diff --git a/CHANGELOG.md b/CHANGELOG.md
index 775dd3341..b03576281 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -14,6 +14,10 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 - Add support for explicitly registering content paths using new `@source` at-rule ([#14078](https://github.com/tailwindlabs/tailwindcss/pull/14078))
 - Add support for scanning `<style>` tags in Vue files to the Vite plugin ([#14158](https://github.com/tailwindlabs/tailwindcss/pull/14158))
 
+### Fixed
+
+- Ensure `@apply` works inside `@utility` ([#14144](https://github.com/tailwindlabs/tailwindcss/pull/14144))
+
 ## [4.0.0-alpha.18] - 2024-07-25
 
 ### Added
diff --git a/packages/tailwindcss/src/index.test.ts b/packages/tailwindcss/src/index.test.ts
index 943e52fda..fd855fffb 100644
--- a/packages/tailwindcss/src/index.test.ts
+++ b/packages/tailwindcss/src/index.test.ts
@@ -326,6 +326,39 @@ describe('@apply', () => {
       }"
     `)
   })
+
+  it('should be possible to apply a custom utility', async () => {
+    expect(
+      await compileCss(css`
+        @utility bar {
+          &:before {
+            content: 'bar';
+          }
+        }
+
+        .foo {
+          /* Baz is defined after this rule, but should work */
+          @apply bar baz;
+        }
+
+        @utility baz {
+          &:after {
+            content: 'baz';
+          }
+        }
+
+        @tailwind utilities;
+      `),
+    ).toMatchInlineSnapshot(`
+      ".foo:before {
+        content: "bar";
+      }
+
+      .foo:after {
+        content: "baz";
+      }"
+    `)
+  })
 })
 
 describe('arbitrary variants', () => {
diff --git a/packages/tailwindcss/src/index.ts b/packages/tailwindcss/src/index.ts
index d1c3c1a56..fd19ae34d 100644
--- a/packages/tailwindcss/src/index.ts
+++ b/packages/tailwindcss/src/index.ts
@@ -15,6 +15,7 @@ import { compileCandidates } from './compile'
 import * as CSS from './css-parser'
 import { buildDesignSystem, type DesignSystem } from './design-system'
 import { Theme } from './theme'
+import { escape } from './utils/escape'
 import { segment } from './utils/segment'
 
 const IS_VALID_UTILITY_NAME = /^[a-z][a-zA-Z0-9/%._-]*$/
@@ -117,7 +118,6 @@ export async function compile(
         })
       })
 
-      replaceWith([])
       return
     }
 
@@ -338,8 +338,8 @@ export async function compile(
 
   let tailwindUtilitiesNode: Rule | null = null
 
-  // Find `@tailwind utilities` and replace it with the actual generated utility
-  // class CSS.
+  // Find `@tailwind utilities` so that we can later replace it with the actual
+  // generated utility class CSS.
   walk(ast, (node) => {
     if (node.kind === 'rule' && node.selector === '@tailwind utilities') {
       tailwindUtilitiesNode = node
@@ -353,42 +353,23 @@ export async function compile(
 
   // Replace `@apply` rules with the actual utility classes.
   if (css.includes('@apply')) {
-    walk(ast, (node, { replaceWith }) => {
-      if (node.kind === 'rule' && node.selector[0] === '@' && node.selector.startsWith('@apply')) {
-        let candidates = node.selector
-          .slice(7 /* Ignore `@apply ` when parsing the selector */)
-          .trim()
-          .split(/\s+/g)
-
-        // Replace the `@apply` rule with the actual utility classes
-        {
-          // Parse the candidates to an AST that we can replace the `@apply` rule with.
-          let candidateAst = compileCandidates(candidates, designSystem, {
-            onInvalidCandidate: (candidate) => {
-              throw new Error(`Cannot apply unknown utility class: ${candidate}`)
-            },
-          }).astNodes
-
-          // Collect the nodes to insert in place of the `@apply` rule. When a
-          // rule was used, we want to insert its children instead of the rule
-          // because we don't want the wrapping selector.
-          let newNodes: AstNode[] = []
-          for (let candidateNode of candidateAst) {
-            if (candidateNode.kind === 'rule' && candidateNode.selector[0] !== '@') {
-              for (let child of candidateNode.nodes) {
-                newNodes.push(child)
-              }
-            } else {
-              newNodes.push(candidateNode)
-            }
-          }
-
-          replaceWith(newNodes)
-        }
-      }
-    })
+    substituteAtApply(ast, designSystem)
   }
 
+  // Remove `@utility`, we couldn't replace it before yet because we had to
+  // handle the nested `@apply` at-rules first.
+  walk(ast, (node, { replaceWith }) => {
+    if (node.kind !== 'rule') return
+
+    if (node.selector[0] === '@' && node.selector.startsWith('@utility ')) {
+      replaceWith([])
+    }
+
+    // The `@utility` has to be top-level, therefore we don't have to traverse
+    // into nested trees.
+    return WalkAction.Skip
+  })
+
   // Track all valid candidates, these are the incoming `rawCandidate` that
   // resulted in a generated AST Node. All the other `rawCandidates` are invalid
   // and should be ignored.
@@ -439,6 +420,72 @@ export async function compile(
   }
 }
 
+function substituteAtApply(ast: AstNode[], designSystem: DesignSystem) {
+  walk(ast, (node, { replaceWith }) => {
+    if (node.kind !== 'rule') return
+    if (!(node.selector[0] === '@' && node.selector.startsWith('@apply '))) return
+
+    let candidates = node.selector
+      .slice(7 /* Ignore `@apply ` when parsing the selector */)
+      .trim()
+      .split(/\s+/g)
+
+    // Replace the `@apply` rule with the actual utility classes
+    {
+      // Parse the candidates to an AST that we can replace the `@apply` rule
+      // with.
+      let candidateAst = compileCandidates(candidates, designSystem, {
+        onInvalidCandidate: (candidate) => {
+          throw new Error(`Cannot apply unknown utility class: ${candidate}`)
+        },
+      }).astNodes
+
+      // Collect the nodes to insert in place of the `@apply` rule. When a rule
+      // was used, we want to insert its children instead of the rule because we
+      // don't want the wrapping selector.
+      let newNodes: AstNode[] = []
+      for (let candidateNode of candidateAst) {
+        if (candidateNode.kind === 'rule' && candidateNode.selector[0] !== '@') {
+          for (let child of candidateNode.nodes) {
+            newNodes.push(child)
+          }
+        } else {
+          newNodes.push(candidateNode)
+        }
+      }
+
+      // Verify that we don't have any circular dependencies by verifying that
+      // the current node does not appear in the new nodes.
+      walk(newNodes, (child) => {
+        if (child !== node) return
+
+        // At this point we already know that we have a circular dependency.
+        //
+        // Figure out which candidate caused the circular dependency. This will
+        // help to create a useful error message for the end user.
+        for (let candidate of candidates) {
+          let selector = `.${escape(candidate)}`
+
+          for (let rule of candidateAst) {
+            if (rule.kind !== 'rule') continue
+            if (rule.selector !== selector) continue
+
+            walk(rule.nodes, (child) => {
+              if (child !== node) return
+
+              throw new Error(
+                `You cannot \`@apply\` the \`${candidate}\` utility here because it creates a circular dependency.`,
+              )
+            })
+          }
+        }
+      })
+
+      replaceWith(newNodes)
+    }
+  })
+}
+
 export function __unstable__loadDesignSystem(css: string) {
   // Find all `@theme` declarations
   let theme = new Theme()
diff --git a/packages/tailwindcss/src/utilities.test.ts b/packages/tailwindcss/src/utilities.test.ts
index 862127148..3d8dd910b 100644
--- a/packages/tailwindcss/src/utilities.test.ts
+++ b/packages/tailwindcss/src/utilities.test.ts
@@ -15122,7 +15122,7 @@ describe('custom utilities', () => {
     `)
   })
 
-  test('custom utilities support some special chracters', async () => {
+  test('custom utilities support some special characters', async () => {
     let { build } = await compile(css`
       @layer utilities {
         @tailwind utilities;
@@ -15268,4 +15268,130 @@ describe('custom utilities', () => {
       `),
     ).rejects.toThrowError(/should be alphanumeric/)
   })
+
+  test('custom utilities work with `@apply`', async () => {
+    expect(
+      await compileCss(
+        css`
+          @utility foo {
+            @apply flex flex-col underline;
+          }
+
+          @utility bar {
+            @apply z-10;
+
+            .baz {
+              @apply z-20;
+            }
+          }
+
+          @tailwind utilities;
+        `,
+        ['foo', 'hover:foo', 'bar'],
+      ),
+    ).toMatchInlineSnapshot(`
+      ".bar {
+        z-index: 10;
+      }
+
+      .bar .baz {
+        z-index: 20;
+      }
+
+      .foo {
+        flex-direction: column;
+        text-decoration-line: underline;
+        display: flex;
+      }
+
+      .hover\\:foo:hover {
+        flex-direction: column;
+        text-decoration-line: underline;
+        display: flex;
+      }"
+    `)
+  })
+
+  test('referencing custom utilities in custom utilities via `@apply` should work', async () => {
+    expect(
+      await compileCss(
+        css`
+          @utility foo {
+            @apply flex flex-col underline;
+          }
+
+          @utility bar {
+            @apply dark:foo font-bold;
+          }
+
+          @tailwind utilities;
+        `,
+        ['bar'],
+      ),
+    ).toMatchInlineSnapshot(`
+      ".bar {
+        font-weight: 700;
+      }
+
+      @media (prefers-color-scheme: dark) {
+        .bar {
+          flex-direction: column;
+          text-decoration-line: underline;
+          display: flex;
+        }
+      }"
+    `)
+  })
+
+  test('custom utilities with `@apply` causing circular dependencies should error', async () => {
+    await expect(() =>
+      compileCss(
+        css`
+          @utility foo {
+            @apply font-bold hover:bar;
+          }
+
+          @utility bar {
+            @apply flex dark:foo;
+          }
+
+          @tailwind utilities;
+        `,
+        ['foo', 'bar'],
+      ),
+    ).rejects.toThrowErrorMatchingInlineSnapshot(
+      `[Error: You cannot \`@apply\` the \`dark:foo\` utility here because it creates a circular dependency.]`,
+    )
+  })
+
+  test('custom utilities with `@apply` causing circular dependencies should error (deeply nesting)', async () => {
+    await expect(() =>
+      compileCss(
+        css`
+          @utility foo {
+            .bar {
+              .baz {
+                .qux {
+                  @apply font-bold hover:bar;
+                }
+              }
+            }
+          }
+
+          @utility bar {
+            .baz {
+              .qux {
+                @apply flex dark:foo;
+              }
+            }
+          }
+
+          @tailwind utilities;
+        `,
+        ['foo', 'bar'],
+      ),
+    ).rejects.toThrowErrorMatchingInlineSnapshot(
+      `[Error: You cannot \`@apply\` the \`dark:foo\` utility here because it creates a circular dependency.]`,
+    )
+  })
 })