diff --git a/packages/vscode/__tests__/support/launch-from-cli.mts b/packages/vscode/__tests__/support/launch-from-cli.mts
index eaa255439..36c04cec1 100644
--- a/packages/vscode/__tests__/support/launch-from-cli.mts
+++ b/packages/vscode/__tests__/support/launch-from-cli.mts
@@ -10,15 +10,13 @@ const emptyUserDataDir = path.join(os.tmpdir(), `user-data-${Math.random()}`);
 const settingsDir = path.join(emptyUserDataDir, 'User');
 fs.mkdirSync(settingsDir, { recursive: true });
 
-const userPreferences = {
+const userPreferences: Record<string, any> = {
   // When testing TS Plugin, it can be useful to look at tsserver logs within
   // the test runner VSCode instance. To do this, uncomment the following line,
   // and then check the logs for TypeScript
-  // "typescript.tsserver.log": "verbose",
+  // 'typescript.tsserver.log': 'verbose',
 };
 
-fs.writeFileSync(path.join(settingsDir, 'settings.json'), JSON.stringify(userPreferences, null, 2));
-
 const testType = process.argv[2];
 
 let disableExtensionArgs: string[] = [];
@@ -34,6 +32,8 @@ switch (testType) {
   case 'ts-plugin':
     testRunner = 'lib/__tests__/support/vscode-runner-ts-plugin.js';
 
+    userPreferences['glint.server.hybridMode'] = true;
+
     // Note: here, we WANT vanilla TS to be enabled since we're testing the TS Plugin.
     break;
   default:
@@ -41,6 +41,8 @@ switch (testType) {
     process.exit(1);
 }
 
+fs.writeFileSync(path.join(settingsDir, 'settings.json'), JSON.stringify(userPreferences, null, 2));
+
 try {
   runTests({
     extensionDevelopmentPath: packageRoot,
@@ -60,6 +62,7 @@ try {
       `${packageRoot}/__fixtures__/ember-app`,
       `${packageRoot}/__fixtures__/template-imports-app`,
       `${packageRoot}/__fixtures__/template-imports-app-ts-plugin`,
+      `${packageRoot}/__fixtures__/ember-app-loose-and-gts`,
     ],
   });
 } catch (error) {
diff --git a/packages/vscode/__tests__/ts-plugin-tests/smoketest-ember-app-loose-and-gts.test.ts b/packages/vscode/__tests__/ts-plugin-tests/smoketest-ember-app-loose-and-gts.test.ts
new file mode 100644
index 000000000..b16659662
--- /dev/null
+++ b/packages/vscode/__tests__/ts-plugin-tests/smoketest-ember-app-loose-and-gts.test.ts
@@ -0,0 +1,105 @@
+import {
+  commands,
+  languages,
+  ViewColumn,
+  window,
+  Uri,
+  Range,
+  Position,
+  CodeAction,
+  workspace,
+  TextEditor,
+} from 'vscode';
+import * as path from 'path';
+import { describe, afterEach, test } from 'mocha';
+import { expect } from 'expect';
+import { waitUntil } from '../helpers/async';
+
+describe('Smoke test: Loose Mode + GTS with TS Plugin Mode', () => {
+  const rootDir = path.resolve(__dirname, '../../../__fixtures__/ember-app-loose-and-gts');
+
+  afterEach(async () => {
+    while (window.activeTextEditor) {
+      await commands.executeCommand('workbench.action.files.revert');
+      await commands.executeCommand('workbench.action.closeActiveEditor');
+    }
+  });
+
+  describe.only('loose mode aka ts + hbs two-file components', () => {
+    describe('diagnostics', () => {
+      test('adds missing args from template into Args type', async () => {
+        let scriptURI = Uri.file(`${rootDir}/app/components/colocated-layout-with-errors.hbs`);
+
+        // Open the script and the template
+        let scriptEditor = await window.showTextDocument(scriptURI, { viewColumn: ViewColumn.One });
+
+        // Wait for a diagnostic to appear in the template
+        await waitUntil(() => languages.getDiagnostics(scriptURI).length);
+
+        expect(languages.getDiagnostics(scriptURI)).toMatchObject([
+          {
+            message:
+              "Property 'messageeee' does not exist on type 'ColocatedLayoutComponent'. Did you mean 'message'?",
+            source: 'ts-plugin',
+            code: 2551,
+          },
+        ]);
+      });
+    });
+  });
+});
+
+/**
+ * It takes a little while for the TS Plugin to fully activate, and unfortunately
+ * VSCode won't automatically re-trigger/re-calculate diagnostics for a file after
+ * a TS Plugin kicks in, so we need some way to know that the TS Plugin is activated
+ * before we edit the file.
+ *
+ * To accomplish this, this function inserts invalid TS into the .gts file and waits
+ * for diagnostics to show up.
+ */
+async function hackishlyWaitForTypescriptPluginToActivate(
+  scriptEditor: TextEditor,
+  scriptURI: Uri,
+): Promise<void> {
+  let invalidAssignment = 'let s: string = 123;';
+  await scriptEditor.edit((edit) => {
+    edit.insert(new Position(0, 0), invalidAssignment);
+  });
+
+  let numSpacesAdded = 0;
+  const startTime = Date.now();
+
+  // eslint-disable-next-line no-constant-condition
+  while (true) {
+    await scriptEditor.edit((edit) => {
+      edit.insert(new Position(0, 0), ' ');
+    });
+    numSpacesAdded++;
+
+    if (languages.getDiagnostics(scriptURI).length) {
+      break;
+    }
+
+    if (Date.now() - startTime > 5000) {
+      throw new Error(
+        'Timed out waiting for TS Plugin to activate (i.e. waiting for diagnostics to show up)',
+      );
+    }
+
+    // We'd love to wait for a smaller increment than 1000 but the editor
+    // debounces before triggering diagnostics so we need a large enough time.
+    await new Promise((resolve) => setTimeout(resolve, 1000));
+  }
+
+  // Remove our invalid assignment
+  await scriptEditor.edit((edit) => {
+    edit.replace(new Range(0, 0, 0, invalidAssignment.length + numSpacesAdded), '');
+  });
+
+  await new Promise((resolve) => setTimeout(resolve, 1000));
+
+  if (languages.getDiagnostics(scriptURI).length) {
+    throw new Error('Diagnostics still showing up after removing invalid assignment');
+  }
+}