diff --git a/src/codegen/js_backend.rs b/src/codegen/js_backend.rs
index 84523ba..25204f2 100644
--- a/src/codegen/js_backend.rs
+++ b/src/codegen/js_backend.rs
@@ -888,7 +888,8 @@ impl JsBackend {
         let prev_has_handlers = self.has_handlers;
         self.has_handlers = is_effectful;
 
-        // Clear var substitutions for this function
+        // Save and clear var substitutions for this function scope
+        let saved_substitutions = self.var_substitutions.clone();
         self.var_substitutions.clear();
 
         // Emit function body
@@ -896,6 +897,7 @@ impl JsBackend {
         self.writeln(&format!("return {};", body_code));
 
         self.has_handlers = prev_has_handlers;
+        self.var_substitutions = saved_substitutions;
 
         self.indent -= 1;
         self.writeln("}");
@@ -1218,18 +1220,39 @@ impl JsBackend {
                     param_names
                 };
 
-                // Save handler state
+                // Save state
                 let prev_has_handlers = self.has_handlers;
+                let saved_substitutions = self.var_substitutions.clone();
                 self.has_handlers = !effects.is_empty();
 
+                // Register lambda params as themselves (override any outer substitutions)
+                for p in &all_params {
+                    self.var_substitutions.insert(p.clone(), p.clone());
+                }
+
+                // Capture any statements emitted during body evaluation
+                let output_start = self.output.len();
+                let prev_indent = self.indent;
+                self.indent += 1;
+
                 let body_code = self.emit_expr(body)?;
+                self.writeln(&format!("return {};", body_code));
 
+                // Extract body statements and restore output
+                let body_statements = self.output[output_start..].to_string();
+                self.output.truncate(output_start);
+                self.indent = prev_indent;
+
+                // Restore state
                 self.has_handlers = prev_has_handlers;
+                self.var_substitutions = saved_substitutions;
 
+                let indent_str = "    ".repeat(self.indent);
                 Ok(format!(
-                    "(function({}) {{ return {}; }})",
+                    "(function({}) {{\n{}{}}})",
                     all_params.join(", "),
-                    body_code
+                    body_statements,
+                    indent_str,
                 ))
             }