diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index 5af10d2b76808..1a34d1674238d 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -27534,7 +27534,7 @@ namespace ts {
                 const inferenceContext = getInferenceContext(node);
                 // If no inferences have been made, nothing is gained from instantiating as type parameters
                 // would just be replaced with their defaults similar to the apparent type.
-                if (inferenceContext && contextFlags! & ContextFlags.Signature && some(inferenceContext.inferences, hasInferenceCandidates)) {
+                if (inferenceContext && contextFlags! & ContextFlags.Signature && (contextualType.flags & TypeFlags.Conditional || some(inferenceContext.inferences, hasInferenceCandidates))) {
                     // For contextual signatures we incorporate all inferences made so far, e.g. from return
                     // types as well as arguments to the left in a function call.
                     return instantiateInstantiableTypes(contextualType, inferenceContext.nonFixingMapper);
diff --git a/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.js b/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.js
new file mode 100644
index 0000000000000..de0c0d47f592e
--- /dev/null
+++ b/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.js
@@ -0,0 +1,32 @@
+//// [contextualSignatureConditionalTypeInstantiationUsingDefault.ts]
+export interface TypegenDisabled {
+  "@@xstate/typegen": false;
+}
+export interface TypegenEnabled {
+  "@@xstate/typegen": true;
+}
+
+type ActionFunction<TEvent extends { type: string }> = (event: TEvent) => void;
+
+declare function createMachine<
+  TTypesMeta extends TypegenEnabled | TypegenDisabled = TypegenDisabled
+>(
+  config: {
+    types?: TTypesMeta;
+  },
+  implementations: TTypesMeta extends TypegenEnabled
+    ? ActionFunction<{ type: "test" }>
+    : ActionFunction<{ type: string }>
+): void;
+
+createMachine({}, (ev) => {
+  ev.type; // should be `string`
+});
+
+
+//// [contextualSignatureConditionalTypeInstantiationUsingDefault.js]
+"use strict";
+exports.__esModule = true;
+createMachine({}, function (ev) {
+    ev.type; // should be `string`
+});
diff --git a/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.symbols b/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.symbols
new file mode 100644
index 0000000000000..5cc100655002e
--- /dev/null
+++ b/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.symbols
@@ -0,0 +1,65 @@
+=== tests/cases/compiler/contextualSignatureConditionalTypeInstantiationUsingDefault.ts ===
+export interface TypegenDisabled {
+>TypegenDisabled : Symbol(TypegenDisabled, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 0, 0))
+
+  "@@xstate/typegen": false;
+>"@@xstate/typegen" : Symbol(TypegenDisabled["@@xstate/typegen"], Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 0, 34))
+}
+export interface TypegenEnabled {
+>TypegenEnabled : Symbol(TypegenEnabled, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 2, 1))
+
+  "@@xstate/typegen": true;
+>"@@xstate/typegen" : Symbol(TypegenEnabled["@@xstate/typegen"], Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 3, 33))
+}
+
+type ActionFunction<TEvent extends { type: string }> = (event: TEvent) => void;
+>ActionFunction : Symbol(ActionFunction, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 5, 1))
+>TEvent : Symbol(TEvent, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 7, 20))
+>type : Symbol(type, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 7, 36))
+>event : Symbol(event, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 7, 56))
+>TEvent : Symbol(TEvent, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 7, 20))
+
+declare function createMachine<
+>createMachine : Symbol(createMachine, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 7, 79))
+
+  TTypesMeta extends TypegenEnabled | TypegenDisabled = TypegenDisabled
+>TTypesMeta : Symbol(TTypesMeta, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 9, 31))
+>TypegenEnabled : Symbol(TypegenEnabled, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 2, 1))
+>TypegenDisabled : Symbol(TypegenDisabled, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 0, 0))
+>TypegenDisabled : Symbol(TypegenDisabled, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 0, 0))
+
+>(
+  config: {
+>config : Symbol(config, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 11, 2))
+
+    types?: TTypesMeta;
+>types : Symbol(types, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 12, 11))
+>TTypesMeta : Symbol(TTypesMeta, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 9, 31))
+
+  },
+  implementations: TTypesMeta extends TypegenEnabled
+>implementations : Symbol(implementations, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 14, 4))
+>TTypesMeta : Symbol(TTypesMeta, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 9, 31))
+>TypegenEnabled : Symbol(TypegenEnabled, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 2, 1))
+
+    ? ActionFunction<{ type: "test" }>
+>ActionFunction : Symbol(ActionFunction, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 5, 1))
+>type : Symbol(type, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 16, 22))
+
+    : ActionFunction<{ type: string }>
+>ActionFunction : Symbol(ActionFunction, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 5, 1))
+>type : Symbol(type, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 17, 22))
+
+): void;
+
+createMachine({}, (ev) => {
+>createMachine : Symbol(createMachine, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 7, 79))
+>ev : Symbol(ev, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 20, 19))
+
+  ev.type; // should be `string`
+>ev.type : Symbol(type, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 17, 22))
+>ev : Symbol(ev, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 20, 19))
+>type : Symbol(type, Decl(contextualSignatureConditionalTypeInstantiationUsingDefault.ts, 17, 22))
+
+});
+
diff --git a/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.types b/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.types
new file mode 100644
index 0000000000000..10f45ff22ee09
--- /dev/null
+++ b/tests/baselines/reference/contextualSignatureConditionalTypeInstantiationUsingDefault.types
@@ -0,0 +1,54 @@
+=== tests/cases/compiler/contextualSignatureConditionalTypeInstantiationUsingDefault.ts ===
+export interface TypegenDisabled {
+  "@@xstate/typegen": false;
+>"@@xstate/typegen" : false
+>false : false
+}
+export interface TypegenEnabled {
+  "@@xstate/typegen": true;
+>"@@xstate/typegen" : true
+>true : true
+}
+
+type ActionFunction<TEvent extends { type: string }> = (event: TEvent) => void;
+>ActionFunction : ActionFunction<TEvent>
+>type : string
+>event : TEvent
+
+declare function createMachine<
+>createMachine : <TTypesMeta extends TypegenDisabled | TypegenEnabled = TypegenDisabled>(config: {    types?: TTypesMeta;}, implementations: TTypesMeta extends TypegenEnabled ? ActionFunction<{    type: "test";}> : ActionFunction<{    type: string;}>) => void
+
+  TTypesMeta extends TypegenEnabled | TypegenDisabled = TypegenDisabled
+>(
+  config: {
+>config : { types?: TTypesMeta | undefined; }
+
+    types?: TTypesMeta;
+>types : TTypesMeta | undefined
+
+  },
+  implementations: TTypesMeta extends TypegenEnabled
+>implementations : TTypesMeta extends TypegenEnabled ? ActionFunction<{ type: "test"; }> : ActionFunction<{ type: string; }>
+
+    ? ActionFunction<{ type: "test" }>
+>type : "test"
+
+    : ActionFunction<{ type: string }>
+>type : string
+
+): void;
+
+createMachine({}, (ev) => {
+>createMachine({}, (ev) => {  ev.type; // should be `string`}) : void
+>createMachine : <TTypesMeta extends TypegenDisabled | TypegenEnabled = TypegenDisabled>(config: { types?: TTypesMeta | undefined; }, implementations: TTypesMeta extends TypegenEnabled ? ActionFunction<{ type: "test"; }> : ActionFunction<{ type: string; }>) => void
+>{} : {}
+>(ev) => {  ev.type; // should be `string`} : (ev: { type: string; }) => void
+>ev : { type: string; }
+
+  ev.type; // should be `string`
+>ev.type : string
+>ev : { type: string; }
+>type : string
+
+});
+
diff --git a/tests/cases/compiler/contextualSignatureConditionalTypeInstantiationUsingDefault.ts b/tests/cases/compiler/contextualSignatureConditionalTypeInstantiationUsingDefault.ts
new file mode 100644
index 0000000000000..ece9ac80f125f
--- /dev/null
+++ b/tests/cases/compiler/contextualSignatureConditionalTypeInstantiationUsingDefault.ts
@@ -0,0 +1,25 @@
+// @strict: true
+
+export interface TypegenDisabled {
+  "@@xstate/typegen": false;
+}
+export interface TypegenEnabled {
+  "@@xstate/typegen": true;
+}
+
+type ActionFunction<TEvent extends { type: string }> = (event: TEvent) => void;
+
+declare function createMachine<
+  TTypesMeta extends TypegenEnabled | TypegenDisabled = TypegenDisabled
+>(
+  config: {
+    types?: TTypesMeta;
+  },
+  implementations: TTypesMeta extends TypegenEnabled
+    ? ActionFunction<{ type: "test" }>
+    : ActionFunction<{ type: string }>
+): void;
+
+createMachine({}, (ev) => {
+  ev.type; // should be `string`
+});