diff --git a/doc/source/whatsnew/v0.25.0.rst b/doc/source/whatsnew/v0.25.0.rst
index 09e246c6ed971..84f9fd8906dbf 100644
--- a/doc/source/whatsnew/v0.25.0.rst
+++ b/doc/source/whatsnew/v0.25.0.rst
@@ -298,7 +298,6 @@ Bug Fixes
 ~~~~~~~~~
 
 
-
 Categorical
 ^^^^^^^^^^^
 
@@ -380,6 +379,7 @@ Indexing
 - Bug in which :meth:`DataFrame.append` produced an erroneous warning indicating that a ``KeyError`` will be thrown in the future when the data to be appended contains new columns (:issue:`22252`).
 - Bug in which :meth:`DataFrame.to_csv` caused a segfault for a reindexed data frame, when the indices were single-level :class:`MultiIndex` (:issue:`26303`).
 - Fixed bug where assigning a :class:`arrays.PandasArray` to a :class:`pandas.core.frame.DataFrame` would raise error (:issue:`26390`)
+- Allow keyword arguments for callable local reference used in the :method:`DataFrame.query` string (:issue:`26426`)
 
 
 Missing
diff --git a/pandas/core/computation/expr.py b/pandas/core/computation/expr.py
index 628a2244d0a6f..32bd34c4db7d7 100644
--- a/pandas/core/computation/expr.py
+++ b/pandas/core/computation/expr.py
@@ -633,9 +633,7 @@ def visit_Call(self, node, side=None, **kwargs):
                                      "'{func}'".format(func=node.func.id))
 
                 if key.arg:
-                    # TODO: bug?
-                    kwargs.append(ast.keyword(
-                        keyword.arg, self.visit(keyword.value)))  # noqa
+                    kwargs[key.arg] = self.visit(key.value).value
 
             return self.const_type(res(*new_args, **kwargs), self.env)
 
diff --git a/pandas/tests/computation/test_eval.py b/pandas/tests/computation/test_eval.py
index 69c05ccfe9818..ca78e2e40ec74 100644
--- a/pandas/tests/computation/test_eval.py
+++ b/pandas/tests/computation/test_eval.py
@@ -1345,6 +1345,40 @@ def test_multi_line_expression_local_variable(self):
         assert_frame_equal(expected, df)
         assert ans is None
 
+    def test_multi_line_expression_callable_local_variable(self):
+        # 26426
+        df = pd.DataFrame({'a': [1, 2, 3], 'b': [4, 5, 6]})
+
+        def local_func(a, b):
+            return b
+
+        expected = df.copy()
+        expected['c'] = expected['a'] * local_func(1, 7)
+        expected['d'] = expected['c'] + local_func(1, 7)
+        ans = df.eval("""
+        c = a * @local_func(1, 7)
+        d = c + @local_func(1, 7)
+        """, inplace=True)
+        assert_frame_equal(expected, df)
+        assert ans is None
+
+    def test_multi_line_expression_callable_local_variable_with_kwargs(self):
+        # 26426
+        df = pd.DataFrame({'a': [1, 2, 3], 'b': [4, 5, 6]})
+
+        def local_func(a, b):
+            return b
+
+        expected = df.copy()
+        expected['c'] = expected['a'] * local_func(b=7, a=1)
+        expected['d'] = expected['c'] + local_func(b=7, a=1)
+        ans = df.eval("""
+        c = a * @local_func(b=7, a=1)
+        d = c + @local_func(b=7, a=1)
+        """, inplace=True)
+        assert_frame_equal(expected, df)
+        assert ans is None
+
     def test_assignment_in_query(self):
         # GH 8664
         df = pd.DataFrame({'a': [1, 2, 3], 'b': [4, 5, 6]})