diff --git a/idea/src/org/jetbrains/jet/plugin/quickfix/createFromUsage/callableBuilder/CallableBuilder.kt b/idea/src/org/jetbrains/jet/plugin/quickfix/createFromUsage/callableBuilder/CallableBuilder.kt
index 1cff29e5bd1..51c0d1d8c78 100644
--- a/idea/src/org/jetbrains/jet/plugin/quickfix/createFromUsage/callableBuilder/CallableBuilder.kt
+++ b/idea/src/org/jetbrains/jet/plugin/quickfix/createFromUsage/callableBuilder/CallableBuilder.kt
@@ -57,6 +57,7 @@ import com.intellij.psi.PsiElement
 import org.jetbrains.jet.lexer.JetTokens
 import org.jetbrains.jet.plugin.quickfix.createFromUsage.createFunction
 import org.jetbrains.jet.plugin.util.application.runWriteAction
+import org.jetbrains.jet.plugin.refactoring.isMultiLine
 
 private val TYPE_PARAMETER_LIST_VARIABLE_NAME = "typeParameterList"
 private val TEMPLATE_FROM_USAGE_FUNCTION_BODY = "New Kotlin Function Body.kt"
@@ -256,9 +257,15 @@ class CallableBuilder(val config: CallableBuilderConfiguration) {
                 }
                 val newLine = psiFactory.createNewLine()
 
-                fun prepend(element: PsiElement, elementBeforeStart: PsiElement): PsiElement {
+                fun prepend(element: PsiElement, elementBeforeStart: PsiElement, skipInitial: Boolean): PsiElement {
                     val parent = elementBeforeStart.getParent()!!
-                    val anchor = PsiTreeUtil.skipSiblingsForward(elementBeforeStart, javaClass<PsiWhiteSpace>())
+                    val anchor =
+                            if (!skipInitial && elementBeforeStart !is PsiWhiteSpace) {
+                                elementBeforeStart
+                            }
+                            else {
+                                PsiTreeUtil.skipSiblingsForward(elementBeforeStart, javaClass<PsiWhiteSpace>())
+                            }
                     val addedElement = parent.addBefore(element, anchor)!!
                     parent.addAfter(newLine, addedElement)
                     parent.addAfter(newLine, addedElement)
@@ -296,7 +303,18 @@ class CallableBuilder(val config: CallableBuilderConfiguration) {
                                 ?: append(declaration, classBody!!.getLastChild()!!, false)) as JetCallableDeclaration
                     }
 
-                    is JetBlockExpression -> return prepend(declaration, containingElement.getLBrace()!!) as JetCallableDeclaration
+                    is JetBlockExpression -> {
+                        val parent = containingElement.getParent()
+                        if (parent is JetFunctionLiteral) {
+                            if (!parent.isMultiLine()) {
+                                parent.addBefore(newLine, containingElement)
+                                parent.addAfter(newLine, containingElement)
+                            }
+
+                            return prepend(declaration, containingElement.getFirstChild()!!, false) as JetCallableDeclaration
+                        }
+                        return prepend(declaration, containingElement.getLBrace()!!, true) as JetCallableDeclaration
+                    }
 
                     else -> throw AssertionError("Invalid containing element: ${containingElement.getText()}")
                 }
diff --git a/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInLambdaNoParams.kt b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInLambdaNoParams.kt
new file mode 100644
index 00000000000..19e96d3d4b6
--- /dev/null
+++ b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInLambdaNoParams.kt
@@ -0,0 +1,11 @@
+// "Create local variable 'foo'" "true"
+// ACTION: Create parameter 'foo'
+// ERROR: Variable 'foo' must be initialized
+
+fun test(n: Int) {
+    val f: () -> Int = {
+        val foo: Int
+
+        foo
+    }
+}
\ No newline at end of file
diff --git a/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInLambdaWithParams.kt b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInLambdaWithParams.kt
new file mode 100644
index 00000000000..bfe7386fa19
--- /dev/null
+++ b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInLambdaWithParams.kt
@@ -0,0 +1,11 @@
+// "Create local variable 'foo'" "true"
+// ACTION: Create parameter 'foo'
+// ERROR: Variable 'foo' must be initialized
+
+fun test(n: Int) {
+    val f: (Int, Int) -> Int = { (a, b) ->
+        val foo: Int
+
+        foo
+    }
+}
\ No newline at end of file
diff --git a/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInMultiLineLambdaNoParams.kt b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInMultiLineLambdaNoParams.kt
new file mode 100644
index 00000000000..19e96d3d4b6
--- /dev/null
+++ b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInMultiLineLambdaNoParams.kt
@@ -0,0 +1,11 @@
+// "Create local variable 'foo'" "true"
+// ACTION: Create parameter 'foo'
+// ERROR: Variable 'foo' must be initialized
+
+fun test(n: Int) {
+    val f: () -> Int = {
+        val foo: Int
+
+        foo
+    }
+}
\ No newline at end of file
diff --git a/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInMultiLineLambdaWithParams.kt b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInMultiLineLambdaWithParams.kt
new file mode 100644
index 00000000000..bfe7386fa19
--- /dev/null
+++ b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/afterInMultiLineLambdaWithParams.kt
@@ -0,0 +1,11 @@
+// "Create local variable 'foo'" "true"
+// ACTION: Create parameter 'foo'
+// ERROR: Variable 'foo' must be initialized
+
+fun test(n: Int) {
+    val f: (Int, Int) -> Int = { (a, b) ->
+        val foo: Int
+
+        foo
+    }
+}
\ No newline at end of file
diff --git a/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInLambdaNoParams.kt b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInLambdaNoParams.kt
new file mode 100644
index 00000000000..4658d82edbc
--- /dev/null
+++ b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInLambdaNoParams.kt
@@ -0,0 +1,7 @@
+// "Create local variable 'foo'" "true"
+// ACTION: Create parameter 'foo'
+// ERROR: Variable 'foo' must be initialized
+
+fun test(n: Int) {
+    val f: () -> Int = { <caret>foo }
+}
\ No newline at end of file
diff --git a/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInLambdaWithParams.kt b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInLambdaWithParams.kt
new file mode 100644
index 00000000000..08e56a6a8be
--- /dev/null
+++ b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInLambdaWithParams.kt
@@ -0,0 +1,7 @@
+// "Create local variable 'foo'" "true"
+// ACTION: Create parameter 'foo'
+// ERROR: Variable 'foo' must be initialized
+
+fun test(n: Int) {
+    val f: (Int, Int) -> Int = { (a, b) -> <caret>foo }
+}
\ No newline at end of file
diff --git a/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInMultiLineLambdaNoParams.kt b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInMultiLineLambdaNoParams.kt
new file mode 100644
index 00000000000..1d6370a7e59
--- /dev/null
+++ b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInMultiLineLambdaNoParams.kt
@@ -0,0 +1,9 @@
+// "Create local variable 'foo'" "true"
+// ACTION: Create parameter 'foo'
+// ERROR: Variable 'foo' must be initialized
+
+fun test(n: Int) {
+    val f: () -> Int = {
+        <caret>foo
+    }
+}
\ No newline at end of file
diff --git a/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInMultiLineLambdaWithParams.kt b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInMultiLineLambdaWithParams.kt
new file mode 100644
index 00000000000..567980a7b5a
--- /dev/null
+++ b/idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInMultiLineLambdaWithParams.kt
@@ -0,0 +1,9 @@
+// "Create local variable 'foo'" "true"
+// ACTION: Create parameter 'foo'
+// ERROR: Variable 'foo' must be initialized
+
+fun test(n: Int) {
+    val f: (Int, Int) -> Int = { (a, b) ->
+        <caret>foo
+    }
+}
\ No newline at end of file
diff --git a/idea/tests/org/jetbrains/jet/plugin/quickfix/QuickFixTestGenerated.java b/idea/tests/org/jetbrains/jet/plugin/quickfix/QuickFixTestGenerated.java
index 409cad77819..11b08dc63c5 100644
--- a/idea/tests/org/jetbrains/jet/plugin/quickfix/QuickFixTestGenerated.java
+++ b/idea/tests/org/jetbrains/jet/plugin/quickfix/QuickFixTestGenerated.java
@@ -1209,6 +1209,30 @@ public class QuickFixTestGenerated extends AbstractQuickFixTest {
                     doTest(fileName);
                 }
                 
+                @TestMetadata("beforeInLambdaNoParams.kt")
+                public void testInLambdaNoParams() throws Exception {
+                    String fileName = JetTestUtils.navigationMetadata("idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInLambdaNoParams.kt");
+                    doTest(fileName);
+                }
+                
+                @TestMetadata("beforeInLambdaWithParams.kt")
+                public void testInLambdaWithParams() throws Exception {
+                    String fileName = JetTestUtils.navigationMetadata("idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInLambdaWithParams.kt");
+                    doTest(fileName);
+                }
+                
+                @TestMetadata("beforeInMultiLineLambdaNoParams.kt")
+                public void testInMultiLineLambdaNoParams() throws Exception {
+                    String fileName = JetTestUtils.navigationMetadata("idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInMultiLineLambdaNoParams.kt");
+                    doTest(fileName);
+                }
+                
+                @TestMetadata("beforeInMultiLineLambdaWithParams.kt")
+                public void testInMultiLineLambdaWithParams() throws Exception {
+                    String fileName = JetTestUtils.navigationMetadata("idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInMultiLineLambdaWithParams.kt");
+                    doTest(fileName);
+                }
+                
                 @TestMetadata("beforeInWhen.kt")
                 public void testInWhen() throws Exception {
                     String fileName = JetTestUtils.navigationMetadata("idea/testData/quickfix/createFromUsage/createVariable/localVariable/beforeInWhen.kt");