra finibus cursus. Proin et
+        sollicitudin tellus, porta fermentum felis. Maecenas ac turpis sed dui
+        condimentum interdum sed sed erat. Mauris ut dignissim erat.
+      </p>
+      <p>
+        Proin varius porta dui, id fringilla elit lobortis eget. Integer at
+        metus elementum, efficitur eros id, euismod est. Morbi vestibulum nibh
+        ac leo luctus sagittis. Praesent rhoncus, risus sit amet mattis dictum,
+        diam sapien tempor neque, vel dignissim nulla neque eget ex. Nam
+        sollicitudin metus quis ullamcorper dapibus. Nam tristique euismod
+        efficitur. Pellentesque rhoncus vel sem eget lacinia. Pellentesque
+        volutpat velit ac dignissim luctus. Vivamus euismod tortor at ligula
+        mattis porta. Vestibulum ante ipsum primis in faucibus orci luctus et
+        ultrices posuere cubilia curae;
+      </p>
+      <p>
+        Proin blandit vulputate efficitur. Pellentesque sit amet porta odio.
+        Nunc pulvinar varius rhoncus. Mauris fermentum leo a imperdiet pretium.
+        Mauris scelerisque justo vel ante egestas, eget tempus neque malesuada.
+        Sed dictum ex vel justo dignissim, aliquam commodo diam rutrum. Integer
+        dignissim est ullamcorper augue laoreet consectetur id at diam. Vivamus
+        molestie blandit urna, eget pulvinar augue dictum vestibulum. Duis
+        maximus bibendum mauris, ut ultricies elit rhoncus eu. Praesent gravida
+        placerat mauris. Praesent tempor ipsum at nibh rhoncus sagittis. Duis
+        non sem turpis. Quisque et metus leo. Sed eu purus lorem. Pellentesque
+        dictum metus sed leo viverra interdum. Maecenas vel tincidunt mi.
+      </p>
+      <p>
+        Praesent consequat dapibus pellentesque. Fusce at enim id mauris laoreet
+        commodo. Nullam ut mauris euismod, rhoncus tellus vel, facilisis diam.
+        Aenean porta faucibus augue, a iaculis massa iaculis in. Praesent vel
+        metus purus. Etiam quis augue eget orci lobortis eleifend ac ut lorem.
+        Aenean non orci quis nisi molestie maximus. Mauris interdum, eros et
+        aliquam aliquam, lectus diam pharetra velit, in condimentum odio eros
+        non quam. Praesent bibendum pretium turpis vitae tristique. Mauris
+        convallis, massa ut fermentum fermentum, libero orci tempus ipsum,
+        malesuada ultrices metus sapien placerat lectus. Ut fringilla arcu nec
+        lorem ultrices mattis. Etiam id tortor feugiat magna gravida gravida.
+        Morbi aliquam, mi ac pellentesque mattis, erat ex venenatis erat, a
+        vestibulum eros turpis quis metus. Pellentesque tempus justo in ligula
+        ultricies porta. Phasellus congue felis sit amet dolor tristique
+        finibus. Nunc eget eros non est ultricies vestibulum.
+      </p>
+      <p>
+        Donec efficitur ligula quis odio tincidunt tristique. Duis urna dolor,
+        hendrerit quis enim at, accumsan auctor turpis. Vivamus ante lorem,
+        maximus vitae suscipit ut, congue eget velit. Maecenas sed ligula erat.
+        Aliquam mollis purus at nisi porta suscipit in ut magna. Vivamus a
+        turpis nec tellus egestas suscipit nec ornare nisi. Donec vestibulum
+        libero quis ex suscipit, sit amet luctus leo gravida.
+      </p>
+      <p>
+        Praesent pharetra dolor elit, sed volutpat lorem rhoncus non. Etiam a
+        neque ut velit dignissim sodales. Vestibulum neque risus, condimentum
+        nec consectetur vitae, ultricies ut sapien. Integer iaculis at urna sit
+        amet malesuada. Integer tincidunt, felis ac vulputate semper, velit leo
+        facilisis lorem, quis aliquet leo dui id lorem. Morbi non quam quis nisl
+        sagittis consequat nec vitae libero. Nunc molestie pretium libero, eu
+        eleifend nibh feugiat sed. Ut in bibendum diam, sit amet vehicula risus.
+        Nam ornare ac nisi ac euismod. Nullam id egestas nulla. Etiam porta
+        commodo ante sit amet pellentesque. Suspendisse eleifend purus in urna
+        euismod auctor non vel nisi. Suspendisse rutrum est nunc, sit amet
+        lacinia lacus dictum eget. Pellentesque habitant morbi tristique
+        senectus et netus et malesuada fames ac turpis egestas. Morbi a blandit
+        diam.
+      </p>
+      <p>
+        Donec eget efficitur sapien. Suspendisse diam lacus, varius eu interdum
+        et, congue ac justo. Proin ipsum odio, suscipit elementum mauris sed,
+        porttitor congue est. Cras dapibus dictum ante, vitae gravida elit
+        venenatis sed. Sed massa sem, posuere ut enim sit amet, vestibulum
+        condimentum nibh. Pellentesque pulvinar sodales lacinia. Proin id
+        pretium sapien, non convallis nulla. In mollis tincidunt sem et
+        porttitor.
+      </p>
+      <p>
+        Integer at sollicitudin sem. Suspendisse sed semper orci. Nulla at nibh
+        nec risus suscipit posuere egestas vitae enim. Nullam mauris justo,
+        mattis vel laoreet non, finibus nec nisl. Cras iaculis ultrices nibh,
+        non commodo eros aliquam non. Sed vitae mollis dui, at maximus metus. Ut
+        vestibulum, enim ut lobortis vulputate, lorem urna congue elit, non
+        dictum odio lorem eget velit. Morbi eleifend id ligula vitae vulputate.
+        Suspendisse ac laoreet justo. Proin eu mattis diam.
+      </p>
+      <p>
+        Nunc in ex quis enim ullamcorper scelerisque eget ac eros. Class aptent
+        taciti sociosqu ad litora torquent per conubia nostra, per inceptos
+        himenaeos. Aliquam turpis dui, egestas a rhoncus non, fermentum in
+        tellus. Vestibulum ante ipsum primis in faucibus orci luctus et ultrices
+        posuere cubilia curae; Aenean non risus arcu. Nam ultricies lacinia
+        volutpat. Class aptent taciti sociosqu ad litora torquent per conubia
+        nostra, per inceptos himenaeos. Lorem ipsum dolor sit amet, consectetur
+        adipiscing elit.
+      </p>
+      <p>
+        Aliquam a felis leo. Proin lorem ipsum, congue eu cursus in, rhoncus ut
+        libero. Vestibulum sit amet consequat nunc. Ut eleifend lobortis lacus,
+        vel molestie metus viverra eget. Nullam suscipit eu magna scelerisque
+        suscipit. Donec dictum in diam nec lacinia. Mauris pellentesque ex ut
+        purus facilisis, eget placerat turpis semper. Sed dapibus lorem ante, et
+        malesuada dui eleifend ac. Sed diam felis, semper ac nulla vel, posuere
+        ultricies ante.
+      </p>
+      <p>
+        Nunc elementum odio sapien, sit amet vulputate lorem varius at. Fusce
+        non sapien vitae lorem aliquam pretium sit amet congue dolor. Nunc quis
+        tortor luctus, pretium ex a, tincidunt urna. Aliquam fermentum massa a
+        erat pharetra varius. Curabitur at auctor dui. Sed posuere pellentesque
+        massa, vel bibendum urna dictum non. Fusce eget rhoncus urna. Maecenas
+        sed lectus tellus. Pellentesque convallis dapibus nisl vitae venenatis.
+        Quisque ornare a dolor ac pharetra. Nam cursus, mi a lacinia accumsan,
+        felis erat fringilla magna, ac mattis nunc ante a orci.
+      </p>
+      <p>
+        Nunc vel tortor euismod, commodo tortor non, aliquam nisi. Maecenas
+        tempus mollis velit non suscipit. Mauris sit amet dolor sed ex fringilla
+        varius. Suspendisse vel cursus risus. Vivamus pharetra massa nec dolor
+        aliquam feugiat. Fusce finibus enim commodo, scelerisque ante eu,
+        laoreet ex. Curabitur placerat magna quis imperdiet lacinia. Etiam
+        lectus mauris, porttitor ac lacinia sed, posuere eget lacus. Mauris
+        vulputate mattis imperdiet. Nunc id aliquet libero, vitae hendrerit
+        purus. Praesent vestibulum urna ac egestas tempor. In molestie, nunc sit
+        amet sagittis dapibus, ligula enim fermentum mi, lacinia molestie eros
+        dui in tortor. Mauris fermentum pulvinar faucibus. Curabitur laoreet
+        eleifend purus, non tincidunt tortor gravida nec. Nam eu lectus congue,
+        commodo libero et, porttitor est. Nullam tincidunt, nisi eu congue
+        congue, magna justo commodo massa, nec efficitur dui lectus non sem.
+      </p>
+      <p>
+        Nullam vehicula, ipsum quis lacinia tristique, elit nulla dignissim
+        augue, at pulvinar metus justo ac magna. Nullam nec nunc ac sapien
+        mollis cursus eu ac enim. Pellentesque a pharetra erat. Ut tempor magna
+        nisi, accumsan blandit lectus volutpat nec. Vivamus vel lorem nec eros
+        blandit dictum eget ac diam. Nulla nec turpis dolor. Morbi eu euismod
+        libero. Nam ut tortor at arcu porta tincidunt. In gravida ligula
+        fringilla ornare imperdiet. Nulla scelerisque ante erat, efficitur
+        dictum metus ullamcorper vel. Nam ac purus metus. Maecenas eget tempus
+        nulla. Ut magna lorem, efficitur ut ex a, semper aliquam magna. Praesent
+        lobortis, velit ac posuere mattis, justo est accumsan turpis, id
+        sagittis felis mi in lacus.
+      </p>
+      <p>
+        Aenean est mi, semper nec sem at, malesuada consectetur nunc. Aenean
+        consequat sem quis sem consequat, non aliquam est placerat. Cras
+        malesuada magna neque, et pellentesque nibh consequat at. Sed interdum
+        velit et ex interdum, vel lobortis ante vestibulum. Nam placerat lectus
+        eu commodo efficitur. Pellentesque in nunc ac massa porttitor eleifend
+        ut efficitur sem. Aenean at magna auctor, posuere augue in, ultrices
+        arcu. Praesent dignissim augue ex, malesuada maximus metus interdum a.
+        Proin nec odio in nulla vestibulum.
+      </p>
+      <p>
+        Aenean est mi, semper nec sem at, malesuada consectetur nunc. Aenean
+        consequat sem quis sem consequat, non aliquam est placerat. Cras
+        malesuada magna neque, et pellentesque nibh consequat at. Sed interdum
+        velit et ex interdum, vel lobortis ante vestibulum. Nam placerat lectus
+        eu commodo efficitur. Pellentesque in nunc ac massa porttitor eleifend
+        ut efficitur sem. Aenean at magna auctor, posuere augue in, ultrices
+        arcu. Praesent dignissim augue ex, malesuada maximus metus interdum a.
+        Proin nec odio in nulla vestibulum.
+      </p>
+      <p>
+        Aenean est mi, semper nec sem at, malesuada consectetur nunc. Aenean
+        consequat sem quis sem consequat, non aliquam est placerat. Cras
+        malesuada magna neque, et pellentesque nibh consequat at. Sed interdum
+        velit et ex interdum, vel lobortis ante vestibulum. Nam placerat lectus
+        eu commodo efficitur. Pellentesque in nunc ac massa porttitor eleifend
+        ut efficitur sem. Aenean at magna auctor, posuere augue in, ultrices
+        arcu. Praesent dignissim augue ex, malesuada maximus metus interdum a.
+        Proin nec odio in nulla vestibulum.
+      </p>
+    </Fragment>
+  );
+}
diff --git a/packages/react-noop-renderer/src/ReactNoopServer.js b/packages/react-noop-renderer/src/ReactNoopServer.js
index 7d9597d95610b..fe00f28b0240f 100644
--- a/packages/react-noop-renderer/src/ReactNoopServer.js
+++ b/packages/react-noop-renderer/src/ReactNoopServer.js
@@ -98,6 +98,8 @@ const ReactNoopServer = ReactFizzServer({
   closeWithError(destination: Destination, error: mixed): void {},
   flushBuffered(destination: Destination): void {},
 
+  byteLengthOfChunk: null,
+
   getChildFormatContext(): null {
     return null;
   },
diff --git a/packages/react-server/src/ReactFizzServer.js b/packages/react-server/src/ReactFizzServer.js
index 52d677ad1be40..ced35204cf5a5 100644
--- a/packages/react-server/src/ReactFizzServer.js
+++ b/packages/react-server/src/ReactFizzServer.js
@@ -50,6 +50,7 @@ import {
   flushBuffered,
   close,
   closeWithError,
+  byteLengthOfChunk,
 } from './ReactServerStreamConfig';
 import {
   writeCompletedRoot,
@@ -348,6 +349,7 @@ export opaque type Request = {
   pendingRootTasks: number, // when this reaches zero, we've finished at least the root boundary.
   completedRootSegment: null | Segment, // Completed but not yet flushed root segments.
   completedPreambleSegments: null | Array<Array<Segment>>, // contains the ready-to-flush segments that make up the preamble
+  byteSize: number, // counts the number of bytes accumulated in the shell
   abortableTasks: Set<Task>,
   pingedTasks: Array<Task>, // High priority tasks that should be worked on first.
   // Queues to flush in order of priority
@@ -398,6 +400,13 @@ type Preamble = PreambleState;
 // 500 * 1024 / 8 * .8 * 0.5 / 2
 const DEFAULT_PROGRESSIVE_CHUNK_SIZE = 12800;
 
+function isEligibleForOutlining(
+  request: Request,
+  boundary: SuspenseBoundary,
+): boolean {
+  return boundary.byteSize > request.progressiveChunkSize;
+}
+
 function defaultErrorHandler(error: mixed) {
   if (
     typeof error === 'object' &&
@@ -447,6 +456,7 @@ function RequestInstance(
   this.pendingRootTasks = 0;
   this.completedRootSegment = null;
   this.completedPreambleSegments = null;
+  this.byteSize = 0;
   this.abortableTasks = abortSet;
   this.pingedTasks = pingedTasks;
   this.clientRenderedBoundaries = ([]: Array<SuspenseBoundary>);
@@ -1235,6 +1245,7 @@ function renderSuspenseBoundary(
         boundarySegment.textEmbedded,
       );
       boundarySegment.status = COMPLETED;
+      finishedSegment(request, parentBoundary, boundarySegment);
     } catch (thrownValue: mixed) {
       if (request.status === ABORTING) {
         boundarySegment.status = ABORTED;
@@ -1301,20 +1312,24 @@ function renderSuspenseBoundary(
         contentRootSegment.textEmbedded,
       );
       contentRootSegment.status = COMPLETED;
+      finishedSegment(request, newBoundary, contentRootSegment);
       queueCompletedSegment(newBoundary, contentRootSegment);
       if (newBoundary.pendingTasks === 0 && newBoundary.status === PENDING) {
         // This must have been the last segment we were waiting on. This boundary is now complete.
-        // Therefore we won't need the fallback. We early return so that we don't have to create
-        // the fallback.
         newBoundary.status = COMPLETED;
-        if (request.pendingRootTasks === 0 && task.blockedPreamble) {
-          // The root is complete and this boundary may contribute part of the preamble.
-          // We eagerly attempt to prepare the preamble here because we expect most requests
-          // to have few boundaries which contribute preambles and it allow us to do this
-          // preparation work during the work phase rather than the when flushing.
-          preparePreamble(request);
+        // Therefore we won't need the fallback. We early return so that we don't have to create
+        // the fallback. However, if this boundary ended up big enough to be eligible for outlining
+        // we can't do that because we might still need the fallback if we outline it.
+        if (!isEligibleForOutlining(request, newBoundary)) {
+          if (request.pendingRootTasks === 0 && task.blockedPreamble) {
+            // The root is complete and this boundary may contribute part of the preamble.
+            // We eagerly attempt to prepare the preamble here because we expect most requests
+            // to have few boundaries which contribute preambles and it allow us to do this
+            // preparation work during the work phase rather than the when flushing.
+            preparePreamble(request);
+          }
+          return;
         }
-        return;
       }
     } catch (thrownValue: mixed) {
       newBoundary.status = CLIENT_RENDERED;
@@ -2451,6 +2466,7 @@ function resumeNode(
     renderTask.blockedSegment = resumedSegment;
     renderNode(request, task, node, childIndex);
     resumedSegment.status = COMPLETED;
+    finishedSegment(request, blockedBoundary, resumedSegment);
     if (blockedBoundary === null) {
       request.completedRootSegment = resumedSegment;
     } else {
@@ -4272,6 +4288,27 @@ function queueCompletedSegment(
   }
 }
 
+function finishedSegment(
+  request: Request,
+  boundary: Root | SuspenseBoundary,
+  segment: Segment,
+) {
+  if (byteLengthOfChunk !== null) {
+    // Count the bytes of all the chunks of this segment.
+    const chunks = segment.chunks;
+    let segmentByteSize = 0;
+    for (let i = 0; i < chunks.length; i++) {
+      segmentByteSize += byteLengthOfChunk(chunks[i]);
+    }
+    // Accumulate on the parent boundary to power heuristics.
+    if (boundary === null) {
+      request.byteSize += segmentByteSize;
+    } else {
+      boundary.byteSize += segmentByteSize;
+    }
+  }
+}
+
 function finishedTask(
   request: Request,
   boundary: Root | SuspenseBoundary,
@@ -4318,9 +4355,13 @@ function finishedTask(
       // This needs to happen after we read the parentFlushed flags because aborting can finish
       // work which can trigger user code, which can start flushing, which can change those flags.
       // If the boundary was POSTPONED, we still need to finish the fallback first.
+      // If the boundary is eligible to be outlined during flushing we can't cancel the fallback
+      // since we might need it when it's being outlined.
       if (boundary.status === COMPLETED) {
-        boundary.fallbackAbortableTasks.forEach(abortTaskSoft, request);
-        boundary.fallbackAbortableTasks.clear();
+        if (!isEligibleForOutlining(request, boundary)) {
+          boundary.fallbackAbortableTasks.forEach(abortTaskSoft, request);
+          boundary.fallbackAbortableTasks.clear();
+        }
 
         if (
           request.pendingRootTasks === 0 &&
@@ -4418,6 +4459,7 @@ function retryRenderTask(
 
     task.abortSet.delete(task);
     segment.status = COMPLETED;
+    finishedSegment(request, task.blockedBoundary, segment);
     finishedTask(request, task.blockedBoundary, segment);
   } catch (thrownValue: mixed) {
     resetHooksState();
@@ -4929,7 +4971,7 @@ function flushSegment(
     flushSubtree(request, destination, segment, hoistableState);
 
     return writeEndPendingSuspenseBoundary(destination, request.renderState);
-  } else if (boundary.byteSize > request.progressiveChunkSize) {
+  } else if (isEligibleForOutlining(request, boundary)) {
     // This boundary is large and will be emitted separately so that we can progressively show
     // other content. We add it to the queue during the flush because we have to ensure that
     // the parent flushes first so that there's something to inject it into.
diff --git a/packages/react-server/src/ReactServerStreamConfigFB.js b/packages/react-server/src/ReactServerStreamConfigFB.js
index fcd0aa1d1ad69..61d678ed69582 100644
--- a/packages/react-server/src/ReactServerStreamConfigFB.js
+++ b/packages/react-server/src/ReactServerStreamConfigFB.js
@@ -60,9 +60,9 @@ export function typedArrayToBinaryChunk(
   throw new Error('Not implemented.');
 }
 
-export function byteLengthOfChunk(chunk: Chunk | PrecomputedChunk): number {
-  throw new Error('Not implemented.');
-}
+export const byteLengthOfChunk:
+  | null
+  | ((chunk: Chunk | PrecomputedChunk) => number) = null;
 
 export function byteLengthOfBinaryChunk(chunk: BinaryChunk): number {
   throw new Error('Not implemented.');