diff --git a/CHANGELOG.md b/CHANGELOG.md
index eb6817d14e..56299b5967 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -122,10 +122,12 @@
 - [Added overloaded `from` conversions.][3227]
 - [Upgraded to Graal VM 21.3.0][3258]
 - [Added the ability to decorate values with warnings.][3248]
+- [Fixed issues related to constructors' default arguments][3330]
 
 [3227]: https://github.com/enso-org/enso/pull/3227
 [3248]: https://github.com/enso-org/enso/pull/3248
 [3258]: https://github.com/enso-org/enso/pull/3258
+[3330]: https://github.com/enso-org/enso/pull/3330
 
 # Enso 2.0.0-alpha.18 (2021-10-12)
 
diff --git a/engine/runtime/src/main/java/org/enso/interpreter/node/EnsoRootNode.java b/engine/runtime/src/main/java/org/enso/interpreter/node/EnsoRootNode.java
index 13a7be1dcf..3919fe4ccf 100644
--- a/engine/runtime/src/main/java/org/enso/interpreter/node/EnsoRootNode.java
+++ b/engine/runtime/src/main/java/org/enso/interpreter/node/EnsoRootNode.java
@@ -128,4 +128,5 @@ public abstract class EnsoRootNode extends RootNode {
   public boolean isCloningAllowed() {
     return true;
   }
+
 }
diff --git a/engine/runtime/src/main/java/org/enso/interpreter/node/expression/atom/InstantiateNode.java b/engine/runtime/src/main/java/org/enso/interpreter/node/expression/atom/InstantiateNode.java
index e830d8b532..d51f2f5123 100644
--- a/engine/runtime/src/main/java/org/enso/interpreter/node/expression/atom/InstantiateNode.java
+++ b/engine/runtime/src/main/java/org/enso/interpreter/node/expression/atom/InstantiateNode.java
@@ -44,7 +44,7 @@ public class InstantiateNode extends ExpressionNode {
    * Creates an instance of this node.
    *
    * @param constructor the {@link AtomConstructor} this node will be instantiating
-   * @param arguments the expressions for field values
+   * @param arguments the expressions that produce field values
    * @return a node that instantiates {@code constructor}
    */
   public static InstantiateNode build(AtomConstructor constructor, ExpressionNode[] arguments) {
diff --git a/engine/runtime/src/main/java/org/enso/interpreter/node/expression/builtin/InstantiateAtomNode.java b/engine/runtime/src/main/java/org/enso/interpreter/node/expression/builtin/InstantiateAtomNode.java
deleted file mode 100644
index 58e632878d..0000000000
--- a/engine/runtime/src/main/java/org/enso/interpreter/node/expression/builtin/InstantiateAtomNode.java
+++ /dev/null
@@ -1,58 +0,0 @@
-package org.enso.interpreter.node.expression.builtin;
-
-import com.oracle.truffle.api.frame.VirtualFrame;
-import com.oracle.truffle.api.nodes.NodeInfo;
-import com.oracle.truffle.api.nodes.RootNode;
-import org.enso.interpreter.Language;
-import org.enso.interpreter.node.ExpressionNode;
-import org.enso.interpreter.runtime.callable.function.Function;
-import org.enso.interpreter.runtime.state.Stateful;
-
-/** This node represents the process of instantiating an atom at runtime. */
-@NodeInfo(shortName = "constructor::", description = "An atom instantiation at runtime.")
-public class InstantiateAtomNode extends RootNode {
-  private @Child ExpressionNode instantiator;
-  private final String name;
-
-  private InstantiateAtomNode(Language language, String name, ExpressionNode instantiator) {
-    super(language);
-    this.name = name;
-    this.instantiator = instantiator;
-  }
-
-  /**
-   * Executes this node.
-   *
-   * @param frame the language frame being executed
-   * @return the result of executing this node
-   */
-  @Override
-  public Stateful execute(VirtualFrame frame) {
-    return new Stateful(
-        Function.ArgumentsHelper.getState(frame.getArguments()),
-        instantiator.executeGeneric(frame));
-  }
-
-  /**
-   * Returns a string representation of this node.
-   *
-   * @return a string representation of this node
-   */
-  @Override
-  public String getName() {
-    return name;
-  }
-
-  /**
-   * Creates an instance of this node.
-   *
-   * @param language the language for which the node is created
-   * @param name the name of the atom being instantated
-   * @param instantiator the expression used to instantiate the atom
-   * @return an instance of this node
-   */
-  public static InstantiateAtomNode build(
-      Language language, String name, ExpressionNode instantiator) {
-    return new InstantiateAtomNode(language, name, instantiator);
-  }
-}
diff --git a/engine/runtime/src/main/java/org/enso/interpreter/runtime/callable/atom/AtomConstructor.java b/engine/runtime/src/main/java/org/enso/interpreter/runtime/callable/atom/AtomConstructor.java
index 54dd225ba8..7b031d9285 100644
--- a/engine/runtime/src/main/java/org/enso/interpreter/runtime/callable/atom/AtomConstructor.java
+++ b/engine/runtime/src/main/java/org/enso/interpreter/runtime/callable/atom/AtomConstructor.java
@@ -11,12 +11,13 @@ import com.oracle.truffle.api.interop.TruffleObject;
 import com.oracle.truffle.api.library.ExportLibrary;
 import com.oracle.truffle.api.library.ExportMessage;
 import com.oracle.truffle.api.nodes.RootNode;
+import org.enso.interpreter.node.ClosureRootNode;
 import org.enso.interpreter.node.ExpressionNode;
 import org.enso.interpreter.node.callable.argument.ReadArgumentNode;
+import org.enso.interpreter.node.callable.function.BlockNode;
 import org.enso.interpreter.node.expression.atom.GetFieldNode;
 import org.enso.interpreter.node.expression.atom.InstantiateNode;
 import org.enso.interpreter.node.expression.atom.QualifiedAccessorNode;
-import org.enso.interpreter.node.expression.builtin.InstantiateAtomNode;
 import org.enso.interpreter.runtime.Context;
 import org.enso.interpreter.runtime.callable.UnresolvedConversion;
 import org.enso.interpreter.runtime.callable.UnresolvedSymbol;
@@ -24,6 +25,7 @@ import org.enso.interpreter.runtime.callable.argument.ArgumentDefinition;
 import org.enso.interpreter.runtime.callable.function.Function;
 import org.enso.interpreter.runtime.callable.function.FunctionSchema;
 import org.enso.interpreter.runtime.library.dispatch.MethodDispatchLibrary;
+import org.enso.interpreter.runtime.scope.LocalScope;
 import org.enso.interpreter.runtime.scope.ModuleScope;
 import org.enso.pkg.QualifiedName;
 
@@ -39,7 +41,7 @@ public final class AtomConstructor implements TruffleObject {
 
   /**
    * Creates a new Atom constructor for a given name. The constructor is not valid until {@link
-   * AtomConstructor#initializeFields(ArgumentDefinition...)} is called.
+   * AtomConstructor#initializeFields(LocalScope,ExpressionNode[],ExpressionNode[],ArgumentDefinition...)} is called.
    *
    * @param name the name of the Atom constructor
    * @param definitionScope the scope in which this constructor was defined
@@ -49,15 +51,37 @@ public final class AtomConstructor implements TruffleObject {
     this.definitionScope = definitionScope;
   }
 
+
   /**
-   * Sets the fields of this {@link AtomConstructor} and generates a constructor function.
+   * Generates a constructor function for this {@link AtomConstructor}.
+   * Note that such manually constructed argument definitions must not have default arguments.
    *
-   * @param args the arguments this constructor will take
    * @return {@code this}, for convenience
    */
   public AtomConstructor initializeFields(ArgumentDefinition... args) {
+    ExpressionNode[] reads = new ExpressionNode[args.length];
+    for (int i=0; i<args.length; i++) {
+      reads[i] = ReadArgumentNode.build(i, null);
+    }
+    return initializeFields(LocalScope.root(), new ExpressionNode[0], reads, args);
+  }
+
+  /**
+   * Sets the fields of this {@link AtomConstructor} and generates a constructor function.
+   *
+   * @param localScope a description of the local scope
+   * @param assignments the expressions that evaluate and assign constructor arguments to local vars
+   * @param varReads the expressions that read field values from local vars
+   * @param args the arguments this constructor will take
+   * @return {@code this}, for convenience
+   */
+  public AtomConstructor initializeFields(
+          LocalScope localScope,
+          ExpressionNode[] assignments,
+          ExpressionNode[] varReads,
+          ArgumentDefinition... args) {
     CompilerDirectives.transferToInterpreterAndInvalidate();
-    this.constructorFunction = buildConstructorFunction(args);
+    this.constructorFunction = buildConstructorFunction(localScope, assignments, varReads, args);
     generateMethods(args);
     if (args.length == 0) {
       cachedInstance = new Atom(this);
@@ -69,20 +93,27 @@ public final class AtomConstructor implements TruffleObject {
 
   /**
    * Generates a constructor function to be used for object instantiation from other Enso code.
+   * Building constructor function involves storing the argument in a local var and then reading
+   * it again on purpose. That way default arguments can refer to previously defined constructor arguments.
    *
+   * @param localScope a description of the local scope
+   * @param assignments the expressions that evaluate and assign constructor arguments to local vars
+   * @param varReads the expressions that read field values from previously evaluated local vars
    * @param args the argument definitions for the constructor function to take
    * @return a {@link Function} taking the specified arguments and returning an instance for this
    *     {@link AtomConstructor}
    */
-  private Function buildConstructorFunction(ArgumentDefinition[] args) {
-    ExpressionNode[] argumentReaders = new ExpressionNode[args.length];
-    for (int i = 0; i < args.length; i++) {
-      argumentReaders[i] = ReadArgumentNode.build(i, args[i].getDefaultValue().orElse(null));
-    }
-    ExpressionNode instantiateNode = InstantiateNode.build(this, argumentReaders);
+  private Function buildConstructorFunction(
+          LocalScope localScope,
+          ExpressionNode[] assignments,
+          ExpressionNode[] varReads,
+          ArgumentDefinition[] args) {
+
+    ExpressionNode instantiateNode = InstantiateNode.build(this, varReads);
+    BlockNode instantiateBlock = BlockNode.build(assignments, instantiateNode);
     RootNode rootNode =
-        InstantiateAtomNode.build(
-            null, definitionScope.getModule().getName().item() + "." + name, instantiateNode);
+        ClosureRootNode.build(null, localScope, definitionScope, instantiateBlock,
+                instantiateNode.getSourceSection(), definitionScope.getModule().getName().item() + "." + name);
     RootCallTarget callTarget = Truffle.getRuntime().createCallTarget(rootNode);
     return new Function(callTarget, null, new FunctionSchema(args));
   }
diff --git a/engine/runtime/src/main/scala/org/enso/compiler/codegen/IrToTruffle.scala b/engine/runtime/src/main/scala/org/enso/compiler/codegen/IrToTruffle.scala
index a6f5f757bf..e832f1a698 100644
--- a/engine/runtime/src/main/scala/org/enso/compiler/codegen/IrToTruffle.scala
+++ b/engine/runtime/src/main/scala/org/enso/compiler/codegen/IrToTruffle.scala
@@ -159,24 +159,41 @@ class IrToTruffle(
           DataflowAnalysis,
           "No dataflow information associated with an atom."
         )
+        val localScope = new LocalScope(
+          None,
+          scopeInfo.graph,
+          scopeInfo.graph.rootScope,
+          dataflowInfo
+        )
 
         val argFactory =
           new DefinitionArgumentProcessor(
-            scope = new LocalScope(
-              None,
-              scopeInfo.graph,
-              scopeInfo.graph.rootScope,
-              dataflowInfo
-            )
+            scope = localScope
           )
         val argDefs =
           new Array[ArgumentDefinition](atomDefn.arguments.size)
+        val argumentExpressions = new ArrayBuffer[(RuntimeExpression, RuntimeExpression)]
 
         for (idx <- atomDefn.arguments.indices) {
-          argDefs(idx) = argFactory.run(atomDefn.arguments(idx), idx)
+          val unprocessedArg = atomDefn.arguments(idx)
+          val arg = argFactory.run(unprocessedArg, idx)
+          val occInfo = unprocessedArg
+                      .unsafeGetMetadata(
+                          AliasAnalysis,
+                          "No occurrence on an argument definition."
+                          )
+                      .unsafeAs[AliasAnalysis.Info.Occurrence]
+          val slot = localScope.createVarSlot(occInfo.id)
+          argDefs(idx) = arg
+          val readArg = ReadArgumentNode.build(idx, arg.getDefaultValue.orElse(null))
+          val assignmentArg = AssignmentNode.build(readArg, slot)
+          val argRead = ReadLocalVariableNode.build(new FramePointer(0, slot))
+          argumentExpressions.append((assignmentArg, argRead))
         }
 
-        atomCons.initializeFields(argDefs: _*)
+        val (assignments, reads) = argumentExpressions.unzip
+
+        atomCons.initializeFields(localScope, assignments.toArray, reads.toArray, argDefs: _*)
       }
 
     // Register the method definitions in scope
diff --git a/test/Tests/src/Semantic/Default_Args_Spec.enso b/test/Tests/src/Semantic/Default_Args_Spec.enso
new file mode 100644
index 0000000000..4f5228d65a
--- /dev/null
+++ b/test/Tests/src/Semantic/Default_Args_Spec.enso
@@ -0,0 +1,43 @@
+from Standard.Base import all
+import Standard.Test
+
+type Box
+    type Foo (v : Bool = True)
+
+type Bar (a : Integer = 1) (b : Box = (Foo False)) (c : Boolean = b.v)
+
+type A a=0 b=1
+type B a=2 b=(Foo True)
+type C a=3 b=Foo
+type D a=4 b=(Bar 1)
+type E a=5 b=a c=(b+1)
+type F a=6 b=(Foo False) c=(b.v)
+#type D a=4 b=Bar // will crash
+
+spec =
+    Test.group "Atom Constructors" <|
+        Test.specify "should be allowed to use primitive default arguments" <|
+            x = A 1
+            x.b.should_equal 1
+            y = A 1
+            y.b.should_equal 1
+
+        Test.specify "should be allowed to use non-primitive default arguments" <|
+            a = B 1 (Foo False)
+            a.b.should_equal (Foo False)
+            b = B 1
+            b.b.should_equal (Foo True)
+            c = C 1
+            c.b.should_equal (Foo)
+            d = D 1
+            d.b.b.should_equal (Foo False)
+            d.b.c.should_equal False
+
+        Test.specify "should be allowed to use default arguments that refer to previous parameters" <|
+            e = E 1
+            e.b.should_equal 1
+            e.c.should_equal 2
+            f = F 1
+            f.c.should_equal False
+
+main = Test.Suite.run_main here.spec