diff --git a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
index 65abc419ef9..9239640e440 100644
--- a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
+++ b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
@@ -75,6 +75,14 @@ interface NewTypeSubstitutor: TypeSubstitutorMarker {
             }
             val capturedType = if (type is DefinitelyNotNullType) type.original as NewCapturedType else type as NewCapturedType
             val lower = capturedType.lowerType?.let { substitute(it, keepAnnotation, runCapturedChecks = false) }
+            if (lower != null && capturedType.lowerType is StubType) {
+                return NewCapturedType(
+                    capturedType.captureStatus,
+                    NewCapturedTypeConstructor(TypeProjectionImpl(typeConstructor.projection.projectionKind, lower)),
+                    lower
+                )
+            }
+
             if (lower != null) throw IllegalStateException(
                 "Illegal type substitutor: $this, " +
                         "because for captured type '$type' lower type approximation should be null, but it is: '$lower'," +
diff --git a/compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/coroutineInferenceWithCapturedTypeVariable.kt b/compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/coroutineInferenceWithCapturedTypeVariable.kt
new file mode 100644
index 00000000000..9877057468f
--- /dev/null
+++ b/compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/coroutineInferenceWithCapturedTypeVariable.kt
@@ -0,0 +1,19 @@
+// !LANGUAGE: +NewInference
+// !DIAGNOSTICS: -UNUSED_PARAMETER
+// !USE_EXPERIMENTAL: kotlin.Experimental
+
+import kotlin.experimental.ExperimentalTypeInference
+
+suspend fun main() {
+    iFlow { emit(1) }
+}
+
+
+@UseExperimental(ExperimentalTypeInference::class)
+fun <K> iFlow(@BuilderInference block: suspend iFlowCollector<in K>.() -> Unit): iFlow<K> = TODO()
+
+interface iFlowCollector<S> {
+    suspend fun emit(value: S)
+}
+
+interface iFlow<out V>
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/coroutineInferenceWithCapturedTypeVariable.txt b/compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/coroutineInferenceWithCapturedTypeVariable.txt
new file mode 100644
index 00000000000..2b136bdb067
--- /dev/null
+++ b/compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/coroutineInferenceWithCapturedTypeVariable.txt
@@ -0,0 +1,17 @@
+package
+
+@kotlin.UseExperimental(markerClass = {kotlin.experimental.ExperimentalTypeInference::class}) public fun </*0*/ K> iFlow(/*0*/ @kotlin.BuilderInference block: suspend iFlowCollector<in K>.() -> kotlin.Unit): iFlow<K>
+public suspend fun main(): kotlin.Unit
+
+public interface iFlow</*0*/ out V> {
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
+
+public interface iFlowCollector</*0*/ S> {
+    public abstract suspend fun emit(/*0*/ value: S): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestWithStdLibGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestWithStdLibGenerated.java
index e6aded8cd29..146a6a8e0fe 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestWithStdLibGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestWithStdLibGenerated.java
@@ -1822,6 +1822,11 @@ public class DiagnosticsTestWithStdLibGenerated extends AbstractDiagnosticsTestW
                 runTest("compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/chainCallWithExtensionExplicitTypes.kt");
             }
 
+            @TestMetadata("coroutineInferenceWithCapturedTypeVariable.kt")
+            public void testCoroutineInferenceWithCapturedTypeVariable() throws Exception {
+                runTest("compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/coroutineInferenceWithCapturedTypeVariable.kt");
+            }
+
             @TestMetadata("correctMember.kt")
             public void testCorrectMember() throws Exception {
                 runTest("compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/correctMember.kt");
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsTestWithStdLibUsingJavacGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsTestWithStdLibUsingJavacGenerated.java
index 327953109e5..d8b2272a3c4 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsTestWithStdLibUsingJavacGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsTestWithStdLibUsingJavacGenerated.java
@@ -1822,6 +1822,11 @@ public class DiagnosticsTestWithStdLibUsingJavacGenerated extends AbstractDiagno
                 runTest("compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/chainCallWithExtensionExplicitTypes.kt");
             }
 
+            @TestMetadata("coroutineInferenceWithCapturedTypeVariable.kt")
+            public void testCoroutineInferenceWithCapturedTypeVariable() throws Exception {
+                runTest("compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/coroutineInferenceWithCapturedTypeVariable.kt");
+            }
+
             @TestMetadata("correctMember.kt")
             public void testCorrectMember() throws Exception {
                 runTest("compiler/testData/diagnostics/testsWithStdLib/coroutines/inference/correctMember.kt");