diff --git a/NEWS.md b/NEWS.md
index 23e8d5c87..3f21d573e 100644
--- a/NEWS.md
+++ b/NEWS.md
@@ -32,6 +32,8 @@
 
 3. `fread("file://...")` works for file URIs with spaces, [#7550](https://github.com/Rdatatable/data.table/issues/7550). Thanks @aitap for the report and @MichaelChirico for the PR.
 
+4. Grouping operations with constant `list()` expressions in `j` are now optimized to avoid per-group allocation overhead, [#712](https://github.com/Rdatatable/data.table/issues/712). Thanks @macrakis for the report and @ben-schwen for the fix.
+
 ## data.table [v1.18.0](https://github.com/Rdatatable/data.table/milestone/37?closed=1)  23 December 2025
 
 ### BREAKING CHANGE
diff --git a/R/data.table.R b/R/data.table.R
index 27c985e44..a16e5c850 100644
--- a/R/data.table.R
+++ b/R/data.table.R
@@ -1653,6 +1653,14 @@ replace_dot_alias = function(e) {
   if ( getOption("datatable.optimize")>=1L && (is.call(jsub) || (is.name(jsub) && jsub %chin% c(".SD", ".N"))) ) {  # Ability to turn off if problems or to benchmark the benefit
     # Optimization to reduce overhead of calling lapply over and over for each group
     oldjsub = jsub
+
+    # Optimization: unwrap constant list() expressions to avoid per-group allocation
+    # e.g., list(1) -> 1, where the value is a simple atomic constant
+    if (jsub %iscall% "list" && length(jsub) == 2L && !is.null(jsub[[2L]]) && !is.call(jsub[[2L]]) && is_constantish(jsub[[2L]])) {
+      jsub = jsub[[2L]]
+      if (verbose) catf("Optimized j from list(constant) to bare constant\n")
+    }
+
     funi = 1L # Fix for #985
     # converted the lapply(.SD, ...) to a function and used below, easier to implement FR #2722 then.
     .massageSD = function(jsub) {
diff --git a/inst/tests/tests.Rraw b/inst/tests/tests.Rraw
index fcf78e9f3..3f24ef672 100644
--- a/inst/tests/tests.Rraw
+++ b/inst/tests/tests.Rraw
@@ -21978,3 +21978,10 @@ local({
   test(2357.1, fread(f), DT)
   test(2357.2, fread(paste0("file://", f)), DT)
 })
+
+# dt[, j=list(var), by] is slower than dt[, j=var, by], #712
+dt = data.table(x=rep(1:3, 2L), y=1L)
+test(2358.1, dt[, .(1), by=x, verbose=TRUE], dt[, 1, by=x], output="lapply optimization changed j from")
+dt = data.table(x=1:5, key="x")
+test(2358.2, dt[dt, list(1), by=.EACHI, verbose=TRUE], dt[dt, 1, by=.EACHI], output="lapply optimization changed j from")
+test(2358.3, dt[dt, list(x), by=.EACHI, verbose=TRUE], dt[dt, x, by=.EACHI], output="lapply optimization changed j from")