diff --git a/packages/pyright-internal/src/analyzer/typeEvaluator.ts b/packages/pyright-internal/src/analyzer/typeEvaluator.ts
index 415b53fbb..b7cb4abc7 100644
--- a/packages/pyright-internal/src/analyzer/typeEvaluator.ts
+++ b/packages/pyright-internal/src/analyzer/typeEvaluator.ts
@@ -14775,6 +14775,16 @@ export function createTypeEvaluator(importLookup: ImportLookup, evaluatorOptions
                 } else {
                     type = cloneBuiltinClassWithLiteral(node, classType, 'str', value);
                 }
+
+                itemExpr.strings.forEach((stringNode) => {
+                    if ((stringNode.token.flags & StringTokenFlags.NamedUnicodeEscape) !== 0) {
+                        addDiagnostic(
+                            DiagnosticRule.reportInvalidTypeForm,
+                            LocMessage.literalNamedUnicodeEscape(),
+                            stringNode
+                        );
+                    }
+                });
             } else if (itemExpr.nodeType === ParseNodeType.Number) {
                 if (!itemExpr.isImaginary && itemExpr.isInteger) {
                     type = cloneBuiltinClassWithLiteral(node, classType, 'int', itemExpr.value);
diff --git a/packages/pyright-internal/src/localization/localize.ts b/packages/pyright-internal/src/localization/localize.ts
index dfa413aaa..7da0dbc71 100644
--- a/packages/pyright-internal/src/localization/localize.ts
+++ b/packages/pyright-internal/src/localization/localize.ts
@@ -601,6 +601,7 @@ export namespace Localizer {
         export const listAssignmentMismatch = () =>
             new ParameterizedString<{ type: string }>(getRawString('Diagnostic.listAssignmentMismatch'));
         export const listInAnnotation = () => getRawString('Diagnostic.listInAnnotation');
+        export const literalNamedUnicodeEscape = () => getRawString('Diagnostic.literalNamedUnicodeEscape');
         export const literalUnsupportedType = () => getRawString('Diagnostic.literalUnsupportedType');
         export const literalEmptyArgs = () => getRawString('Diagnostic.literalEmptyArgs');
         export const literalNotAllowed = () => getRawString('Diagnostic.literalNotAllowed');
diff --git a/packages/pyright-internal/src/localization/package.nls.en-us.json b/packages/pyright-internal/src/localization/package.nls.en-us.json
index d1bebc61b..509428d2d 100644
--- a/packages/pyright-internal/src/localization/package.nls.en-us.json
+++ b/packages/pyright-internal/src/localization/package.nls.en-us.json
@@ -263,6 +263,7 @@
         "listAssignmentMismatch": "Expression with type \"{type}\" cannot be assigned to target list",
         "listInAnnotation": "List expression not allowed in type annotation",
         "literalUnsupportedType": "Type arguments for \"Literal\" must be None, a literal value (int, bool, str, or bytes), or an enum value",
+        "literalNamedUnicodeEscape": "Named unicode escape sequences are not supported in \"Literal\" string annotations",
         "literalEmptyArgs": "Expected one or more type arguments after \"Literal\"",
         "literalNotAllowed": "\"Literal\" cannot be used in this context without a type argument",
         "literalNotCallable": "Literal type cannot be instantiated",
diff --git a/packages/pyright-internal/src/parser/tokenizer.ts b/packages/pyright-internal/src/parser/tokenizer.ts
index cb89a9323..323df0ed5 100644
--- a/packages/pyright-internal/src/parser/tokenizer.ts
+++ b/packages/pyright-internal/src/parser/tokenizer.ts
@@ -1593,6 +1593,7 @@ export class Tokenizer {
                     this._cs.getCurrentChar() === Char.N &&
                     this._cs.nextChar === Char.OpenBrace
                 ) {
+                    flags |= StringTokenFlags.NamedUnicodeEscape;
                     isInNamedUnicodeEscape = true;
                 } else {
                     // If this is an f-string, the only escapes that are allowed is for
diff --git a/packages/pyright-internal/src/parser/tokenizerTypes.ts b/packages/pyright-internal/src/parser/tokenizerTypes.ts
index a7f6ee712..d2060c5f0 100644
--- a/packages/pyright-internal/src/parser/tokenizerTypes.ts
+++ b/packages/pyright-internal/src/parser/tokenizerTypes.ts
@@ -170,6 +170,7 @@ export const enum StringTokenFlags {
     // Other conditions
     ReplacementFieldStart = 1 << 7,
     ReplacementFieldEnd = 1 << 8,
+    NamedUnicodeEscape = 1 << 9,
 
     // Error conditions
     Unterminated = 1 << 16,
diff --git a/packages/pyright-internal/src/tests/tokenizer.test.ts b/packages/pyright-internal/src/tests/tokenizer.test.ts
index 7d66d195b..1c1cfe528 100644
--- a/packages/pyright-internal/src/tests/tokenizer.test.ts
+++ b/packages/pyright-internal/src/tests/tokenizer.test.ts
@@ -1166,7 +1166,7 @@ test('Strings: good name escapes', () => {
     const stringToken0 = results.tokens.getItemAt(0) as StringToken;
     const unescapedValue0 = StringTokenUtils.getUnescapedString(stringToken0);
     assert.equal(stringToken0.type, TokenType.String);
-    assert.equal(stringToken0.flags, StringTokenFlags.DoubleQuote);
+    assert.equal(stringToken0.flags, StringTokenFlags.DoubleQuote | StringTokenFlags.NamedUnicodeEscape);
     assert.equal(stringToken0.length, 23);
     assert.equal(stringToken0.escapedValue, '\\N{caret escape blah}');
     assert.equal(unescapedValue0.value, '-');
@@ -1174,7 +1174,7 @@ test('Strings: good name escapes', () => {
     const stringToken1 = results.tokens.getItemAt(1) as StringToken;
     const unescapedValue1 = StringTokenUtils.getUnescapedString(stringToken1);
     assert.equal(stringToken1.type, TokenType.String);
-    assert.equal(stringToken1.flags, StringTokenFlags.DoubleQuote);
+    assert.equal(stringToken1.flags, StringTokenFlags.DoubleQuote | StringTokenFlags.NamedUnicodeEscape);
     assert.equal(stringToken1.length, 10);
     assert.equal(stringToken1.escapedValue, 'a\\N{A9}a');
     assert.equal(unescapedValue1.value, 'a-a');
@@ -1188,7 +1188,7 @@ test('Strings: bad name escapes', () => {
     const stringToken0 = results.tokens.getItemAt(0) as StringToken;
     const unescapedValue0 = StringTokenUtils.getUnescapedString(stringToken0);
     assert.equal(stringToken0.type, TokenType.String);
-    assert.equal(stringToken0.flags, StringTokenFlags.DoubleQuote);
+    assert.equal(stringToken0.flags, StringTokenFlags.DoubleQuote | StringTokenFlags.NamedUnicodeEscape);
     assert.equal(unescapedValue0.unescapeErrors.length, 1);
     assert.equal(stringToken0.length, 10);
     assert.equal(stringToken0.escapedValue, '\\N{caret');
@@ -1197,7 +1197,7 @@ test('Strings: bad name escapes', () => {
     const stringToken1 = results.tokens.getItemAt(1) as StringToken;
     const unescapedValue1 = StringTokenUtils.getUnescapedString(stringToken1);
     assert.equal(stringToken1.type, TokenType.String);
-    assert.equal(stringToken1.flags, StringTokenFlags.DoubleQuote);
+    assert.equal(stringToken1.flags, StringTokenFlags.DoubleQuote | StringTokenFlags.NamedUnicodeEscape);
     assert.equal(unescapedValue1.unescapeErrors.length, 1);
     assert.equal(stringToken1.length, 9);
     assert.equal(stringToken1.escapedValue, '\\N{.A9}');