diff --git a/packages/pyright-internal/src/analyzer/typeGuards.ts b/packages/pyright-internal/src/analyzer/typeGuards.ts
index a765c008f472..a2dc7cb7c980 100644
--- a/packages/pyright-internal/src/analyzer/typeGuards.ts
+++ b/packages/pyright-internal/src/analyzer/typeGuards.ts
@@ -41,6 +41,7 @@ import {
     FunctionParam,
     FunctionParamFlags,
     FunctionType,
+    FunctionTypeFlags,
     isAnyOrUnknown,
     isClass,
     isClassInstance,
@@ -1695,8 +1696,32 @@ function narrowTypeForInstance(
                     } else {
                         filteredTypes.push(convertToInstance(filterType));
                     }
-                } else if (evaluator.assignType(convertToInstance(convertVarTypeToFree(concreteFilterType)), varType)) {
-                    filteredTypes.push(convertToInstance(varType));
+                } else {
+                    const filterTypeInstance = convertToInstance(convertVarTypeToFree(concreteFilterType));
+                    if (evaluator.assignType(filterTypeInstance, varType)) {
+                        filteredTypes.push(convertToInstance(varType));
+                    } else {
+                        // If this is a class instance that's not callable and it's not @final,
+                        // a subclass could be compatible with the filter type.
+                        if (isClassInstance(filterTypeInstance) && !ClassType.isFinal(filterTypeInstance)) {
+                            const gradualFunc = FunctionType.createSynthesizedInstance(
+                                '',
+                                FunctionTypeFlags.GradualCallableForm
+                            );
+                            FunctionType.addDefaultParams(gradualFunc);
+
+                            // If the class is callable (i.e. can be assigned to the generic gradual
+                            // function signature), then the assignment check above didn't fail because
+                            // of a signature mismatch. It failed because the class is not callable.
+                            // We assume therefore that a subclass might be.
+                            if (!evaluator.assignType(gradualFunc, filterTypeInstance)) {
+                                // The resulting type should be an intersection of the filter type and
+                                // the subtype, but we don't have a way to encode that yet. For now,
+                                // we'll use the filter type.
+                                filteredTypes.push(convertToInstance(filterType));
+                            }
+                        }
+                    }
                 }
             }
         } else {
diff --git a/packages/pyright-internal/src/tests/samples/typeNarrowingIsinstance5.py b/packages/pyright-internal/src/tests/samples/typeNarrowingIsinstance5.py
index d910315348a7..4981b135fd62 100644
--- a/packages/pyright-internal/src/tests/samples/typeNarrowingIsinstance5.py
+++ b/packages/pyright-internal/src/tests/samples/typeNarrowingIsinstance5.py
@@ -1,24 +1,20 @@
 # This sample tests isinstance type narrowing when the class list
 # includes "Callable".
 
-from typing import Callable, Sequence, TypeVar
+from typing import Callable, Sequence, TypeVar, final
 
 
-class A:
-    ...
+class A: ...
 
 
 class B:
-    def __call__(self, x: str) -> int:
-        ...
+    def __call__(self, x: str) -> int: ...
 
 
-class C:
-    ...
+class C: ...
 
 
-class D(C):
-    ...
+class D(C): ...
 
 
 TCall1 = TypeVar("TCall1", bound=Callable[..., int])
@@ -30,7 +26,7 @@ def func1(
     if isinstance(obj, (Callable, Sequence, C)):
         reveal_type(
             obj,
-            expected_text="((int, str) -> int) | list[int] | B | C | D | TCall1@func1",
+            expected_text="((int, str) -> int) | Sequence[Unknown] | C | list[int] | B | D | TCall1@func1",
         )
     else:
         reveal_type(obj, expected_text="A")
@@ -38,4 +34,33 @@ def func1(
     if isinstance(obj, Callable):
         reveal_type(obj, expected_text="((int, str) -> int) | B | TCall1@func1")
     else:
-        reveal_type(obj, expected_text="list[int] | C | D | A")
+        reveal_type(obj, expected_text="Sequence[Unknown] | C | list[int] | D | A")
+
+
+class CB1:
+    def __call__(self, x: str) -> None: ...
+
+
+def func2(c1: Callable[[int], None], c2: Callable[..., None]):
+    if isinstance(c1, CB1):
+        reveal_type(c1, expected_text="Never")
+
+    if isinstance(c2, CB1):
+        reveal_type(c2, expected_text="CB1")
+
+
+class IsNotFinal: ...
+
+
+def func3(c1: Callable[[int], None]):
+    if isinstance(c1, IsNotFinal):
+        reveal_type(c1, expected_text="IsNotFinal")
+
+
+@final
+class IsFinal: ...
+
+
+def func4(c1: Callable[[int], None]):
+    if isinstance(c1, IsFinal):
+        reveal_type(c1, expected_text="Never")