diff --git a/src/EditorFeatures/CSharpTest2/Recommendations/ThisKeywordRecommenderTests.cs b/src/EditorFeatures/CSharpTest2/Recommendations/ThisKeywordRecommenderTests.cs
index ee0c00f012719..3a6418d0c8f73 100644
--- a/src/EditorFeatures/CSharpTest2/Recommendations/ThisKeywordRecommenderTests.cs
+++ b/src/EditorFeatures/CSharpTest2/Recommendations/ThisKeywordRecommenderTests.cs
@@ -269,6 +269,79 @@ await VerifyKeywordAsync(
     static int Goo($$");
         }
 
+        [Fact, Trait(Traits.Feature, Traits.Features.KeywordRecommending)]
+        [WorkItem(27028, "https://github.com/dotnet/roslyn/issues/27028")]
+        public async Task TestInLocalFunction()
+        {
+            await VerifyKeywordAsync(
+@"class C
+{
+    int Method()
+    {
+        void local()
+        {
+            $$
+        }
+    }
+}");
+        }
+
+        [Fact, Trait(Traits.Feature, Traits.Features.KeywordRecommending)]
+        [WorkItem(27028, "https://github.com/dotnet/roslyn/issues/27028")]
+        public async Task TestInNestedLocalFunction()
+        {
+            await VerifyKeywordAsync(
+@"class C
+{
+    int Method()
+    {
+        void local()
+        {
+            void nested()
+            {
+                $$
+            }
+        }
+    }
+}");
+        }
+
+        [Fact, Trait(Traits.Feature, Traits.Features.KeywordRecommending)]
+        [WorkItem(27028, "https://github.com/dotnet/roslyn/issues/27028")]
+        public async Task TestInLocalFunctionInStaticMethod()
+        {
+            await VerifyAbsenceAsync(
+@"class C {
+    static int Method()
+    {
+        void local()
+        {
+            $$
+        }
+    }
+}");
+        }
+
+        [Fact, Trait(Traits.Feature, Traits.Features.KeywordRecommending)]
+        [WorkItem(27028, "https://github.com/dotnet/roslyn/issues/27028")]
+        public async Task TestInNestedLocalFunctionInStaticMethod()
+        {
+            await VerifyAbsenceAsync(
+@"class C
+{
+    static int Method()
+    {
+        void local()
+        {
+            void nested()
+            {
+                $$
+            }
+        }
+    }
+}");
+        }
+
         [Fact, Trait(Traits.Feature, Traits.Features.KeywordRecommending)]
         public async Task TestAfterAttribute()
         {
diff --git a/src/Workspaces/CSharp/Portable/Extensions/ContextQuery/SyntaxTreeExtensions.cs b/src/Workspaces/CSharp/Portable/Extensions/ContextQuery/SyntaxTreeExtensions.cs
index e5b2d9924070b..cc1497d8d8dae 100644
--- a/src/Workspaces/CSharp/Portable/Extensions/ContextQuery/SyntaxTreeExtensions.cs
+++ b/src/Workspaces/CSharp/Portable/Extensions/ContextQuery/SyntaxTreeExtensions.cs
@@ -1771,6 +1771,13 @@ public static bool IsInstanceContext(this SyntaxTree syntaxTree, SyntaxToken tar
 #endif
 
             var enclosingSymbol = semanticModel.GetEnclosingSymbol(targetToken.SpanStart, cancellationToken);
+
+            while (enclosingSymbol is IMethodSymbol method && method.MethodKind == MethodKind.LocalFunction)
+            {
+                // It is allowed to reference the instance (`this`) within a local function, as long as the containing method allows it
+                enclosingSymbol = method.ContainingSymbol;
+            }
+
             return !enclosingSymbol.IsStatic;
         }