diff --git a/CHANGELOG.md b/CHANGELOG.md
index 71f716ec1f..1c2dda552e 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -33,6 +33,8 @@
 
 #### :nail_care: Polish
 
+- Improve error message for trying to define a type inside a function. https://github.com/rescript-lang/rescript/pull/7843
+
 #### :house: Internal
 
 # 12.0.0-beta.9
diff --git a/compiler/syntax/src/res_core.ml b/compiler/syntax/src/res_core.ml
index 4c3a683042..805874b161 100644
--- a/compiler/syntax/src/res_core.ml
+++ b/compiler/syntax/src/res_core.ml
@@ -184,6 +184,10 @@ module ErrorMessages = struct
     ^ "_`)\n  If you need the field to be \"" ^ keyword_txt
     ^ "\" at runtime, annotate the field: `@as(\"" ^ keyword_txt ^ "\") "
     ^ keyword_txt ^ "_ : ...`"
+
+  let type_definition_in_function =
+    "Type definitions are not allowed inside functions.\n"
+    ^ "  Move this `type` declaration to the top level or into a module."
 end
 
 module InExternal = struct
@@ -3479,6 +3483,16 @@ and parse_expr_block_item p =
     in
     let loc = mk_loc start_pos p.prev_end_pos in
     Ast_helper.Exp.let_ ~loc rec_flag let_bindings next
+  | Typ ->
+    (* Parse to be able to give a good error message. *)
+    let type_start = start_pos in
+    Parser.begin_region p;
+    let _ = parse_type_definition_or_extension ~attrs p in
+    Parser.end_region p;
+    Parser.err ~start_pos:type_start ~end_pos:p.prev_end_pos p
+      (Diagnostics.message ErrorMessages.type_definition_in_function);
+    parse_newline_or_semicolon_expr_block p;
+    parse_expr_block p
   | _ ->
     let e1 =
       let expr = parse_expr p in
diff --git a/tests/analysis_tests/tests/src/expected/CompletionExpressions.res.txt b/tests/analysis_tests/tests/src/expected/CompletionExpressions.res.txt
index ddd83b7e52..680b29abeb 100644
--- a/tests/analysis_tests/tests/src/expected/CompletionExpressions.res.txt
+++ b/tests/analysis_tests/tests/src/expected/CompletionExpressions.res.txt
@@ -1235,8 +1235,8 @@ Path fnTakingPolyVariant
   }]
 
 Complete src/CompletionExpressions.res 281:24
-posCursor:[281:24] posNoWhite:[281:23] Found expr:[281:3->290:18]
-Pexp_apply ...[281:3->281:22] (...[281:23->281:25], ...[290:0->290:16])
+posCursor:[281:24] posNoWhite:[281:23] Found expr:[281:3->302:1]
+Pexp_apply ...[281:3->281:22] (...[281:23->281:25], ...[290:0->290:16], ...[292:2->301:20])
 Completable: Cexpression CArgument Value[fnTakingPolyVariant]($0)=#
 Package opens Stdlib.place holder Pervasives.JsxModules.place holder
 Resolved opens 1 Stdlib
diff --git a/tests/analysis_tests/tests/src/expected/CompletionPipeSubmodules.res.txt b/tests/analysis_tests/tests/src/expected/CompletionPipeSubmodules.res.txt
index 6669a1e770..8c6ad20505 100644
--- a/tests/analysis_tests/tests/src/expected/CompletionPipeSubmodules.res.txt
+++ b/tests/analysis_tests/tests/src/expected/CompletionPipeSubmodules.res.txt
@@ -1,4 +1,6 @@
 Complete src/CompletionPipeSubmodules.res 13:20
+posCursor:[13:20] posNoWhite:[13:19] Found expr:[13:11->23:23]
+Pexp_apply ...[21:9->21:10] (...[13:11->21:8], ...[23:2->23:23])
 posCursor:[13:20] posNoWhite:[13:19] Found expr:[13:11->21:8]
 Completable: Cpath Value[A, B1, xx]->
 Package opens Stdlib.place holder Pervasives.JsxModules.place holder
@@ -18,6 +20,8 @@ Path
   }]
 
 Complete src/CompletionPipeSubmodules.res 17:18
+posCursor:[17:18] posNoWhite:[17:17] Found expr:[17:11->23:23]
+Pexp_apply ...[21:9->21:10] (...[17:11->21:8], ...[23:2->23:23])
 posCursor:[17:18] posNoWhite:[17:17] Found expr:[17:11->21:8]
 Completable: Cpath Value[A, x].v->
 Package opens Stdlib.place holder Pervasives.JsxModules.place holder
diff --git a/tests/syntax_tests/data/parsing/errors/expressions/expected/typeDefInFunction.res.txt b/tests/syntax_tests/data/parsing/errors/expressions/expected/typeDefInFunction.res.txt
new file mode 100644
index 0000000000..622b8030a9
--- /dev/null
+++ b/tests/syntax_tests/data/parsing/errors/expressions/expected/typeDefInFunction.res.txt
@@ -0,0 +1,13 @@
+
+  Syntax error!
+  syntax_tests/data/parsing/errors/expressions/typeDefInFunction.res:2:3-14
+
+  1 │ let f = () => {
+  2 │   type t = int
+  3 │   1
+  4 │ }
+
+  Type definitions are not allowed inside functions.
+  Move this `type` declaration to the top level or into a module.
+
+let f [arity:1]() = ((1)[@res.braces ])
\ No newline at end of file
diff --git a/tests/syntax_tests/data/parsing/errors/expressions/typeDefInFunction.res b/tests/syntax_tests/data/parsing/errors/expressions/typeDefInFunction.res
new file mode 100644
index 0000000000..8f9c83804f
--- /dev/null
+++ b/tests/syntax_tests/data/parsing/errors/expressions/typeDefInFunction.res
@@ -0,0 +1,5 @@
+let f = () => {
+  type t = int
+  1
+}
+