diff --git a/pandas-stubs/core/groupby/generic.pyi b/pandas-stubs/core/groupby/generic.pyi
index b07554de..2e4864cd 100644
--- a/pandas-stubs/core/groupby/generic.pyi
+++ b/pandas-stubs/core/groupby/generic.pyi
@@ -11,6 +11,7 @@ from typing import (
     Generic,
     Literal,
     NamedTuple,
+    Protocol,
     TypeVar,
     final,
     overload,
@@ -208,28 +209,45 @@ class SeriesGroupBy(GroupBy[Series[S2]], Generic[S2, ByT]):
 
 _TT = TypeVar("_TT", bound=Literal[True, False])
 
+# ty ignore needed because of https://github.com/astral-sh/ty/issues/157#issuecomment-3017337945
+class DFCallable1(Protocol[P]):  # ty: ignore[invalid-argument-type]
+    def __call__(
+        self, df: DataFrame, /, *args: P.args, **kwargs: P.kwargs
+    ) -> Scalar | list | dict: ...
+
+class DFCallable2(Protocol[P]):  # ty: ignore[invalid-argument-type]
+    def __call__(
+        self, df: DataFrame, /, *args: P.args, **kwargs: P.kwargs
+    ) -> DataFrame | Series: ...
+
+class DFCallable3(Protocol[P]):  # ty: ignore[invalid-argument-type]
+    def __call__(self, df: Iterable, /, *args: P.args, **kwargs: P.kwargs) -> float: ...
+
 class DataFrameGroupBy(GroupBy[DataFrame], Generic[ByT, _TT]):
     # error: Overload 3 for "apply" will never be used because its parameters overlap overload 1
     @overload  # type: ignore[override]
     def apply(
         self,
-        func: Callable[[DataFrame], Scalar | list | dict],
-        *args,
-        **kwargs,
+        func: DFCallable1[P],
+        /,
+        *args: P.args,
+        **kwargs: P.kwargs,
     ) -> Series: ...
     @overload
     def apply(
         self,
-        func: Callable[[DataFrame], Series | DataFrame],
-        *args,
-        **kwargs,
+        func: DFCallable2[P],
+        /,
+        *args: P.args,
+        **kwargs: P.kwargs,
     ) -> DataFrame: ...
     @overload
-    def apply(  # pyright: ignore[reportOverlappingOverload]
+    def apply(
         self,
-        func: Callable[[Iterable], float],
-        *args,
-        **kwargs,
+        func: DFCallable3[P],
+        /,
+        *args: P.args,
+        **kwargs: P.kwargs,
     ) -> DataFrame: ...
     # error: overload 1 overlaps overload 2 because of different return types
     @overload
diff --git a/tests/test_groupby.py b/tests/test_groupby.py
index e6dbd0e1..2da00450 100644
--- a/tests/test_groupby.py
+++ b/tests/test_groupby.py
@@ -273,7 +273,7 @@ def resample_interpolate(x: DataFrame) -> DataFrame:
 
             check(
                 assert_type(
-                    GB_DF.apply(resample_interpolate, include_groups=False),
+                    GB_DF.apply(resample_interpolate),
                     DataFrame,
                 ),
                 DataFrame,
@@ -286,7 +286,6 @@ def resample_interpolate_linear(x: DataFrame) -> DataFrame:
                 assert_type(
                     GB_DF.apply(
                         resample_interpolate_linear,
-                        include_groups=False,
                     ),
                     DataFrame,
                 ),
@@ -1102,3 +1101,28 @@ def test_dataframe_value_counts() -> None:
         Series,
         np.int64,
     )
+
+
+def test_dataframe_apply_kwargs() -> None:
+    # GH 1266
+    df = DataFrame({"group": ["A", "A", "B", "B", "C"], "value": [10, 15, 10, 25, 30]})
+
+    def add_constant_to_mean(group: DataFrame, constant: int) -> DataFrame:
+        mean_val = group["value"].mean()
+        group["adjusted"] = mean_val + constant
+        return group
+
+    check(
+        assert_type(
+            df.groupby("group", group_keys=False)[["group", "value"]].apply(
+                add_constant_to_mean, constant=5
+            ),
+            DataFrame,
+        ),
+        DataFrame,
+    )
+    if TYPE_CHECKING_INVALID_USAGE:
+        df.groupby("group", group_keys=False)[["group", "value"]].apply(
+            add_constant_to_mean,
+            constant="5",  # type: ignore[call-overload] # pyright: ignore[reportCallIssue, reportArgumentType]
+        )