diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpander.kt b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpander.kt
index 74bb482094e..4b5a1561434 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpander.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpander.kt
@@ -153,7 +153,11 @@ class TypeAliasExpander(
             }
             else -> {
                 val substitutedArguments = type.arguments.mapIndexed { i, originalArgument ->
-                    expandTypeProjection(originalArgument, typeAliasExpansion, typeConstructor.parameters[i], recursionDepth + 1)
+                    val projection = expandTypeProjection(
+                            originalArgument, typeAliasExpansion, typeConstructor.parameters[i], recursionDepth + 1)
+                    if (projection.isStarProjection) projection
+                    else TypeProjectionImpl(projection.projectionKind,
+                                            TypeUtils.makeNullableIfNeeded(projection.type, originalArgument.type.isMarkedNullable))
                 }
 
                 val substitutedType = type.replace(newArguments = substitutedArguments)
diff --git a/compiler/testData/diagnostics/tests/typealias/inGenerics.kt b/compiler/testData/diagnostics/tests/typealias/inGenerics.kt
new file mode 100644
index 00000000000..f13914ae8b8
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typealias/inGenerics.kt
@@ -0,0 +1,12 @@
+typealias MyString = String
+
+class Container<T>(val x: T)
+
+typealias MyStringContainer = Container<MyString?>
+
+val ms: MyString = "MyString"
+
+val msn: MyString? = null
+
+val msc: MyStringContainer = Container(ms)
+val msc1 = MyStringContainer(null)
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/typealias/inGenerics.txt b/compiler/testData/diagnostics/tests/typealias/inGenerics.txt
new file mode 100644
index 00000000000..d4ea709cdd6
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typealias/inGenerics.txt
@@ -0,0 +1,16 @@
+package
+
+public val ms: MyString /* = kotlin.String */ = "MyString"
+public val msc: MyStringContainer /* = Container<MyString? /* = kotlin.String? */> */
+public val msc1: Container<MyString? /* = kotlin.String? */>
+public val msn: MyString? /* = kotlin.String? */ = null
+
+public final class Container</*0*/ T> {
+    public constructor Container</*0*/ T>(/*0*/ x: T)
+    public final val x: T
+    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 typealias MyString = kotlin.String
+public typealias MyStringContainer = Container<MyString?>
diff --git a/compiler/testData/diagnostics/tests/typealias/typeAliasNotNull.kt b/compiler/testData/diagnostics/tests/typealias/typeAliasNotNull.kt
new file mode 100644
index 00000000000..285064d139a
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typealias/typeAliasNotNull.kt
@@ -0,0 +1,6 @@
+typealias Processor = (number: Int) -> Unit
+typealias Handler = (String) -> Processor?
+
+fun x(handler: Handler) {
+    return handler("a")!!(1)
+}
diff --git a/compiler/testData/diagnostics/tests/typealias/typeAliasNotNull.txt b/compiler/testData/diagnostics/tests/typealias/typeAliasNotNull.txt
new file mode 100644
index 00000000000..825cc83f9bb
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typealias/typeAliasNotNull.txt
@@ -0,0 +1,5 @@
+package
+
+public fun x(/*0*/ handler: Handler /* = (kotlin.String) -> Processor? /* = ((kotlin.Int) -> kotlin.Unit)? */ */): kotlin.Unit
+public typealias Handler = (kotlin.String) -> Processor?
+public typealias Processor = (kotlin.Int) -> kotlin.Unit
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
index c912a77a73e..eeb363ccae6 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
@@ -20229,6 +20229,12 @@ public class DiagnosticsTestGenerated extends AbstractDiagnosticsTest {
                 doTest(fileName);
             }
 
+            @TestMetadata("inGenerics.kt")
+            public void testInGenerics() throws Exception {
+                String fileName = KotlinTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/typealias/inGenerics.kt");
+                doTest(fileName);
+            }
+
             @TestMetadata("inSupertypesList.kt")
             public void testInSupertypesList() throws Exception {
                 String fileName = KotlinTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/typealias/inSupertypesList.kt");
@@ -20391,6 +20397,12 @@ public class DiagnosticsTestGenerated extends AbstractDiagnosticsTest {
                 doTest(fileName);
             }
 
+            @TestMetadata("typeAliasNotNull.kt")
+            public void testTypeAliasNotNull() throws Exception {
+                String fileName = KotlinTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/typealias/typeAliasNotNull.kt");
+                doTest(fileName);
+            }
+
             @TestMetadata("typeAliasObject.kt")
             public void testTypeAliasObject() throws Exception {
                 String fileName = KotlinTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/typealias/typeAliasObject.kt");