diff --git a/mypy/semanal_typeddict.py b/mypy/semanal_typeddict.py
index 1b076ac4835d8..9611dd07e4970 100644
--- a/mypy/semanal_typeddict.py
+++ b/mypy/semanal_typeddict.py
@@ -307,7 +307,14 @@ def parse_typeddict_fields_with_types(
                 type = expr_to_unanalyzed_type(field_type_expr, self.options,
                                                self.api.is_stub_file)
             except TypeTranslationError:
-                self.fail_typeddict_arg('Invalid field type', field_type_expr)
+                if (isinstance(field_type_expr, CallExpr) and
+                        isinstance(field_type_expr.callee, RefExpr) and
+                        field_type_expr.callee.fullname in TPDICT_NAMES):
+                    self.fail_typeddict_arg(
+                        'Inline TypedDict types not supported; use assignment to define TypedDict',
+                        field_type_expr)
+                else:
+                    self.fail_typeddict_arg('Invalid field type', field_type_expr)
                 return [], [], False
             analyzed = self.api.anal_type(type)
             if analyzed is None:
diff --git a/test-data/unit/check-typeddict.test b/test-data/unit/check-typeddict.test
index ac4c23461d7ee..776ea8fd7fc7c 100644
--- a/test-data/unit/check-typeddict.test
+++ b/test-data/unit/check-typeddict.test
@@ -75,6 +75,14 @@ Point = TypedDict('Point', {'x': int, 'y': int})
 p = Point(x='meaning_of_life', y=1337)  # E: Incompatible types (expression has type "str", TypedDict item "x" has type "int")
 [builtins fixtures/dict.pyi]
 
+[case testCannotCreateTypedDictInstanceWithInlineTypedDict]
+from mypy_extensions import TypedDict
+D = TypedDict('D', {
+    'x': TypedDict('E', {  # E: Inline TypedDict types not supported; use assignment to define TypedDict
+        'y': int
+    })
+})
+[builtins fixtures/dict.pyi]
 
 -- Define TypedDict (Class syntax)