diff --git a/src/testdir/test_vim9_script.vim b/src/testdir/test_vim9_script.vim
index 84bf907..3ff34a2 100644
--- a/src/testdir/test_vim9_script.vim
+++ b/src/testdir/test_vim9_script.vim
@@ -1519,6 +1519,27 @@
   delete('XExportReload')
   delfunc g:Values
   unlet g:loadCount
+
+  lines =<< trim END
+      vim9script
+      def Inner()
+      enddef
+  END
+  lines->writefile('XreloadScript.vim')
+  source XreloadScript.vim
+
+  lines =<< trim END
+      vim9script
+      def Outer()
+        def Inner()
+        enddef
+      enddef
+      defcompile
+  END
+  lines->writefile('XreloadScript.vim')
+  source XreloadScript.vim
+
+  delete('XreloadScript.vim')
 enddef
 
 def Test_vim9script_reload_import()
diff --git a/src/version.c b/src/version.c
index 12f6648..d07a320 100644
--- a/src/version.c
+++ b/src/version.c
@@ -756,6 +756,8 @@
 static int included_patches[] =
 {   /* Add new patch number below this line */
 /**/
+    3065,
+/**/
     3064,
 /**/
     3063,
diff --git a/src/vim9compile.c b/src/vim9compile.c
index 46f5432..e746ea9 100644
--- a/src/vim9compile.c
+++ b/src/vim9compile.c
@@ -498,8 +498,9 @@
 	    || (ufunc = find_func_even_dead(p, FALSE, cctx)) != NULL)
     {
 	// A local or script-local function can shadow a global function.
-	if (ufunc == NULL || !func_is_global(ufunc)
-		|| (p[0] == 'g' && p[1] == ':'))
+	if (ufunc == NULL || ((ufunc->uf_flags & FC_DEAD) == 0
+		    && (!func_is_global(ufunc)
+					     || (p[0] == 'g' && p[1] == ':'))))
 	{
 	    if (is_arg)
 		semsg(_(e_argument_name_shadows_existing_variable_str), p);