diff --git a/src/ast/compiler/binder.rs b/src/ast/compiler/binder.rs
index a07a7f0..88c8af7 100644
--- a/src/ast/compiler/binder.rs
+++ b/src/ast/compiler/binder.rs
@@ -1,4 +1,4 @@
-use std::collections::{HashMap, BTreeMap};
+use std::collections::{HashMap, BTreeMap, HashSet};
 use std::rc::Rc;
 use std::cell::RefCell;
 use crate::ast::nodes::{Node, UntypedKind};
@@ -64,18 +64,31 @@ pub struct Binder {
     functions: Vec<FunctionCompiler>,
     // Globals mapping: Name -> (Index, Type)
     globals: Rc<RefCell<HashMap<String, (u32, StaticType)>>>,
+    // Identities of definitions that need boxing (pre-calculated)
+    boxed_declarations: HashSet<Identity>,
 }
 
 impl Binder {
     pub fn new(globals: Rc<RefCell<HashMap<String, (u32, StaticType)>>>) -> Self {
+        Self::with_boxed(globals, HashSet::new())
+    }
+
+    fn with_boxed(globals: Rc<RefCell<HashMap<String, (u32, StaticType)>>>, boxed: HashSet<Identity>) -> Self {
         let mut binder = Self {
             functions: Vec::new(),
             globals,
+            boxed_declarations: boxed,
         };
         binder.functions.push(FunctionCompiler::new());
         binder
     }
 
+    pub fn bind_root(globals: Rc<RefCell<HashMap<String, (u32, StaticType)>>>, node: &Node<UntypedKind>) -> Result<Node<BoundKind, StaticType>, String> {
+        let boxed = crate::ast::compiler::upvalues::UpvalueAnalyzer::analyze(node);
+        let mut binder = Self::with_boxed(globals, boxed);
+        binder.bind(node)
+    }
+
     pub fn bind(&mut self, node: &Node<UntypedKind>) -> Result<Node<BoundKind, StaticType>, String> {
         match &node.kind {
             UntypedKind::Nop => Ok(self.make_node(node.identity.clone(), BoundKind::Nop, StaticType::Void)),
@@ -157,9 +170,11 @@ impl Binder {
                             info.ty = ty.clone();
                         }
                     }
-                    Ok(self.make_node(node.identity.clone(), BoundKind::Set { 
-                        addr: Address::Local(slot_or_idx), 
-                        value: Box::new(val_node) 
+                    let is_boxed = self.boxed_declarations.contains(&node.identity);
+                    Ok(self.make_node(node.identity.clone(), BoundKind::DefLocal { 
+                        slot: slot_or_idx, 
+                        value: Box::new(val_node) ,
+                        is_boxed
                     }, ty))
                 }
             },
@@ -326,3 +341,61 @@ impl Binder {
         Node { identity, kind, ty }
     }
 }
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+    use crate::ast::parser::Parser;
+
+    #[test]
+    fn test_upvalue_capture_sets_is_boxed() {
+        // Wrap in a lambda to ensure 'x' is a local variable, not a global
+        let source = "(fn [] (do (def x 10) (def f (fn [] x)) x))";
+        let mut parser = Parser::new(source).unwrap();
+        let untyped = parser.parse_expression().unwrap();
+        
+        let globals = Rc::new(RefCell::new(HashMap::new()));
+        let bound = Binder::bind_root(globals, &untyped).unwrap();
+        
+        // Structure: Lambda -> Block -> [ DefLocal(x), DefLocal(f), Get(x) ]
+        if let BoundKind::Lambda { body, .. } = &bound.kind {
+            if let BoundKind::Block { exprs } = &body.kind {
+                let x_decl = &exprs[0];
+                if let BoundKind::DefLocal { is_boxed, .. } = &x_decl.kind {
+                    assert!(is_boxed, "Variable 'x' should be marked as boxed because it is captured by lambda 'f'");
+                } else {
+                    panic!("First expression in block should be DefLocal, got {:?}", x_decl.kind);
+                }
+            } else {
+                panic!("Lambda body should be a Block, got {:?}", body.kind);
+            }
+        } else {
+            panic!("Root should be a Lambda, got {:?}", bound.kind);
+        }
+    }
+
+    #[test]
+    fn test_no_capture_not_boxed() {
+        let source = "(fn [] (do (def x 10) x))";
+        let mut parser = Parser::new(source).unwrap();
+        let untyped = parser.parse_expression().unwrap();
+        
+        let globals = Rc::new(RefCell::new(HashMap::new()));
+        let bound = Binder::bind_root(globals, &untyped).unwrap();
+        
+        if let BoundKind::Lambda { body, .. } = &bound.kind {
+            if let BoundKind::Block { exprs } = &body.kind {
+                let x_decl = &exprs[0];
+                if let BoundKind::DefLocal { is_boxed, .. } = &x_decl.kind {
+                    assert!(!is_boxed, "Variable 'x' should NOT be boxed as it is not captured");
+                } else {
+                    panic!("First expression should be DefLocal");
+                }
+            } else {
+                panic!("Lambda body should be a Block");
+            }
+        } else {
+            panic!("Root should be a Lambda");
+        }
+    }
+}
diff --git a/src/ast/compiler/bound_nodes.rs b/src/ast/compiler/bound_nodes.rs
index f66dd75..2c03055 100644
--- a/src/ast/compiler/bound_nodes.rs
+++ b/src/ast/compiler/bound_nodes.rs
@@ -17,12 +17,19 @@ pub enum BoundKind {
     // Variable Access (Resolved)
     Get(Address),
     
-    // Variable Update (Resolved)
+    // Variable Update (Assignment)
     Set {
         addr: Address,
         value: Box<Node<BoundKind, StaticType>>,
     },
 
+    // Variable Declaration (Local)
+    DefLocal {
+        slot: u32,
+        value: Box<Node<BoundKind, StaticType>>,
+        is_boxed: bool,
+    },
+
     If {
         cond: Box<Node<BoundKind, StaticType>>,
         then_br: Box<Node<BoundKind, StaticType>>,
diff --git a/src/ast/compiler/mod.rs b/src/ast/compiler/mod.rs
index 6df5bb3..962bcb6 100644
--- a/src/ast/compiler/mod.rs
+++ b/src/ast/compiler/mod.rs
@@ -1,7 +1,9 @@
 pub mod binder;
 pub mod bound_nodes;
 pub mod tco;
+pub mod upvalues;
 
 pub use binder::*;
 pub use bound_nodes::*;
 pub use tco::*;
+pub use upvalues::*;
diff --git a/src/ast/compiler/tco.rs b/src/ast/compiler/tco.rs
index 9c60723..f3b80a1 100644
--- a/src/ast/compiler/tco.rs
+++ b/src/ast/compiler/tco.rs
@@ -98,6 +98,12 @@ impl TCO {
                     ..node
                 }
             },
+            BoundKind::DefLocal { slot, value, is_boxed } => {
+                 Node {
+                    kind: BoundKind::DefLocal { slot, value: Box::new(Self::transform(*value, false)), is_boxed },
+                    ..node
+                }
+            },
             BoundKind::DefGlobal { global_index, value } => {
                  Node {
                     kind: BoundKind::DefGlobal { global_index, value: Box::new(Self::transform(*value, false)) },
diff --git a/src/ast/compiler/upvalues.rs b/src/ast/compiler/upvalues.rs
new file mode 100644
index 0000000..c8f5736
--- /dev/null
+++ b/src/ast/compiler/upvalues.rs
@@ -0,0 +1,90 @@
+use std::collections::{HashMap, HashSet};
+use std::rc::Rc;
+use crate::ast::nodes::{Node, UntypedKind};
+use crate::ast::types::Identity;
+
+/// Analyzes the AST to find all variable declarations that are captured by nested lambdas.
+/// Returns a set of Identities corresponding to the 'Def' nodes that need boxing.
+pub struct UpvalueAnalyzer;
+
+impl UpvalueAnalyzer {
+    pub fn analyze(root: &Node<UntypedKind>) -> HashSet<Identity> {
+        let mut boxed = HashSet::new();
+        let mut scopes = vec![HashMap::new()]; // Root scope
+        Self::visit(root, &mut scopes, &mut boxed);
+        boxed
+    }
+
+    fn visit(node: &Node<UntypedKind>, scopes: &mut Vec<HashMap<Rc<str>, Identity>>, boxed: &mut HashSet<Identity>) {
+        match &node.kind {
+            UntypedKind::Identifier(name) => {
+                // Resolve name in scope stack (from inner to outer)
+                for (depth, scope) in scopes.iter().rev().enumerate() {
+                    if let Some(id) = scope.get(name) {
+                        if depth > 0 {
+                            // Captured from an outer scope!
+                            boxed.insert(id.clone());
+                        }
+                        break;
+                    }
+                }
+            }
+            UntypedKind::Def { name, value } => {
+                // 1. Visit initializer first (it executes in current scope)
+                Self::visit(value, scopes, boxed);
+                
+                // 2. Define the variable in current scope
+                if let Some(current) = scopes.last_mut() {
+                    current.insert(name.clone(), node.identity.clone());
+                }
+            }
+            UntypedKind::Lambda { params, body } => {
+                // Enter new lambda scope
+                let mut new_scope = HashMap::new();
+                for p in params {
+                    // Parameters are defined in the new scope, masking outer ones.
+                    // We use the lambda's identity as a placeholder for parameter origin.
+                    new_scope.insert(p.clone(), node.identity.clone());
+                }
+                
+                scopes.push(new_scope);
+                Self::visit(body, scopes, boxed);
+                scopes.pop();
+            }
+            UntypedKind::If { cond, then_br, else_br } => {
+                Self::visit(cond, scopes, boxed);
+                Self::visit(then_br, scopes, boxed);
+                if let Some(e) = else_br {
+                    Self::visit(e, scopes, boxed);
+                }
+            }
+            UntypedKind::Assign { target, value } => {
+                Self::visit(target, scopes, boxed);
+                Self::visit(value, scopes, boxed);
+            }
+            UntypedKind::Call { callee, args } => {
+                Self::visit(callee, scopes, boxed);
+                for arg in args {
+                    Self::visit(arg, scopes, boxed);
+                }
+            }
+            UntypedKind::Block { exprs } => {
+                for expr in exprs {
+                    Self::visit(expr, scopes, boxed);
+                }
+            }
+            UntypedKind::Tuple { elements } => {
+                for el in elements {
+                    Self::visit(el, scopes, boxed);
+                }
+            }
+            UntypedKind::Map { entries } => {
+                for (k, v) in entries {
+                    Self::visit(k, scopes, boxed);
+                    Self::visit(v, scopes, boxed);
+                }
+            }
+            UntypedKind::Nop | UntypedKind::Constant(_) | UntypedKind::Extension(_) => {}
+        }
+    }
+}
diff --git a/src/ast/environment.rs b/src/ast/environment.rs
index a74f623..af4e0e1 100644
--- a/src/ast/environment.rs
+++ b/src/ast/environment.rs
@@ -116,11 +116,10 @@ impl Environment {
         }
 
         // 3. Bind & Type Check
-        let mut binder = Binder::new(self.global_names.clone());
-        let mut bound_ast = binder.bind(&untyped_ast)?;
+        let bound_ast = Binder::bind_root(self.global_names.clone(), &untyped_ast)?;
 
         // 4. Optimize
-        bound_ast = TCO::optimize(bound_ast);
+        let bound_ast = TCO::optimize(bound_ast);
 
         // 5. Execute
         let mut vm = VM::new(self.global_values.clone());
diff --git a/src/ast/vm.rs b/src/ast/vm.rs
index ce2224b..58e40c7 100644
--- a/src/ast/vm.rs
+++ b/src/ast/vm.rs
@@ -82,6 +82,28 @@ impl VM {
                 Ok(val)
             },
 
+            BoundKind::DefLocal { slot, value, is_boxed } => {
+                let val = self.eval(value)?;
+                let final_val = if *is_boxed {
+                    Value::Cell(Rc::new(RefCell::new(val)))
+                } else {
+                    val
+                };
+                
+                let frame = self.frames.last().ok_or("No call frame")?;
+                let abs_index = frame.stack_base + (*slot as usize);
+                
+                // If it's the exact top of stack, push it. Otherwise, set it.
+                if abs_index == self.stack.len() {
+                    self.stack.push(final_val.clone());
+                } else if abs_index < self.stack.len() {
+                    self.stack[abs_index] = final_val.clone();
+                } else {
+                    return Err(format!("Stack gap at local {}", slot));
+                }
+                Ok(final_val)
+            },
+
             BoundKind::If { cond, then_br, else_br } => {
                 let c = self.eval(cond)?;
                 if c.is_truthy() {
diff --git a/src/main.rs b/src/main.rs
index 8285471..b288ea6 100644
--- a/src/main.rs
+++ b/src/main.rs
@@ -220,7 +220,7 @@ impl eframe::App for CompilerApp {
                         }
                     } else {
                         ui.add_enabled_ui(false, |ui| {
-                            ui.button("Save (None loaded)");
+                            let _ = ui.button("Save (None loaded)");
                         });
                     }