diff --git a/idea/src/org/jetbrains/jet/plugin/highlighter/JetColorSettingsPage.java b/idea/src/org/jetbrains/jet/plugin/highlighter/JetColorSettingsPage.java
index 1a705153847..b62dba85a99 100644
--- a/idea/src/org/jetbrains/jet/plugin/highlighter/JetColorSettingsPage.java
+++ b/idea/src/org/jetbrains/jet/plugin/highlighter/JetColorSettingsPage.java
@@ -129,7 +129,9 @@ public class JetColorSettingsPage implements ColorSettingsPage {
             new AttributesDescriptor("Trait", JetHighlightingColors.TRAIT),
             new AttributesDescriptor("Annotation", JetHighlightingColors.ANNOTATION),
 
-            new AttributesDescriptor("Wrapped into ref", JetHighlightingColors.WRAPPED_INTO_REF),
+            new AttributesDescriptor("Closure or anonymous object bound variable", JetHighlightingColors.WRAPPED_INTO_REF),
+            new AttributesDescriptor("Read-only local variable (val)", JetHighlightingColors.LOCAL_VAL),
+            new AttributesDescriptor("Mutable local variable (var)", JetHighlightingColors.LOCAL_VAR),
 
             new AttributesDescriptor("Instance property with backing field", JetHighlightingColors.INSTANCE_PROPERTY_WITH_BACKING_FIELD),
             new AttributesDescriptor("Instance property backing field access", JetHighlightingColors.INSTANCE_BACKING_FIELD_ACCESS),
diff --git a/idea/src/org/jetbrains/jet/plugin/highlighter/JetHighlightingColors.java b/idea/src/org/jetbrains/jet/plugin/highlighter/JetHighlightingColors.java
index c135138e569..8d51c8c4c5d 100644
--- a/idea/src/org/jetbrains/jet/plugin/highlighter/JetHighlightingColors.java
+++ b/idea/src/org/jetbrains/jet/plugin/highlighter/JetHighlightingColors.java
@@ -161,10 +161,19 @@ public class JetHighlightingColors {
         CodeInsightColors.ANNOTATION_NAME_ATTRIBUTES.getDefaultAttributes()
     );
 
-    // TODO review: is it needed?
+    public static final TextAttributesKey LOCAL_VAL = TextAttributesKey.createTextAttributesKey(
+        "KOTLIN_LOCAL_VAL",
+        CodeInsightColors.LOCAL_VARIABLE_ATTRIBUTES.getDefaultAttributes()
+    );
+
+    public static final TextAttributesKey LOCAL_VAR = TextAttributesKey.createTextAttributesKey(
+        "KOTLIN_LOCAL_VAR",
+        CodeInsightColors.REASSIGNED_LOCAL_VARIABLE_ATTRIBUTES.getDefaultAttributes()
+    );
+
     public static final TextAttributesKey WRAPPED_INTO_REF = TextAttributesKey.createTextAttributesKey(
         "KOTLIN_WRAPPED_INTO_REF",
-        new TextAttributes(null, null, Color.BLACK, EffectType.LINE_UNDERSCORE, Font.PLAIN)
+        CodeInsightColors.IMPLICIT_ANONYMOUS_CLASS_PARAMETER_ATTRIBUTES.getDefaultAttributes()
     );
 
     public static final TextAttributesKey INSTANCE_PROPERTY_WITH_BACKING_FIELD = TextAttributesKey.createTextAttributesKey(
diff --git a/idea/src/org/jetbrains/jet/plugin/highlighter/VariablesHighlightingVisitor.java b/idea/src/org/jetbrains/jet/plugin/highlighter/VariablesHighlightingVisitor.java
index 9b18f41fdb6..b53c1ff8ee0 100644
--- a/idea/src/org/jetbrains/jet/plugin/highlighter/VariablesHighlightingVisitor.java
+++ b/idea/src/org/jetbrains/jet/plugin/highlighter/VariablesHighlightingVisitor.java
@@ -16,14 +16,17 @@
 
 package org.jetbrains.jet.plugin.highlighter;
 
-import com.intellij.lang.ASTNode;
 import com.intellij.lang.annotation.AnnotationHolder;
 import com.intellij.psi.PsiElement;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.jet.lang.descriptors.DeclarationDescriptor;
+import org.jetbrains.jet.lang.descriptors.LocalVariableDescriptor;
 import org.jetbrains.jet.lang.descriptors.ValueParameterDescriptor;
 import org.jetbrains.jet.lang.descriptors.VariableDescriptor;
-import org.jetbrains.jet.lang.psi.*;
+import org.jetbrains.jet.lang.psi.JetElement;
+import org.jetbrains.jet.lang.psi.JetExpression;
+import org.jetbrains.jet.lang.psi.JetProperty;
+import org.jetbrains.jet.lang.psi.JetSimpleNameExpression;
 import org.jetbrains.jet.lang.resolve.BindingContext;
 import org.jetbrains.jet.lang.types.JetType;
 
@@ -45,18 +48,21 @@ class VariablesHighlightingVisitor extends AfterAnalysisHighlightingVisitor {
             }
         }
 
-        markVariableAsWrappedIfNeeded(expression.getNode(), target);
+        highlightVariable(expression, target);
         super.visitSimpleNameExpression(expression);
     }
 
-    private void markVariableAsWrappedIfNeeded(@NotNull ASTNode node, DeclarationDescriptor target) {
-        if (target instanceof VariableDescriptor) {
-            VariableDescriptor variableDescriptor = (VariableDescriptor) target;
+    private void highlightVariable(@NotNull PsiElement elementToHighlight, DeclarationDescriptor descriptor) {
+        if (descriptor instanceof LocalVariableDescriptor) {
+            LocalVariableDescriptor variableDescriptor = (LocalVariableDescriptor) descriptor;
             if (Boolean.TRUE.equals(bindingContext.get(MUST_BE_WRAPPED_IN_A_REF, variableDescriptor))) {
-                holder.createInfoAnnotation(node, "Wrapped into a ref-object to be modifier when captured in a closure").setTextAttributes(
+                holder.createInfoAnnotation(elementToHighlight, "Wrapped into a ref-object to be modifier when captured in a closure").setTextAttributes(
                     JetHighlightingColors.WRAPPED_INTO_REF);
             }
-
+            holder.createInfoAnnotation(elementToHighlight, null).setTextAttributes(
+                variableDescriptor.isVar() ?
+                JetHighlightingColors.LOCAL_VAR :
+                JetHighlightingColors.LOCAL_VAL);
         }
     }
 
@@ -65,7 +71,7 @@ class VariablesHighlightingVisitor extends AfterAnalysisHighlightingVisitor {
         DeclarationDescriptor declarationDescriptor = bindingContext.get(DECLARATION_TO_DESCRIPTOR, property);
         PsiElement nameIdentifier = property.getNameIdentifier();
         if (nameIdentifier != null) {
-            markVariableAsWrappedIfNeeded(nameIdentifier.getNode(), declarationDescriptor);
+            highlightVariable(nameIdentifier, declarationDescriptor);
         }
         super.visitProperty(property);
     }
@@ -77,7 +83,7 @@ class VariablesHighlightingVisitor extends AfterAnalysisHighlightingVisitor {
             holder.createInfoAnnotation(expression, "Automatically cast to " + autoCast).setTextAttributes(
                 JetHighlightingColors.AUTO_CASTED_VALUE);
         }
-        expression.acceptChildren(this);
+        super.visitExpression(expression);
     }
 
     @Override