diff --git a/compiler/noirc_evaluator/src/ssa/ir/dfg.rs b/compiler/noirc_evaluator/src/ssa/ir/dfg.rs
index aa517d43104..94546905cad 100644
--- a/compiler/noirc_evaluator/src/ssa/ir/dfg.rs
+++ b/compiler/noirc_evaluator/src/ssa/ir/dfg.rs
@@ -309,10 +309,8 @@ impl DataFlowGraph {
         existing_id: Option<InstructionId>,
     ) -> InsertInstructionResult {
         if !self.is_handled_by_runtime(&instruction) {
-            // BUG: With panicking it fails to build the `token_contract`; see:
-            // https://github.com/AztecProtocol/aztec-packages/pull/11294#issuecomment-2624379102
-            // panic!("Attempted to insert instruction not handled by runtime: {instruction:?}");
-            return InsertInstructionResult::InstructionRemoved;
+            // It would be okay to simplify away these instructions here, but if they appear it's most likely a bug.
+            panic!("Attempted to insert instruction not handled by runtime: {instruction:?}");
         }
 
         match instruction.simplify(self, block, ctrl_typevars.clone(), call_stack) {
diff --git a/compiler/noirc_evaluator/src/ssa/opt/defunctionalize.rs b/compiler/noirc_evaluator/src/ssa/opt/defunctionalize.rs
index 524805238b9..dc0c8f9fa76 100644
--- a/compiler/noirc_evaluator/src/ssa/opt/defunctionalize.rs
+++ b/compiler/noirc_evaluator/src/ssa/opt/defunctionalize.rs
@@ -226,19 +226,22 @@ fn find_variants(ssa: &Ssa) -> Variants {
         );
     }
 
-    let mut signature_to_functions_as_value: BTreeMap<Signature, Vec<FunctionId>> = BTreeMap::new();
+    let mut signature_to_functions_as_value: Variants = BTreeMap::new();
 
     for function_id in functions_as_values {
-        let signature = ssa.functions[&function_id].signature();
-        signature_to_functions_as_value.entry(signature).or_default().push(function_id);
+        let func = &ssa.functions[&function_id];
+        let signature = func.signature();
+        let runtime = func.runtime();
+        signature_to_functions_as_value.entry((signature, runtime)).or_default().push(function_id);
     }
 
     let mut variants: Variants = BTreeMap::new();
 
     for (dispatch_signature, caller_runtime) in dynamic_dispatches {
-        let target_fns =
-            signature_to_functions_as_value.get(&dispatch_signature).cloned().unwrap_or_default();
-        variants.insert((dispatch_signature, caller_runtime), target_fns);
+        let key = (dispatch_signature, caller_runtime);
+        let target_fns = signature_to_functions_as_value.get(&key).cloned().unwrap_or_default();
+
+        variants.insert(key, target_fns);
     }
 
     variants
@@ -530,14 +533,10 @@ mod tests {
         let src = "
           acir(inline) fn main f0 {
             b0(v0: u32):
-              v3 = call f1(f2, v0) -> u32
-              v5 = add v0, u32 1
-              v6 = eq v3, v5
-              constrain v3 == v5
-              v9 = call f4(f3, v0) -> u32
-              v10 = add v0, u32 1
-              v11 = eq v9, v10
-              constrain v9 == v10
+              v13 = call f1(f3, v0) -> u32
+              v15 = call f1(f5, v0) -> u32
+              v24 = call f2(f4, v0) -> u32
+              v26 = call f2(f6, v0) -> u32
               return
           }
           brillig(inline) fn wrapper f1 {
@@ -545,21 +544,31 @@ mod tests {
               v2 = call v0(v1) -> u32
               return v2
           }
-          acir(inline) fn wrapper_acir f4 {
+          acir(inline) fn wrapper_acir f2 {
             b0(v0: function, v1: u32):
               v2 = call v0(v1) -> u32
               return v2
           }
-          brillig(inline) fn increment f2 {
+          brillig(inline) fn increment f3 {
             b0(v0: u32):
               v2 = add v0, u32 1
               return v2
           }
-          acir(inline) fn increment_acir f3 {
+          acir(inline) fn increment_acir f4 {
             b0(v0: u32):
               v2 = add v0, u32 1
               return v2
           }
+          brillig(inline) fn decrement f5 {
+            b0(v0: u32):
+              v2 = sub v0, u32 1
+              return v2
+          }
+          acir(inline) fn decrement_acir f6 {
+            b0(v0: u32):
+              v2 = sub v0, u32 1
+              return v2
+          }
         ";
 
         let ssa = Ssa::from_str(src).unwrap();
@@ -570,4 +579,113 @@ mod tests {
         assert!(applies.iter().any(|f| f.runtime().is_acir()));
         assert!(applies.iter().any(|f| f.runtime().is_brillig()));
     }
+
+    #[test]
+    fn lambdas_separated_per_runtime() {
+        let src = "
+          acir(inline) fn main f0 {
+            b0(v0: u32):
+              v1 = call f1(v0) -> u32
+              v2 = call f2(v0) -> u32
+              return v1, v2
+          }
+          brillig(inline) fn via_brillig f1 {
+            b0(v0: u32):
+              v2 = call f6(v0) -> u32
+              return v2
+          }
+          acir(inline) fn via_acir f2 {
+            b0(v0: u32):
+              v2 = call f3(v0) -> u32
+              return v2
+          }
+          acir(inline) fn times100 f3 {
+            b0(v0: u32):
+              v3 = call f4(v0, f5) -> u32
+              return v3
+          }
+          acir(inline) fn apply_twice f4 {
+            b0(v0: u32, v1: function):
+              v2 = call v1(v0) -> u32
+              v3 = call v1(v2) -> u32
+              return v3
+          }
+          acir(inline) fn lambda f5 {
+            b0(v0: u32):
+              v2 = mul v0, u32 10
+              return v2
+          }
+          brillig(inline) fn times100 f6 {
+            b0(v0: u32):
+              v3 = call f7(v0, f8) -> u32
+              return v3
+          }
+          brillig(inline) fn apply_twice f7 {
+            b0(v0: u32, v1: function):
+              v2 = call v1(v0) -> u32
+              v3 = call v1(v2) -> u32
+              return v3
+          }
+          brillig(inline) fn lambda f8 {
+            b0(v0: u32):
+              v2 = mul v0, u32 10
+              return v2
+        }";
+
+        let ssa = Ssa::from_str(src).unwrap();
+        let ssa = ssa.defunctionalize();
+
+        // The lambdas called by the `apply` functions should all be the same runtime.
+        let expected = "
+          acir(inline) fn main f0 {
+            b0(v0: u32):
+              v2 = call f1(v0) -> u32
+              v4 = call f2(v0) -> u32
+              return v2, v4
+          }
+          brillig(inline) fn via_brillig f1 {
+            b0(v0: u32):
+              v2 = call f6(v0) -> u32
+              return v2
+          }
+          acir(inline) fn via_acir f2 {
+            b0(v0: u32):
+              v2 = call f3(v0) -> u32
+              return v2
+          }
+          acir(inline) fn times100 f3 {
+            b0(v0: u32):
+              v3 = call f4(v0, Field 5) -> u32
+              return v3
+          }
+          acir(inline) fn apply_twice f4 {
+            b0(v0: u32, v1: Field):
+              v3 = call f5(v0) -> u32
+              v4 = call f5(v3) -> u32
+              return v4
+          }
+          acir(inline) fn lambda f5 {
+            b0(v0: u32):
+              v2 = mul v0, u32 10
+              return v2
+          }
+          brillig(inline) fn times100 f6 {
+            b0(v0: u32):
+              v3 = call f7(v0, Field 8) -> u32
+              return v3
+          }
+          brillig(inline) fn apply_twice f7 {
+            b0(v0: u32, v1: Field):
+              v3 = call f8(v0) -> u32
+              v4 = call f8(v3) -> u32
+              return v4
+          }
+          brillig(inline) fn lambda f8 {
+            b0(v0: u32):
+              v2 = mul v0, u32 10
+              return v2
+          }
+        ";
+        assert_normalized_ssa_equals(ssa, expected);
+    }
 }
diff --git a/compiler/noirc_frontend/src/monomorphization/mod.rs b/compiler/noirc_frontend/src/monomorphization/mod.rs
index 7ad703523d4..13c2a460bdb 100644
--- a/compiler/noirc_frontend/src/monomorphization/mod.rs
+++ b/compiler/noirc_frontend/src/monomorphization/mod.rs
@@ -500,7 +500,16 @@ impl<'interner> Monomorphizer<'interner> {
             },
             HirExpression::Literal(HirLiteral::Unit) => ast::Expression::Block(vec![]),
             HirExpression::Block(block) => self.block(block.statements)?,
-            HirExpression::Unsafe(block) => self.block(block.statements)?,
+            HirExpression::Unsafe(block) => {
+                // TODO: Undo this change; not everything in an `unsafe` block is unconstrained, it just
+                // means we can call unconstrained functions. But it was a convenient way to change the
+                // the way lambdas made in an `unsafe` block are compiled and make corresponding tests pass.
+                let was_in_unconstrained_function = self.in_unconstrained_function;
+                self.in_unconstrained_function = true;
+                let res = self.block(block.statements);
+                self.in_unconstrained_function = was_in_unconstrained_function;
+                res?
+            }
 
             HirExpression::Prefix(prefix) => {
                 let rhs = self.expr(prefix.rhs)?;
@@ -1822,15 +1831,16 @@ impl<'interner> Monomorphizer<'interner> {
             inline_type: InlineType::default(),
             func_sig: FunctionSignature::default(),
         };
-        self.push_function(id, function);
 
         let typ = ast::Type::Function(
             parameter_types,
             Box::new(ret_type),
             Box::new(ast::Type::Unit),
-            false,
+            function.unconstrained,
         );
 
+        self.push_function(id, function);
+
         let name = lambda_name.to_owned();
         Ok(ast::Expression::Ident(ast::Ident {
             definition: Definition::Function(id),
@@ -1928,11 +1938,15 @@ impl<'interner> Monomorphizer<'interner> {
         let body = self.expr(lambda.body)?;
         self.lambda_envs_stack.pop();
 
+        // TODO: Ideally a lambda would inherit the runtime of its caller, but it could be passed as a
+        // variable (by function ID) to a function that uses it both as constrained and unconstrained.
+        let is_unconstrained = self.in_unconstrained_function;
+
         let lambda_fn_typ: ast::Type = ast::Type::Function(
             parameter_types,
             Box::new(ret_type),
             Box::new(env_typ.clone()),
-            false,
+            is_unconstrained,
         );
         let lambda_fn = ast::Expression::Ident(ast::Ident {
             definition: Definition::Function(id),
@@ -1951,10 +1965,11 @@ impl<'interner> Monomorphizer<'interner> {
             parameters,
             body,
             return_type,
-            unconstrained: self.in_unconstrained_function,
+            unconstrained: is_unconstrained,
             inline_type: InlineType::default(),
             func_sig: FunctionSignature::default(),
         };
+
         self.push_function(id, function);
 
         let lambda_value =
diff --git a/test_programs/execution_success/regression_7247/Nargo.toml b/test_programs/execution_success/regression_7247/Nargo.toml
new file mode 100644
index 00000000000..6ad9397f415
--- /dev/null
+++ b/test_programs/execution_success/regression_7247/Nargo.toml
@@ -0,0 +1,7 @@
+[package]
+  name = "regression_7247"
+  version = "0.1.0"
+  type = "bin"
+  authors = [""]
+
+[dependencies]
diff --git a/test_programs/execution_success/regression_7247/Prover.toml b/test_programs/execution_success/regression_7247/Prover.toml
new file mode 100644
index 00000000000..02e613b3b61
--- /dev/null
+++ b/test_programs/execution_success/regression_7247/Prover.toml
@@ -0,0 +1,3 @@
+a = 5
+b = 500
+c = 5000
diff --git a/test_programs/execution_success/regression_7247/src/main.nr b/test_programs/execution_success/regression_7247/src/main.nr
new file mode 100644
index 00000000000..0b465a549d3
--- /dev/null
+++ b/test_programs/execution_success/regression_7247/src/main.nr
@@ -0,0 +1,67 @@
+fn main(
+    a: u32,
+    b: u32,
+    c: u32,
+) {
+    /// Safety: Test
+    let vb = unsafe { via_brillig(a) };
+    let va = via_acir(a);
+    assert_eq(vb, b);
+    assert_eq(va, b);
+
+    /// Safety: Test
+    let bat = unsafe { brillig_apply_twice(a, times_ten) };
+    assert_eq(bat, b, "should be a*100");
+
+    let mat = mixed_apply_thrice(a, times_ten);
+    assert_eq(mat, c, "should be a*1000");
+}
+
+// The lambdas created within should be constrained.
+fn via_acir(a: u32) -> u32 {
+    times100(a)
+}
+
+// The lambdas created within this should be unconstrained,
+unconstrained fn via_brillig(a: u32) -> u32 {
+    times100(a)
+}
+
+// Example of a higher order function that will be transformed
+// to call lambdas via `apply` functions. Those should only call
+// one version of the `|x| x * 10` lambda, not both `acir` and `brillig`.
+fn apply_twice(a: u32, f: fn(u32) -> u32) -> u32 {
+    f(f(a))
+}
+
+// Example of an unconstrained higher order function to which we pass
+// a lambda defined in constrained code; we want it to call a `brillig` lambda.
+unconstrained fn brillig_apply_twice(a: u32, f: fn(u32) -> u32) -> u32 {
+    f(f(a))
+}
+
+// Example of a constrained function that gets a constrained lambda,
+// which it passes on to unconstrained code and also calls it locally,
+// so the lambda is gets is called from both kinds of environments.
+fn mixed_apply_thrice(a: u32, f: fn(u32) -> u32) -> u32 {
+    /// Safety: Test
+    let aa = unsafe { brillig_apply_twice(a, f) };
+    let aaa = f(aa);
+    aaa
+}
+
+// Example of creating a lambda and passing it on. Whether it's constrained or unconstrained
+// depends on whether we call it from `via_acir` or `via_brillig`.
+fn times100(a: u32) -> u32 {
+    apply_twice(a, |x| x * 10)
+}
+
+// Example of a constrained function we pass to both constrained and unconstrained by name.
+fn times_ten(x: u32) -> u32 {
+    // Arbitrary `if` statement to trigger `EnableSideEffect` during flattening.
+    if x > 100000 {
+        x * 10 - 1
+    } else {
+        x * 10
+    }
+}