AWS has introduced a new feature called Lambda Managed Instances, allowing users to run Lambda functions on specified EC2 instances for better cost control and execution flexibility. This feature requires users to define a Capacity Provider to specify the EC2 instance types and quantities, and it supports auto-scaling and multi-concurrency, which enhances scalability but requires thread-safe Lambda code. LocalStack has collaborated with AWS to provide local testing support, allowing developers to test these configurations locally without deploying actual EC2 instances, as Lambda functions will continue to run inside containers on local machines. This integration offers a consistent testing environment with the same APIs and CloudFormation resources, although certain AWS cloud features like real EC2 instance creation, scaling, and IAM permissions are not fully emulated locally. The Lambda Managed Instances feature is beneficial for users seeking precise control over execution environments and costs, and LocalStack version 4.12 supports these capabilities, available on DockerHub.