diff --git a/packages/playwright-core/src/server/recorder.ts b/packages/playwright-core/src/server/recorder.ts
index a2be2992e6..8b026c789a 100644
--- a/packages/playwright-core/src/server/recorder.ts
+++ b/packages/playwright-core/src/server/recorder.ts
@@ -30,6 +30,8 @@ import type { IRecorderAppFactory, IRecorderApp, IRecorder } from './recorder/re
 import { metadataToCallLog } from './recorder/recorderUtils';
 import type * as actions from '@recorder/actions';
 import { buildFullSelector } from '../utils/isomorphic/recorderUtils';
+import { stringifySelector } from '../utils/isomorphic/selectorParser';
+import type { Frame } from './frames';
 
 const recorderSymbol = Symbol('recorderSymbol');
 
@@ -146,12 +148,12 @@ export class Recorder implements InstrumentationListener, IRecorder {
       this._pushAllSources();
     });
 
-    await this._context.exposeBinding('__pw_recorderState', false, source => {
+    await this._context.exposeBinding('__pw_recorderState', false, async source => {
       let actionSelector = '';
       let actionPoint: Point | undefined;
       const hasActiveScreenshotCommand = [...this._currentCallsMetadata.keys()].some(isScreenshotCommand);
       if (!hasActiveScreenshotCommand) {
-        actionSelector = this._highlightedSelector;
+        actionSelector = await this._scopeHighlightedSelectorToFrame(source.frame);
         for (const [metadata, sdkObject] of this._currentCallsMetadata) {
           if (source.page === sdkObject.attribution.page) {
             actionPoint = metadata.point || actionPoint;
@@ -243,13 +245,38 @@ export class Recorder implements InstrumentationListener, IRecorder {
     this._refreshOverlay();
   }
 
+  private async _scopeHighlightedSelectorToFrame(frame: Frame): Promise<string> {
+    try {
+      const mainFrame = frame._page.mainFrame();
+      const resolved = await mainFrame.selectors.resolveFrameForSelector(this._highlightedSelector);
+      // selector couldn't be found, don't highlight anything
+      if (!resolved)
+        return '';
+
+      // selector points to no specific frame, highlight in all frames
+      if (resolved?.frame === mainFrame)
+        return stringifySelector(resolved.info.parsed);
+
+      // selector points to this frame, highlight it
+      if (resolved?.frame === frame)
+        return stringifySelector(resolved.info.parsed);
+
+      // selector points to a different frame, highlight nothing
+      return '';
+    } catch {
+      return '';
+    }
+  }
+
   setOutput(codegenId: string, outputFile: string | undefined) {
     this._contextRecorder.setOutput(codegenId, outputFile);
   }
 
   private _refreshOverlay() {
-    for (const page of this._context.pages())
-      page.mainFrame().evaluateExpression('window.__pw_refreshOverlay()').catch(() => {});
+    for (const page of this._context.pages()) {
+      for (const frame of page.frames())
+        frame.evaluateExpression('window.__pw_refreshOverlay()').catch(() => {});
+    }
   }
 
   async onBeforeCall(sdkObject: SdkObject, metadata: CallMetadata) {
diff --git a/tests/library/debug-controller.spec.ts b/tests/library/debug-controller.spec.ts
index cdc579fed2..b1a93a0138 100644
--- a/tests/library/debug-controller.spec.ts
+++ b/tests/library/debug-controller.spec.ts
@@ -253,3 +253,29 @@ test('should reset routes before reuse', async ({ server, connectedBrowserFactor
   await expect(page2).toHaveTitle('console.log test');
   await browser2.close();
 });
+
+test('should highlight inside iframe', async ({ backend, connectedBrowser }, testInfo) => {
+  testInfo.annotations.push({ type: 'issue', description: 'https://github.com/microsoft/playwright/issues/33146' });
+
+  const context = await connectedBrowser._newContextForReuse();
+  const page = await context.newPage();
+  await backend.navigate({ url: `data:text/html,<div>bar</div><iframe srcdoc="<div>bar</div>"/>` });
+
+
+  await page.frameLocator('iframe').getByText('bar').highlight();
+
+  const highlight = page.frameLocator('iframe').locator('x-pw-highlight');
+  await expect(highlight).not.toHaveCount(0);
+  await backend.hideHighlight();
+  await expect(highlight).toHaveCount(0);
+
+  await backend.highlight({ selector: `frameLocator('iframe').getByText('bar')` });
+  await expect(highlight).not.toHaveCount(0);
+
+  await backend.highlight({ selector: `frameLocator('iframe').frameLocator('iframe').getByText('bar')` });
+  await expect(highlight).toHaveCount(0);
+
+  await backend.highlight({ selector: `getByText('bar')` });
+  await expect(highlight).toHaveCount(1);
+  await expect(page.locator('x-pw-highlight')).toHaveCount(1);
+});