Seismic wavefield modeling and inversion requires large computational resources. For applications that involve modeling wavefields through many closely related models (i.e. time-lapse FWI, iterative RTM imaging, etc.) it is of interest to compute the response locally within a region where the model changes instead of computing the response of the entire model. By using the method of multiple point sources, the wavefields inside a local domain can be simulated to mimic the wavefields that propagate in the full domain. The localized wavefields are exact within numerical precision for both forward and adjoint wavefields. FWI gradients for velocity and density model parameters can then be built from the local wavefields to update the model parameters efficiently inside the local domain for a more accurate representation of the subsurface. The wavefields and gradient at each iteration are computed locally at a cost orders of magnitude lower than in the full domain, thus enabling more computationally efficient inversions. Using a synthetic example, we show that inversion inside a local domain is comparable to inversion in the full domain, but is obtainable at a significantly lower cost.