diff --git a/idea/src/org/jetbrains/kotlin/idea/intentions/branchedTransformations/BranchedFoldingUtils.kt b/idea/src/org/jetbrains/kotlin/idea/intentions/branchedTransformations/BranchedFoldingUtils.kt
index cd2be440eb7..aa84f5a5e39 100644
--- a/idea/src/org/jetbrains/kotlin/idea/intentions/branchedTransformations/BranchedFoldingUtils.kt
+++ b/idea/src/org/jetbrains/kotlin/idea/intentions/branchedTransformations/BranchedFoldingUtils.kt
@@ -43,7 +43,9 @@ object BranchedFoldingUtils {
     }
 
     fun getFoldableBranchedReturn(branch: KtExpression?): KtReturnExpression? =
-            (branch?.lastBlockStatementOrThis() as? KtReturnExpression)?.takeIf { it.returnedExpression != null }
+            (branch?.lastBlockStatementOrThis() as? KtReturnExpression)?.takeIf {
+                it.returnedExpression != null && it.returnedExpression !is KtLambdaExpression
+            }
 
     fun checkAssignmentsMatch(a1: KtBinaryExpression, a2: KtBinaryExpression): Boolean =
             a1.left?.text == a2.left?.text && a1.operationToken == a2.operationToken
diff --git a/idea/testData/inspectionsLocal/liftOut/whenToReturn/whenWithLambda.kt b/idea/testData/inspectionsLocal/liftOut/whenToReturn/whenWithLambda.kt
new file mode 100644
index 00000000000..0c250a50129
--- /dev/null
+++ b/idea/testData/inspectionsLocal/liftOut/whenToReturn/whenWithLambda.kt
@@ -0,0 +1,8 @@
+// PROBLEM: none
+
+fun foo(x: Boolean): (Int) -> String {
+    <caret>when (x) {
+        true -> return { it.toString() }
+        else -> return { "42" }
+    }
+}
\ No newline at end of file
diff --git a/idea/tests/org/jetbrains/kotlin/idea/inspections/LocalInspectionTestGenerated.java b/idea/tests/org/jetbrains/kotlin/idea/inspections/LocalInspectionTestGenerated.java
index 872d6634047..d23148298a5 100644
--- a/idea/tests/org/jetbrains/kotlin/idea/inspections/LocalInspectionTestGenerated.java
+++ b/idea/tests/org/jetbrains/kotlin/idea/inspections/LocalInspectionTestGenerated.java
@@ -648,6 +648,12 @@ public class LocalInspectionTestGenerated extends AbstractLocalInspectionTest {
                 String fileName = KotlinTestUtils.navigationMetadata("idea/testData/inspectionsLocal/liftOut/whenToReturn/whenThrowOnly.kt");
                 doTest(fileName);
             }
+
+            @TestMetadata("whenWithLambda.kt")
+            public void testWhenWithLambda() throws Exception {
+                String fileName = KotlinTestUtils.navigationMetadata("idea/testData/inspectionsLocal/liftOut/whenToReturn/whenWithLambda.kt");
+                doTest(fileName);
+            }
         }
     }