diff --git a/crates/uplc/src/optimize/shrinker.rs b/crates/uplc/src/optimize/shrinker.rs
index ff1912a8..292b2055 100644
--- a/crates/uplc/src/optimize/shrinker.rs
+++ b/crates/uplc/src/optimize/shrinker.rs
@@ -2007,6 +2007,31 @@ mod tests {
         compare_optimization(expected, program, |p| p.identity_reducer());
     }
 
+    #[test]
+    fn identity_reduce_no_inline_2() {
+        let program: Program<Name> = Program {
+            version: (1, 0, 0),
+            term: Term::sha2_256()
+                .apply(Term::var("identity").apply(Term::var("x")))
+                .lambda("x")
+                .apply(Term::byte_string(vec![]).delay())
+                .lambda(NO_INLINE)
+                .lambda("identity")
+                .apply(Term::var("y").lambda("y").lambda(NO_INLINE)),
+        };
+
+        let expected = Program {
+            version: (1, 0, 0),
+            term: Term::sha2_256()
+                .apply(Term::var("x"))
+                .lambda("x")
+                .apply(Term::byte_string(vec![]).delay())
+                .lambda(NO_INLINE),
+        };
+
+        compare_optimization(expected, program, |p| p.identity_reducer());
+    }
+
     #[test]
     fn inline_reduce_delay_sha() {
         let program: Program<Name> = Program {