diff --git a/src/nvim/textformat.c b/src/nvim/textformat.c
index 06b3aa0411..b3b9cc6b44 100644
--- a/src/nvim/textformat.c
+++ b/src/nvim/textformat.c
@@ -35,6 +35,7 @@
 #include "nvim/strings.h"
 #include "nvim/textformat.h"
 #include "nvim/textobject.h"
+#include "nvim/ui.h"
 #include "nvim/undo.h"
 #include "nvim/vim_defs.h"
 #include "nvim/window.h"
@@ -1049,12 +1050,18 @@ void format_lines(linenr_T line_count, bool avoid_fex)
         State = MODE_INSERT;         // for open_line()
         smd_save = p_smd;
         p_smd = false;
+
         insertchar(NUL, INSCHAR_FORMAT
                    + (do_comments ? INSCHAR_DO_COM : 0)
                    + (do_comments && do_comments_list ? INSCHAR_COM_LIST : 0)
                    + (avoid_fex ? INSCHAR_NO_FEX : 0), second_indent);
+
         State = old_State;
         p_smd = smd_save;
+        // Cursor shape may have been updated (e.g. by :normal) in insertchar(),
+        // so it needs to be updated here.
+        ui_cursor_shape();
+
         second_indent = -1;
         // at end of par.: need to set indent of next par.
         need_set_indent = is_end_par;
diff --git a/test/functional/ui/mode_spec.lua b/test/functional/ui/mode_spec.lua
index 8c6a284cd6..69b38f3ff3 100644
--- a/test/functional/ui/mode_spec.lua
+++ b/test/functional/ui/mode_spec.lua
@@ -94,6 +94,46 @@ describe('ui mode_change event', function()
     }
   end)
 
+  -- oldtest: Test_indent_norm_with_gq()
+  it('is restored to Normal mode after "gq" indents using :normal #12309', function()
+    screen:try_resize(60, 6)
+    n.exec([[
+      func Indent()
+        exe "normal! \<Ignore>"
+        return 0
+      endfunc
+
+      setlocal indentexpr=Indent()
+      call setline(1, [repeat('a', 80), repeat('b', 80)])
+    ]])
+
+    feed('ggVG')
+    screen:expect {
+      grid = [[
+      {17:aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa}|
+      {17:aaaaaaaaaaaaaaaaaaaa}                                        |
+      ^b{17:bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb}|
+      {17:bbbbbbbbbbbbbbbbbbbb}                                        |
+      {1:~                                                           }|
+      {5:-- VISUAL LINE --}                                           |
+    ]],
+      mode = 'visual',
+    }
+
+    feed('gq')
+    screen:expect {
+      grid = [[
+      aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa|
+      aaaaaaaaaaaaaaaaaaaa                                        |
+      ^bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb|
+      bbbbbbbbbbbbbbbbbbbb                                        |
+      {1:~                                                           }|
+                                                                  |
+    ]],
+      mode = 'normal',
+    }
+  end)
+
   it('works in insert mode', function()
     feed('i')
     screen:expect {
diff --git a/test/old/testdir/test_indent.vim b/test/old/testdir/test_indent.vim
index 0998b04443..36670a0472 100644
--- a/test/old/testdir/test_indent.vim
+++ b/test/old/testdir/test_indent.vim
@@ -1,5 +1,8 @@
 " Test for various indent options
 
+source shared.vim
+source check.vim
+
 func Test_preserveindent()
   new
   " Test for autoindent copying indent from the previous line
@@ -303,4 +306,50 @@ func Test_indent_overflow_count2()
   close!
 endfunc
 
+" Test that mouse shape is restored to Normal mode after using "gq" when
+" 'indentexpr' executes :normal.
+func Test_indent_norm_with_gq()
+  CheckFeature mouseshape
+  CheckCanRunGui
+
+  let lines =<< trim END
+    func Indent()
+      exe "normal! \<Ignore>"
+      return 0
+    endfunc
+
+    setlocal indentexpr=Indent()
+  END
+  call writefile(lines, 'Xindentexpr.vim', 'D')
+
+  let lines =<< trim END
+    vim9script
+    var mouse_shapes = []
+
+    setline(1, [repeat('a', 80), repeat('b', 80)])
+
+    feedkeys('ggVG')
+    timer_start(50, (_) => {
+      mouse_shapes += [getmouseshape()]
+      timer_start(50, (_) => {
+        feedkeys('gq')
+        timer_start(50, (_) => {
+          mouse_shapes += [getmouseshape()]
+          timer_start(50, (_) => {
+            writefile(mouse_shapes, 'Xmouseshapes')
+            quit!
+          })
+        })
+      })
+    })
+  END
+  call writefile(lines, 'Xmouseshape.vim', 'D')
+
+  call RunVim([], [], "-g -S Xindentexpr.vim -S Xmouseshape.vim")
+  call WaitForAssert({-> assert_equal(['rightup-arrow', 'arrow'],
+        \ readfile('Xmouseshapes'))}, 300)
+
+  call delete('Xmouseshapes')
+endfunc
+
 " vim: shiftwidth=2 sts=2 expandtab