diff --git a/packages/vue-query/src/__tests__/queryOptions.test-d.ts b/packages/vue-query/src/__tests__/queryOptions.test-d.ts
index 8ee93aadcab..c40d606e862 100644
--- a/packages/vue-query/src/__tests__/queryOptions.test-d.ts
+++ b/packages/vue-query/src/__tests__/queryOptions.test-d.ts
@@ -122,4 +122,92 @@ describe('queryOptions', () => {
     expectTypeOf(data).toEqualTypeOf<Promise<void>>()
     expectTypeOf(data2).toEqualTypeOf<Promise<number>>()
   })
+
+  it('TData should always be defined when initialData is provided as a function which ALWAYS returns the data', () => {
+    const { data } = reactive(
+      useQuery(
+        queryOptions({
+          queryKey: ['key'],
+          queryFn: () => {
+            return {
+              wow: true,
+            }
+          },
+          initialData: () => ({
+            wow: true,
+          }),
+        }),
+      ),
+    )
+
+    expectTypeOf(data).toEqualTypeOf<{ wow: boolean }>()
+  })
+
+  it('TData should have undefined in the union when initialData is NOT provided', () => {
+    const { data } = reactive(
+      useQuery(
+        queryOptions({
+          queryKey: ['key'],
+          queryFn: () => {
+            return {
+              wow: true,
+            }
+          },
+        }),
+      ),
+    )
+
+    expectTypeOf(data).toEqualTypeOf<{ wow: boolean } | undefined>()
+  })
+
+  it('TData should have undefined in the union when initialData is provided as a function which can return undefined', () => {
+    const { data } = reactive(
+      useQuery(
+        queryOptions({
+          queryKey: ['key'],
+          queryFn: () => {
+            return {
+              wow: true,
+            }
+          },
+          initialData: () => undefined as { wow: boolean } | undefined,
+        }),
+      ),
+    )
+
+    expectTypeOf(data).toEqualTypeOf<{ wow: boolean } | undefined>()
+  })
+
+  it('TData should be narrowed after an isSuccess check when initialData is provided as a function which can return undefined', () => {
+    const { data, isSuccess } = reactive(
+      useQuery(
+        queryOptions({
+          queryKey: ['key'],
+          queryFn: () => {
+            return {
+              wow: true,
+            }
+          },
+          initialData: () => undefined as { wow: boolean } | undefined,
+        }),
+      ),
+    )
+
+    if (isSuccess) {
+      expectTypeOf(data).toEqualTypeOf<{ wow: boolean }>()
+    }
+  })
+
+  it('data should not have undefined when initialData is provided', () => {
+    const { data } = reactive(
+      useQuery(
+        queryOptions({
+          queryKey: ['query-key'],
+          initialData: 42,
+        }),
+      ),
+    )
+
+    expectTypeOf(data).toEqualTypeOf<number>()
+  })
 })
diff --git a/packages/vue-query/src/__tests__/useQuery.test-d.ts b/packages/vue-query/src/__tests__/useQuery.test-d.ts
index a02ee4b638c..3185a88957b 100644
--- a/packages/vue-query/src/__tests__/useQuery.test-d.ts
+++ b/packages/vue-query/src/__tests__/useQuery.test-d.ts
@@ -125,6 +125,17 @@ describe('useQuery', () => {
         expectTypeOf(data).toEqualTypeOf<{ wow: boolean }>()
       }
     })
+
+    it('data should not have undefined when initialData is provided', () => {
+      const { data } = reactive(
+        useQuery({
+          queryKey: ['query-key'],
+          initialData: 42,
+        }),
+      )
+
+      expectTypeOf(data).toEqualTypeOf<number>()
+    })
   })
 
   describe('custom composable', () => {
diff --git a/packages/vue-query/src/queryOptions.ts b/packages/vue-query/src/queryOptions.ts
index 558756c44f7..4681080f8ca 100644
--- a/packages/vue-query/src/queryOptions.ts
+++ b/packages/vue-query/src/queryOptions.ts
@@ -10,8 +10,8 @@ export function queryOptions<
   TData = TQueryFnData,
   TQueryKey extends QueryKey = QueryKey,
 >(
-  options: UndefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey>,
-): UndefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey> & {
+  options: DefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey>,
+): DefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey> & {
   queryKey: DataTag<TQueryKey, TQueryFnData, TError>
 }
 
@@ -21,8 +21,8 @@ export function queryOptions<
   TData = TQueryFnData,
   TQueryKey extends QueryKey = QueryKey,
 >(
-  options: DefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey>,
-): DefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey> & {
+  options: UndefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey>,
+): UndefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey> & {
   queryKey: DataTag<TQueryKey, TQueryFnData, TError>
 }
 
diff --git a/packages/vue-query/src/useQuery.ts b/packages/vue-query/src/useQuery.ts
index 9ac47bd9531..fd60dee2ee5 100644
--- a/packages/vue-query/src/useQuery.ts
+++ b/packages/vue-query/src/useQuery.ts
@@ -3,6 +3,7 @@ import { useBaseQuery } from './useBaseQuery'
 import type {
   DefaultError,
   DefinedQueryObserverResult,
+  InitialDataFunction,
   QueryKey,
   QueryObserverOptions,
 } from '@tanstack/query-core'
@@ -64,7 +65,10 @@ export type UndefinedInitialQueryOptions<
   TData = TQueryFnData,
   TQueryKey extends QueryKey = QueryKey,
 > = UseQueryOptions<TQueryFnData, TError, TData, TQueryFnData, TQueryKey> & {
-  initialData?: undefined | (() => undefined)
+  initialData?:
+    | undefined
+    | InitialDataFunction<NonUndefinedGuard<TQueryFnData>>
+    | NonUndefinedGuard<TQueryFnData>
 }
 
 export type DefinedInitialQueryOptions<
@@ -95,9 +99,9 @@ export function useQuery<
   TData = TQueryFnData,
   TQueryKey extends QueryKey = QueryKey,
 >(
-  options: UndefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey>,
+  options: DefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey>,
   queryClient?: QueryClient,
-): UseQueryReturnType<TData, TError>
+): UseQueryDefinedReturnType<TData, TError>
 
 export function useQuery<
   TQueryFnData = unknown,
@@ -105,9 +109,9 @@ export function useQuery<
   TData = TQueryFnData,
   TQueryKey extends QueryKey = QueryKey,
 >(
-  options: DefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey>,
+  options: UndefinedInitialQueryOptions<TQueryFnData, TError, TData, TQueryKey>,
   queryClient?: QueryClient,
-): UseQueryDefinedReturnType<TData, TError>
+): UseQueryReturnType<TData, TError>
 
 export function useQuery<
   TQueryFnData = unknown,