diff --git a/src/compiler/expressionToTypeNode.ts b/src/compiler/expressionToTypeNode.ts
index 0df3a399b8f14..10cdb4bbc2c3c 100644
--- a/src/compiler/expressionToTypeNode.ts
+++ b/src/compiler/expressionToTypeNode.ts
@@ -731,6 +731,9 @@ export function createSyntacticTypeNodeBuilder(
             case SyntaxKind.ConstructorType:
             case SyntaxKind.FunctionExpression:
             case SyntaxKind.ArrowFunction:
+                // Don't report inference fallback for function expressions that are arguments to call expressions
+                const shouldReportFallback = !(node.kind === SyntaxKind.FunctionExpression || node.kind === SyntaxKind.ArrowFunction) || !isCallExpression(node.parent);
+                return createReturnFromSignature(node, symbol, context, shouldReportFallback);
             case SyntaxKind.JSDocFunctionType:
             case SyntaxKind.JSDocSignature:
                 return createReturnFromSignature(node, symbol, context);
@@ -968,7 +971,9 @@ export function createSyntacticTypeNodeBuilder(
         return failed;
     }
     function typeFromFunctionLikeExpression(fnNode: FunctionExpression | ArrowFunction, context: SyntacticTypeNodeBuilderContext) {
-        const returnType = createReturnFromSignature(fnNode, /*symbol*/ undefined, context);
+        // Don't report inference fallback for function expressions that are arguments to call expressions
+        const shouldReportFallback = !isCallExpression(fnNode.parent);
+        const returnType = createReturnFromSignature(fnNode, /*symbol*/ undefined, context, shouldReportFallback);
         const typeParameters = reuseTypeParameters(fnNode.typeParameters, context);
         const parameters = fnNode.parameters.map(p => ensureParameter(p, context));
         return syntacticResult(
diff --git a/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.errors.txt b/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.errors.txt
new file mode 100644
index 0000000000000..fd15b62fdaf83
--- /dev/null
+++ b/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.errors.txt
@@ -0,0 +1,37 @@
+isolatedDeclarationsFunctionExpressionInCall.ts(4,14): error TS9010: Variable must have an explicit type annotation with --isolatedDeclarations.
+isolatedDeclarationsFunctionExpressionInCall.ts(8,14): error TS9010: Variable must have an explicit type annotation with --isolatedDeclarations.
+isolatedDeclarationsFunctionExpressionInCall.ts(12,14): error TS9010: Variable must have an explicit type annotation with --isolatedDeclarations.
+isolatedDeclarationsFunctionExpressionInCall.ts(16,14): error TS9010: Variable must have an explicit type annotation with --isolatedDeclarations.
+
+
+==== isolatedDeclarationsFunctionExpressionInCall.ts (4 errors) ====
+    declare function observer<T>(fn: T): T;
+    declare function action<T>(fn: T): T;
+    
+    export const Component = observer(() => {
+                 ~~~~~~~~~
+!!! error TS9010: Variable must have an explicit type annotation with --isolatedDeclarations.
+!!! related TS9027 isolatedDeclarationsFunctionExpressionInCall.ts:4:14: Add a type annotation to the variable Component.
+      return "hello";
+    });
+    
+    export const thing = action(function () {
+                 ~~~~~
+!!! error TS9010: Variable must have an explicit type annotation with --isolatedDeclarations.
+!!! related TS9027 isolatedDeclarationsFunctionExpressionInCall.ts:8:14: Add a type annotation to the variable thing.
+      return Component;
+    });
+    
+    export const arrowWithType = observer((): string => {
+                 ~~~~~~~~~~~~~
+!!! error TS9010: Variable must have an explicit type annotation with --isolatedDeclarations.
+!!! related TS9027 isolatedDeclarationsFunctionExpressionInCall.ts:12:14: Add a type annotation to the variable arrowWithType.
+      return "typed";
+    });
+    
+    export const functionWithType = action(function (): typeof Component {
+                 ~~~~~~~~~~~~~~~~
+!!! error TS9010: Variable must have an explicit type annotation with --isolatedDeclarations.
+!!! related TS9027 isolatedDeclarationsFunctionExpressionInCall.ts:16:14: Add a type annotation to the variable functionWithType.
+      return Component;
+    });
\ No newline at end of file
diff --git a/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.js b/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.js
new file mode 100644
index 0000000000000..a564a4355c0b3
--- /dev/null
+++ b/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.js
@@ -0,0 +1,38 @@
+//// [tests/cases/compiler/isolatedDeclarationsFunctionExpressionInCall.ts] ////
+
+//// [isolatedDeclarationsFunctionExpressionInCall.ts]
+declare function observer<T>(fn: T): T;
+declare function action<T>(fn: T): T;
+
+export const Component = observer(() => {
+  return "hello";
+});
+
+export const thing = action(function () {
+  return Component;
+});
+
+export const arrowWithType = observer((): string => {
+  return "typed";
+});
+
+export const functionWithType = action(function (): typeof Component {
+  return Component;
+});
+
+//// [isolatedDeclarationsFunctionExpressionInCall.js]
+"use strict";
+Object.defineProperty(exports, "__esModule", { value: true });
+exports.functionWithType = exports.arrowWithType = exports.thing = exports.Component = void 0;
+exports.Component = observer(function () {
+    return "hello";
+});
+exports.thing = action(function () {
+    return exports.Component;
+});
+exports.arrowWithType = observer(function () {
+    return "typed";
+});
+exports.functionWithType = action(function () {
+    return exports.Component;
+});
diff --git a/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.symbols b/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.symbols
new file mode 100644
index 0000000000000..f49dd100fd1b0
--- /dev/null
+++ b/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.symbols
@@ -0,0 +1,49 @@
+//// [tests/cases/compiler/isolatedDeclarationsFunctionExpressionInCall.ts] ////
+
+=== isolatedDeclarationsFunctionExpressionInCall.ts ===
+declare function observer<T>(fn: T): T;
+>observer : Symbol(observer, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 0))
+>T : Symbol(T, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 26))
+>fn : Symbol(fn, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 29))
+>T : Symbol(T, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 26))
+>T : Symbol(T, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 26))
+
+declare function action<T>(fn: T): T;
+>action : Symbol(action, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 39))
+>T : Symbol(T, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 1, 24))
+>fn : Symbol(fn, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 1, 27))
+>T : Symbol(T, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 1, 24))
+>T : Symbol(T, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 1, 24))
+
+export const Component = observer(() => {
+>Component : Symbol(Component, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 3, 12))
+>observer : Symbol(observer, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 0))
+
+  return "hello";
+});
+
+export const thing = action(function () {
+>thing : Symbol(thing, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 7, 12))
+>action : Symbol(action, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 39))
+
+  return Component;
+>Component : Symbol(Component, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 3, 12))
+
+});
+
+export const arrowWithType = observer((): string => {
+>arrowWithType : Symbol(arrowWithType, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 11, 12))
+>observer : Symbol(observer, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 0))
+
+  return "typed";
+});
+
+export const functionWithType = action(function (): typeof Component {
+>functionWithType : Symbol(functionWithType, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 15, 12))
+>action : Symbol(action, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 0, 39))
+>Component : Symbol(Component, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 3, 12))
+
+  return Component;
+>Component : Symbol(Component, Decl(isolatedDeclarationsFunctionExpressionInCall.ts, 3, 12))
+
+});
diff --git a/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.types b/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.types
new file mode 100644
index 0000000000000..a56d8aa414490
--- /dev/null
+++ b/tests/baselines/reference/isolatedDeclarationsFunctionExpressionInCall.types
@@ -0,0 +1,80 @@
+//// [tests/cases/compiler/isolatedDeclarationsFunctionExpressionInCall.ts] ////
+
+=== isolatedDeclarationsFunctionExpressionInCall.ts ===
+declare function observer<T>(fn: T): T;
+>observer : <T>(fn: T) => T
+>         : ^ ^^  ^^ ^^^^^ 
+>fn : T
+>   : ^
+
+declare function action<T>(fn: T): T;
+>action : <T>(fn: T) => T
+>       : ^ ^^  ^^ ^^^^^ 
+>fn : T
+>   : ^
+
+export const Component = observer(() => {
+>Component : () => "hello"
+>          : ^^^^^^^^^^^^^
+>observer(() => {  return "hello";}) : () => "hello"
+>                                    : ^^^^^^^^^^^^^
+>observer : <T>(fn: T) => T
+>         : ^ ^^  ^^ ^^^^^ 
+>() => {  return "hello";} : () => "hello"
+>                          : ^^^^^^^^^^^^^
+
+  return "hello";
+>"hello" : "hello"
+>        : ^^^^^^^
+
+});
+
+export const thing = action(function () {
+>thing : () => () => "hello"
+>      : ^^^^^^^^^^^^^^^^^^^
+>action(function () {  return Component;}) : () => () => "hello"
+>                                          : ^^^^^^^^^^^^^^^^^^^
+>action : <T>(fn: T) => T
+>       : ^ ^^  ^^ ^^^^^ 
+>function () {  return Component;} : () => () => "hello"
+>                                  : ^^^^^^^^^^^^^^^^^^^
+
+  return Component;
+>Component : () => "hello"
+>          : ^^^^^^^^^^^^^
+
+});
+
+export const arrowWithType = observer((): string => {
+>arrowWithType : () => string
+>              : ^^^^^^      
+>observer((): string => {  return "typed";}) : () => string
+>                                            : ^^^^^^      
+>observer : <T>(fn: T) => T
+>         : ^ ^^  ^^ ^^^^^ 
+>(): string => {  return "typed";} : () => string
+>                                  : ^^^^^^      
+
+  return "typed";
+>"typed" : "typed"
+>        : ^^^^^^^
+
+});
+
+export const functionWithType = action(function (): typeof Component {
+>functionWithType : () => typeof Component
+>                 : ^^^^^^                
+>action(function (): typeof Component {  return Component;}) : () => typeof Component
+>                                                            : ^^^^^^                
+>action : <T>(fn: T) => T
+>       : ^ ^^  ^^ ^^^^^ 
+>function (): typeof Component {  return Component;} : () => typeof Component
+>                                                    : ^^^^^^                
+>Component : () => "hello"
+>          : ^^^^^^^^^^^^^
+
+  return Component;
+>Component : () => "hello"
+>          : ^^^^^^^^^^^^^
+
+});
diff --git a/tests/cases/compiler/isolatedDeclarationsFunctionExpressionInCall.ts b/tests/cases/compiler/isolatedDeclarationsFunctionExpressionInCall.ts
new file mode 100644
index 0000000000000..514a9813e6772
--- /dev/null
+++ b/tests/cases/compiler/isolatedDeclarationsFunctionExpressionInCall.ts
@@ -0,0 +1,21 @@
+// @isolatedDeclarations: true
+// @declaration: true
+
+declare function observer<T>(fn: T): T;
+declare function action<T>(fn: T): T;
+
+export const Component = observer(() => {
+  return "hello";
+});
+
+export const thing = action(function () {
+  return Component;
+});
+
+export const arrowWithType = observer((): string => {
+  return "typed";
+});
+
+export const functionWithType = action(function (): typeof Component {
+  return Component;
+});
\ No newline at end of file