diff --git a/packages/transform/__tests__/facts.test.ts b/packages/transform/__tests__/facts.test.ts
index 16919bc4..6901da3b 100644
--- a/packages/transform/__tests__/facts.test.ts
+++ b/packages/transform/__tests__/facts.test.ts
@@ -81,6 +81,31 @@ describe('classifyStatements', () => {
     expect(facts[0].referencedSchemas).toEqual(expect.arrayContaining(['billing', 'store']));
   });
 
+  it('extracts references from LANGUAGE sql string bodies', () => {
+    const facts = classifyStatements(`
+      CREATE FUNCTION catalog.product_slug() RETURNS text AS $$
+        SELECT catalog.slugify(name) FROM catalog.products LIMIT 1;
+      $$ LANGUAGE sql STABLE;
+    `);
+
+    expect(facts).toHaveLength(1);
+    expect(facts[0].creates).toEqual([{ schema: 'catalog', name: 'product_slug' }]);
+    // references inside the opaque LANGUAGE sql body are discovered
+    expect(facts[0].references).toContainEqual({ schema: 'catalog', name: 'products' });
+    expect(facts[0].references).toContainEqual({ schema: 'catalog', name: 'slugify' });
+    expect(facts[0].bodyReferences).toContainEqual({ schema: 'catalog', name: 'products' });
+    // the function does not depend on itself
+    expect(facts[0].references).not.toContainEqual({ schema: 'catalog', name: 'product_slug' });
+  });
+
+  it('does not treat a C-language function body string as SQL', () => {
+    const facts = classifyStatements(
+      `CREATE FUNCTION ext.thing() RETURNS void AS 'MODULE_PATHNAME', 'thing_fn' LANGUAGE c;`
+    );
+    expect(facts[0].creates).toEqual([{ schema: 'ext', name: 'thing' }]);
+    expect(facts[0].references).toEqual([]);
+  });
+
   it('separates body-only references as late-binding bodyReferences', () => {
     const facts = classifyStatements(`
       CREATE FUNCTION app_public.quota_gate(org app_types.org_ref) RETURNS boolean
diff --git a/packages/transform/src/facts.ts b/packages/transform/src/facts.ts
index ab787d2e..9256974e 100644
--- a/packages/transform/src/facts.ts
+++ b/packages/transform/src/facts.ts
@@ -1,5 +1,5 @@
 import { walk as walkSql } from '@pgsql/traverse';
-import { transformSync, walk as walkPlpgsql } from 'plpgsql-parser';
+import { parseSql, transformSync, walk as walkPlpgsql } from 'plpgsql-parser';
 
 /**
  * A (possibly schema-qualified) object name extracted from a statement.
@@ -321,6 +321,42 @@ function classifyOne(nodeTag: string, node: any): StatementFacts {
   return facts;
 }
 
+/** Read a `CreateFunctionStmt` DefElem option's scalar/list value. */
+function functionOption(node: any, defname: string): any {
+  for (const opt of node.options ?? []) {
+    if (opt?.DefElem?.defname === defname) return opt.DefElem.arg;
+  }
+  return undefined;
+}
+
+/**
+ * Collect references from a `LANGUAGE sql` function body supplied as a string
+ * literal (`AS $$ ... $$`). That body is an opaque String node the AST walker
+ * never parses, so — mirroring the schema transformer's body rewrite — parse
+ * it standalone and walk each statement with the facts visitor. The standard
+ * `BEGIN ATOMIC` / `RETURN` `sql_body` form is already part of the AST and is
+ * covered by the outer walk, so only the string form needs this.
+ */
+function collectSqlBodyReferences(node: any, facts: StatementFacts): void {
+  const language = functionOption(node, 'language')?.String?.sval;
+  if (typeof language !== 'string' || language.toLowerCase() !== 'sql') return;
+
+  const asArg = functionOption(node, 'as');
+  const items: any[] = asArg?.List?.items ?? [];
+  const body = items[0]?.String?.sval;
+  if (typeof body !== 'string') return;
+
+  try {
+    const stmts: any[] = parseSql(body)?.stmts ?? [];
+    const visitor = createFactsVisitor(facts, facts.bodyReferences);
+    for (const stmt of stmts) {
+      if (stmt?.stmt) walkSql(stmt.stmt, visitor);
+    }
+  } catch {
+    // A non-parseable body (C symbol name, etc.) contributes no references.
+  }
+}
+
 /**
  * Classify each top-level statement in a SQL script into {@link StatementFacts}.
  *
@@ -342,6 +378,9 @@ export function classifyStatements(sql: string): StatementFacts[] {
       if (stmtNode) {
         walkSql(stmtNode, createFactsVisitor(facts));
       }
+      if (nodeTag === 'CreateFunctionStmt') {
+        collectSqlBodyReferences(node, facts);
+      }
       allFacts.push(facts);
     }