diff --git a/gcc/cp/ChangeLog b/gcc/cp/ChangeLog
index 203955e3bc7..9d3fdfefa89 100644
--- a/gcc/cp/ChangeLog
+++ b/gcc/cp/ChangeLog
@@ -1,5 +1,9 @@
 2012-06-09  Jason Merrill  <jason@redhat.com>
 
+	* pt.c (tsubst_expr) [TAG_DEFN]: Instantiate local class.
+	* class.c (finish_struct): Don't add a TAG_DEFN for a lambda.
+	* decl2.c (finish_static_data_member_decl): Avoid redundant error.
+
 	PR c++/53599
 	* name-lookup.c (pushtag_1): Add a DECL_EXPR for a local class.
 	* semantics.c (finish_cond): Build a COMPOUND_EXPR.
diff --git a/gcc/cp/class.c b/gcc/cp/class.c
index 4bb9dd2c168..021344bad7c 100644
--- a/gcc/cp/class.c
+++ b/gcc/cp/class.c
@@ -6337,7 +6337,9 @@ finish_struct (tree t, tree attributes)
   else
     error ("trying to finish struct, but kicked out due to previous parse errors");
 
-  if (processing_template_decl && at_function_scope_p ())
+  if (processing_template_decl && at_function_scope_p ()
+      /* Lambdas are defined by the LAMBDA_EXPR.  */
+      && !LAMBDA_TYPE_P (t))
     add_stmt (build_min (TAG_DEFN, t));
 
   return t;
diff --git a/gcc/cp/decl2.c b/gcc/cp/decl2.c
index 78e17af61a4..2e3c9a63362 100644
--- a/gcc/cp/decl2.c
+++ b/gcc/cp/decl2.c
@@ -770,7 +770,9 @@ finish_static_data_member_decl (tree decl,
   if (! processing_template_decl)
     VEC_safe_push (tree, gc, pending_statics, decl);
 
-  if (LOCAL_CLASS_P (current_class_type))
+  if (LOCAL_CLASS_P (current_class_type)
+      /* We already complained about the template definition.  */
+      && !DECL_TEMPLATE_INSTANTIATION (decl))
     permerror (input_location, "local class %q#T shall not have static data member %q#D",
 	       current_class_type, decl);
 
diff --git a/gcc/cp/pt.c b/gcc/cp/pt.c
index 04f7be81f3e..5e02c8c4193 100644
--- a/gcc/cp/pt.c
+++ b/gcc/cp/pt.c
@@ -13123,7 +13123,21 @@ tsubst_expr (tree t, tree args, tsubst_flags_t complain, tree in_decl,
       break;
 
     case TAG_DEFN:
-      tsubst (TREE_TYPE (t), args, complain, NULL_TREE);
+      tmp = tsubst (TREE_TYPE (t), args, complain, NULL_TREE);
+      if (CLASS_TYPE_P (tmp))
+	{
+	  /* Local classes are not independent templates; they are
+	     instantiated along with their containing function.  And this
+	     way we don't have to deal with pushing out of one local class
+	     to instantiate a member of another local class.  */
+	  tree fn;
+	  /* Closures are handled by the LAMBDA_EXPR.  */
+	  gcc_assert (!LAMBDA_TYPE_P (TREE_TYPE (t)));
+	  complete_type (tmp);
+	  for (fn = TYPE_METHODS (tmp); fn; fn = DECL_CHAIN (fn))
+	    if (!DECL_ARTIFICIAL (fn))
+	      instantiate_decl (fn, /*defer_ok*/0, /*expl_inst_class*/false);
+	}
       break;
 
     case STATIC_ASSERT: