diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java b/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
index 101d9fec9bc..36f3c3ac1f8 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
@@ -125,9 +125,12 @@ public class JetFlowInformationProvider {
 
     public void checkFunction(@Nullable JetType expectedReturnType) {
         UnreachableCode unreachableCode = collectUnreachableCode();
-        checkDefiniteReturn(expectedReturnType != null ? expectedReturnType : NO_EXPECTED_TYPE, unreachableCode);
         reportUnreachableCode(unreachableCode);
 
+        if (subroutine instanceof JetFunctionLiteral) return;
+
+        checkDefiniteReturn(expectedReturnType != null ? expectedReturnType : NO_EXPECTED_TYPE, unreachableCode);
+
         markTailCalls();
     }
 
@@ -196,7 +199,7 @@ public class JetFlowInformationProvider {
             JetElement element = localDeclarationInstruction.getElement();
             if (element instanceof JetDeclarationWithBody) {
                 JetDeclarationWithBody localDeclaration = (JetDeclarationWithBody) element;
-                if (localDeclaration instanceof JetFunctionLiteral) continue;
+
                 CallableDescriptor functionDescriptor =
                         (CallableDescriptor) trace.getBindingContext().get(BindingContext.DECLARATION_TO_DESCRIPTOR, localDeclaration);
                 JetType expectedType = functionDescriptor != null ? functionDescriptor.getReturnType() : null;
diff --git a/compiler/testData/diagnostics/tests/controlFlowAnalysis/deadCode/kt5200DeadCodeInLambdas.kt b/compiler/testData/diagnostics/tests/controlFlowAnalysis/deadCode/kt5200DeadCodeInLambdas.kt
new file mode 100644
index 00000000000..0d53ea4e81a
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/controlFlowAnalysis/deadCode/kt5200DeadCodeInLambdas.kt
@@ -0,0 +1,27 @@
+//KT-5200 Mark unreachable code in lambdas
+
+fun test1(): String {
+    doCall @local {
+        () : String ->
+        throw NullPointerException()
+        <!UNREACHABLE_CODE!>"b3"<!> //unmarked
+    }
+
+    return "OK"
+}
+
+fun test2(nonLocal: String, b: Boolean): String {
+    doCall @local {
+        () : String ->
+        if (b) {
+            return@local "b1"
+        } else {
+            return@local "b2"
+        }
+        <!UNREACHABLE_CODE!>"b3"<!> //unmarked
+    }
+
+    return nonLocal
+}
+
+inline fun doCall(block: ()-> String) = block()
diff --git a/compiler/testData/diagnostics/tests/regressions/kt411.kt b/compiler/testData/diagnostics/tests/regressions/kt411.kt
index 3c6ee7ef2a5..2f5c43386f5 100644
--- a/compiler/testData/diagnostics/tests/regressions/kt411.kt
+++ b/compiler/testData/diagnostics/tests/regressions/kt411.kt
@@ -37,7 +37,7 @@ fun t3() : String {
         else {
             <!RETURN_NOT_ALLOWED!>return <!CONSTANT_EXPECTED_TYPE_MISMATCH!>2<!><!>
         }
-        <!RETURN_NOT_ALLOWED_EXPLICIT_RETURN_TYPE_REQUIRED!>return@l 0<!>
+        <!RETURN_NOT_ALLOWED_EXPLICIT_RETURN_TYPE_REQUIRED, UNREACHABLE_CODE!>return@l 0<!>
     }
     )
     invoker(
diff --git a/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
index 6f347d12173..80b66aba665 100644
--- a/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
@@ -1546,6 +1546,11 @@ public class JetDiagnosticsTestGenerated extends AbstractJetDiagnosticsTest {
                     doTest("compiler/testData/diagnostics/tests/controlFlowAnalysis/deadCode/kt2585_3.kt");
                 }
                 
+                @TestMetadata("kt5200DeadCodeInLambdas.kt")
+                public void testKt5200DeadCodeInLambdas() throws Exception {
+                    doTest("compiler/testData/diagnostics/tests/controlFlowAnalysis/deadCode/kt5200DeadCodeInLambdas.kt");
+                }
+                
             }
             
             @TestMetadata("compiler/testData/diagnostics/tests/controlFlowAnalysis/definiteReturn")