diff --git a/lib/compress.js b/lib/compress.js
index 02c034f6..1c49ee79 100644
--- a/lib/compress.js
+++ b/lib/compress.js
@@ -1143,7 +1143,7 @@ merge(Compressor.prototype, {
             var parent = tw.parent();
             if (parent instanceof AST_ExportDeclaration || parent instanceof AST_ExportDefault) def.single_use = false;
             if (tw.defun_visited[def.id]) return true;
-            if (tw.defun_ids[def.id] !== tw.safe_ids) return true;
+            if (def.init === fn && tw.defun_ids[def.id] !== tw.safe_ids) return true;
             tw.defun_visited[def.id] = true;
             fn.inlined = false;
             push(tw);
diff --git a/test/compress/reduce_vars.js b/test/compress/reduce_vars.js
index 5ae0884b..c899fcf0 100644
--- a/test/compress/reduce_vars.js
+++ b/test/compress/reduce_vars.js
@@ -7631,3 +7631,34 @@ issue_4568: {
     }
     expect_stdout: "PASS"
 }
+
+issue_4937: {
+    options = {
+        reduce_vars: true,
+        toplevel: true,
+        unused: true,
+    }
+    input: {
+        function f() {
+            while (console.log("PASS"));
+        }
+        do {
+            function g() {
+                f();
+            }
+        } while (!g);
+        f();
+    }
+    expect: {
+        function f() {
+            while (console.log("PASS"));
+        }
+        do {
+            function g() {
+                f();
+            }
+        } while (!g);
+        f();
+    }
+    expect_stdout: "PASS"
+}