diff --git a/magicgui/_magicgui.py b/magicgui/_magicgui.py
index 363efaeed..328ceda6e 100644
--- a/magicgui/_magicgui.py
+++ b/magicgui/_magicgui.py
@@ -2,7 +2,6 @@
 
 import inspect
 from functools import partial
-from types import FunctionType
 from typing import (
     TYPE_CHECKING,
     Any,
@@ -13,7 +12,6 @@
     Union,
     overload,
 )
-from warnings import warn
 
 from typing_extensions import Literal
 
@@ -209,23 +207,6 @@ def __new__(cls, function, *args, magic_class=FunctionGui, **keywords):
                 "MagicFactory missing required positional argument 'function'"
             )
 
-        # if someone uses `@magic_factory` *inside* of another function (i.e., not in
-        # the module-level scope), *and* they try to use the "self-reference trick",
-        # (wherein they use the function name in the body of the function in order to
-        # access the resulting FunctionGui instance)... it will not work.
-        # here we detect that type of usage and give a warning.
-        if isinstance(function, FunctionType):
-            # this tells us the function has not been defined at the module level
-            if "<locals>" in function.__qualname__:
-                # this tells us they are accessing an undefined variable *inside* of the
-                # function that has the same name as the function.
-                # https://docs.python.org/3/library/inspect.html?highlight=co_freevars
-                if function.__name__ in function.__code__.co_freevars:
-                    warn(
-                        "Self-reference detected in MagicFactory function created "
-                        "in a local scope. FunctionGui references will not work."
-                    )
-
         # we want function first for the repr
         keywords = {"function": function, **keywords}
         return super().__new__(cls, magic_class, *args, **keywords)  # type: ignore
diff --git a/magicgui/widgets/_function_gui.py b/magicgui/widgets/_function_gui.py
index f39be1bc1..187516388 100644
--- a/magicgui/widgets/_function_gui.py
+++ b/magicgui/widgets/_function_gui.py
@@ -411,20 +411,38 @@ def _function_name_pointing_to_widget(function_gui: FunctionGui):
     """
     function = function_gui._function
     if not isinstance(function, FunctionType):
+        # it's not a function object, so we don't know how to patch it...
         yield
         return
 
     func_name = function.__name__
-    # function.__globals__ here points to the module-level globals in which the function
-    # was defined.  This means that this will NOT work for factories defined inside
-    # other functions.  we use `_UNSET` just in case the function name has somehow been
-    # deleted or does not exist in the function module's globals()
-    original_value = function.__globals__.get(func_name, _UNSET)
-    function.__globals__[func_name] = function_gui
-    try:
-        yield
-    finally:
-        if original_value is _UNSET:
-            del function.__globals__[func_name]
-        else:
+    # see https://docs.python.org/3/library/inspect.html for details on code objects
+    code = function.__code__
+
+    if func_name in code.co_names:
+        # This indicates that the function name was used inside the body of the
+        # function, and points to some object in the module's global namespace.
+        # function.__globals__ here points to the module-level globals in which the
+        # function was defined.
+        original_value = function.__globals__.get(func_name)
+        function.__globals__[func_name] = function_gui
+        try:
+            yield
+        finally:
             function.__globals__[func_name] = original_value
+
+    elif function.__closure__ and func_name in code.co_freevars:
+        # This indicates that the function name was used inside the body of the
+        # function, and points to some object defined in a local scope (closure), rather
+        # than the module's global namespace.
+        # the position of the function name in code.co_freevars tells us where to look
+        # for the value in the function.__closure__ tuple.
+        idx = code.co_freevars.index(func_name)
+        original_value = function.__closure__[idx].cell_contents
+        function.__closure__[idx].cell_contents = function_gui
+        try:
+            yield
+        finally:
+            function.__closure__[idx].cell_contents = original_value
+    else:
+        yield
diff --git a/tests/test_factory.py b/tests/test_factory.py
index 309323d77..b99eee76c 100644
--- a/tests/test_factory.py
+++ b/tests/test_factory.py
@@ -75,14 +75,11 @@ def test_magic_factory_self_reference():
 
 
 def test_magic_local_factory_self_reference():
-    """Test that self-referential factories DON'T work in local scopes, but warn."""
+    """Test that self-referential factories work in local scopes."""
 
-    with pytest.warns(UserWarning) as wrn:
+    @magic_factory
+    def local_self_referencing_factory(x: int = 1):
+        return local_self_referencing_factory
 
-        @magic_factory
-        def local_self_referencing_factory(x: int = 1):
-            return local_self_referencing_factory
-
-    assert "Self-reference detected" in str(wrn[0])
     widget = local_self_referencing_factory()
-    assert isinstance(widget(), MagicFactory)
+    assert isinstance(widget(), FunctionGui)