diff --git a/parser/parse_node_kind.def b/parser/parse_node_kind.def
index f25da9ec1311..030de307b902 100644
--- a/parser/parse_node_kind.def
+++ b/parser/parse_node_kind.def
@@ -22,6 +22,7 @@ CARBON_PARSE_NODE_KIND(ParameterList)
 CARBON_PARSE_NODE_KIND(ParameterListComma)
 CARBON_PARSE_NODE_KIND(ParameterListEnd)
 CARBON_PARSE_NODE_KIND(ParameterDeclaration)
+CARBON_PARSE_NODE_KIND(ReturnType)
 CARBON_PARSE_NODE_KIND(VariableDeclaration)
 CARBON_PARSE_NODE_KIND(VariableInitializer)
 CARBON_PARSE_NODE_KIND(FileEnd)
diff --git a/parser/parse_tree_test.cpp b/parser/parse_tree_test.cpp
index 1437d1aba716..580131f1e6d6 100644
--- a/parser/parse_tree_test.cpp
+++ b/parser/parse_tree_test.cpp
@@ -196,6 +196,37 @@ TEST_F(ParseTreeTest, FunctionDefinitionWithParameterList) {
            MatchFileEnd()}));
 }
 
+TEST_F(ParseTreeTest, FunctionDeclarationWithReturnType) {
+  TokenizedBuffer tokens = GetTokenizedBuffer("fn foo() -> Int;");
+  ParseTree tree = ParseTree::Parse(tokens, consumer);
+  EXPECT_FALSE(tree.HasErrors());
+  EXPECT_THAT(
+      tree,
+      MatchParseTreeNodes(
+          {MatchFunctionDeclaration(MatchDeclaredName("foo"), MatchParameters(),
+                                    MatchReturnType(MatchNameReference("Int")),
+                                    MatchDeclarationEnd()),
+           MatchFileEnd()}));
+}
+
+TEST_F(ParseTreeTest, FunctionDefinitionWithReturnType) {
+  TokenizedBuffer tokens = GetTokenizedBuffer(
+      "fn foo() -> Int {\n"
+      "  // return 42;\n"
+      "}");
+  ParseTree tree = ParseTree::Parse(tokens, consumer);
+  EXPECT_FALSE(tree.HasErrors());
+  EXPECT_THAT(
+      tree,
+      MatchParseTreeNodes(
+          {MatchFunctionDeclaration(MatchDeclaredName("foo"), MatchParameters(),
+                                    MatchReturnType(MatchNameReference("Int")),
+                                    MatchCodeBlock(
+                                        // TODO: Match a return statement.
+                                        MatchCodeBlockEnd())),
+           MatchFileEnd()}));
+}
+
 TEST_F(ParseTreeTest, FunctionDeclarationWithSingleIdentifierParameterList) {
   TokenizedBuffer tokens = GetTokenizedBuffer("fn foo(bar);");
   ParseTree tree = ParseTree::Parse(tokens, consumer);
diff --git a/parser/parser_impl.cpp b/parser/parser_impl.cpp
index 73033b600794..a6e78cfae9f3 100644
--- a/parser/parser_impl.cpp
+++ b/parser/parser_impl.cpp
@@ -413,7 +413,15 @@ auto ParseTree::Parser::ParseFunctionSignature() -> bool {
                        has_errors);
       });
 
-  // FIXME: Implement parsing of a return type.
+  auto start_return_type = StartSubtree();
+  if (auto arrow = ConsumeIf(TokenKind::MinusGreater())) {
+    auto return_type = ParseType();
+    AddNode(ParseNodeKind::ReturnType(), *arrow, start_return_type,
+            /*has_error=*/!return_type);
+    if (!return_type) {
+      return false;
+    }
+  }
 
   return params.hasValue();
 }
@@ -478,11 +486,7 @@ auto ParseTree::Parser::ParseFunctionDeclaration() -> Node {
   TokenizedBuffer::Token close_paren =
       tokens.GetMatchedClosingToken(open_paren);
 
-  bool signature_ok = ParseFunctionSignature();
-  assert(*std::prev(position) == close_paren &&
-         "Should have parsed through the close paren, whether successfully "
-         "or with errors.");
-  if (!signature_ok) {
+  if (!ParseFunctionSignature()) {
     // Don't try to parse more of the function declaration, but consume a
     // declaration ending semicolon if found (without going to a new line).
     SkipPastLikelyEnd(function_intro_token, handle_semi_in_error_recovery);