diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
index 418d176daa..4a1198fdfe 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
@@ -349,8 +349,12 @@ namespace AzToolsFramework
             instanceToParentUnder = *m_rootInstance;
         }
 
-        AZStd::unique_ptr<Prefab::Instance> instantiatedPrefabInstance =
-            m_prefabSystemComponent->InstantiatePrefab(filePath, instanceToParentUnder);
+        AZStd::unique_ptr<Prefab::Instance> instantiatedPrefabInstance = m_prefabSystemComponent->InstantiatePrefab(
+            filePath, instanceToParentUnder,
+            [this](const EntityList& entities)
+            {
+                HandleEntitiesAdded(entities);
+            });
 
         if (instantiatedPrefabInstance)
         {
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
index 9936e466c3..98e0144f22 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
@@ -277,7 +277,7 @@ namespace AzToolsFramework
         }
 
         AZStd::unique_ptr<Instance> PrefabSystemComponent::InstantiatePrefab(
-            AZ::IO::PathView filePath, InstanceOptionalReference parent)
+            AZ::IO::PathView filePath, InstanceOptionalReference parent, const InstantiatedEntitiesCallback& instantiatedEntitiesCallback)
         {
             // Retrieve the template id for the source prefab filepath
             Prefab::TemplateId templateId = GetTemplateIdFromFilePath(filePath);
@@ -297,11 +297,11 @@ namespace AzToolsFramework
                 return nullptr;
             }
 
-            return InstantiatePrefab(templateId, parent);
+            return InstantiatePrefab(templateId, parent, instantiatedEntitiesCallback);
         }
 
         AZStd::unique_ptr<Instance> PrefabSystemComponent::InstantiatePrefab(
-            TemplateId templateId, InstanceOptionalReference parent)
+            TemplateId templateId, InstanceOptionalReference parent, const InstantiatedEntitiesCallback& instantiatedEntitiesCallback)
         {
             TemplateReference instantiatingTemplate = FindTemplate(templateId);
 
@@ -324,8 +324,10 @@ namespace AzToolsFramework
                 return nullptr;
             }
 
-            AzToolsFramework::EditorEntityContextRequestBus::Broadcast(
-                &AzToolsFramework::EditorEntityContextRequests::HandleEntitiesAdded, newEntities);
+            if (instantiatedEntitiesCallback)
+            {
+                instantiatedEntitiesCallback(newEntities);
+            }
 
             return newInstance;
         }
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.h
index d71065f8fc..b547e9bdd2 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.h
@@ -124,19 +124,25 @@ namespace AzToolsFramework
             * Generates a new Prefab Instance based on the Template whose source is stored in filepath.
             * @param filePath The path to the prefab source file containing the template being instantiated.
             * @param parent Reference of the target instance the instantiated instance will be placed under.
+            * @param instantiatedEntitiesCallback An optional callback that can be used to modify the instantiated entities.
             * @return A unique_ptr to the newly instantiated instance. Null if operation failed.
             */
             AZStd::unique_ptr<Instance> InstantiatePrefab(
-                AZ::IO::PathView filePath, InstanceOptionalReference parent = AZStd::nullopt) override;
+                AZ::IO::PathView filePath,
+                InstanceOptionalReference parent = AZStd::nullopt,
+                const InstantiatedEntitiesCallback& instantiatedEntitiesCallback = {}) override;
 
             /**
             * Generates a new Prefab Instance based on the Template referenced by templateId.
             * @param templateId The id of the template being instantiated.
             * @param parent Reference of the target instance the instantiated instance will be placed under.
+            * @param instantiatedEntitiesCallback An optional callback that can be used to modify the instantiated entities.
             * @return A unique_ptr to the newly instantiated instance. Null if operation failed.
             */
             AZStd::unique_ptr<Instance> InstantiatePrefab(
-                TemplateId templateId, InstanceOptionalReference parent = AZStd::nullopt) override;
+                TemplateId templateId,
+                InstanceOptionalReference parent = AZStd::nullopt,
+                const InstantiatedEntitiesCallback& instantiatedEntitiesCallback = {}) override;
 
             /**
             * Add a new Link into Prefab System Component and create a unique id for it.
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponentInterface.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponentInterface.h
index ce75930cb6..d39e868ef4 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponentInterface.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponentInterface.h
@@ -27,6 +27,9 @@ namespace AzToolsFramework
         class PrefabSystemComponentInterface
         {
         public:
+
+            using InstantiatedEntitiesCallback = AZStd::function<void(AZStd::vector<AZ::Entity*>&)>;
+
             AZ_RTTI(PrefabSystemComponentInterface, "{8E95A029-67F9-4F74-895F-DDBFE29516A0}");
 
             virtual TemplateReference FindTemplate(TemplateId id) = 0;
@@ -70,9 +73,13 @@ namespace AzToolsFramework
             virtual void PropagateTemplateChanges(TemplateId templateId, InstanceOptionalConstReference instanceToExclude = AZStd::nullopt) = 0;
 
             virtual AZStd::unique_ptr<Instance> InstantiatePrefab(
-                AZ::IO::PathView filePath, InstanceOptionalReference parent = AZStd::nullopt) = 0;
+                AZ::IO::PathView filePath,
+                InstanceOptionalReference parent = AZStd::nullopt,
+                const InstantiatedEntitiesCallback& instantiatedEntitiesCallback = {}) = 0;
             virtual AZStd::unique_ptr<Instance> InstantiatePrefab(
-                TemplateId templateId, InstanceOptionalReference parent = AZStd::nullopt) = 0;
+                TemplateId templateId,
+                InstanceOptionalReference parent = AZStd::nullopt,
+                const InstantiatedEntitiesCallback& instantiatedEntitiesCallback = {}) = 0;
             virtual AZStd::unique_ptr<Instance> CreatePrefab(const AZStd::vector<AZ::Entity*>& entities,
                 AZStd::vector<AZStd::unique_ptr<Instance>>&& instancesToConsume, AZ::IO::PathView filePath,
                 AZStd::unique_ptr<AZ::Entity> containerEntity = nullptr, InstanceOptionalReference parent = AZStd::nullopt,
diff --git a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoLinkTests.cpp b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoLinkTests.cpp
index 8fafe1f177..442894c101 100644
--- a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoLinkTests.cpp
+++ b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoLinkTests.cpp
@@ -170,7 +170,14 @@ namespace UnitTest
         m_instanceUpdateExecutorInterface->UpdateTemplateInstancesInQueue();
 
         //instantiate a new nested instance
-        nestedInstance = m_prefabSystemComponent->InstantiatePrefab(nestedTemplateId);
+        nestedInstance = m_prefabSystemComponent->InstantiatePrefab(
+            nestedTemplateId, AZStd::nullopt,
+            [](const AzToolsFramework::EntityList& entities)
+            {
+                AzToolsFramework::EditorEntityContextRequestBus::Broadcast(
+                    &AzToolsFramework::EditorEntityContextRequests::HandleEntitiesAdded, entities);
+            });
+
         nestedContainerEntityId = nestedInstance->GetContainerEntityId();
         AZ::ComponentApplicationBus::BroadcastResult(nestedContainerEntity, &AZ::ComponentApplicationBus::Events::FindEntity, nestedContainerEntityId);
         ASSERT_TRUE(nestedContainerEntity);
@@ -198,7 +205,13 @@ namespace UnitTest
 
         LinkId linkId = undoInstanceLinkNode.GetLinkId();
 
-        rootInstance = m_prefabSystemComponent->InstantiatePrefab(rootTemplateId);
+        rootInstance = m_prefabSystemComponent->InstantiatePrefab(
+            rootTemplateId, AZStd::nullopt,
+            [](const AzToolsFramework::EntityList& entities)
+            {
+                AzToolsFramework::EditorEntityContextRequestBus::Broadcast(
+                    &AzToolsFramework::EditorEntityContextRequests::HandleEntitiesAdded, entities);
+            });
         aliases = rootInstance->GetNestedInstanceAliases(nestedTemplateId);
 
         //verify the link was created
@@ -228,7 +241,13 @@ namespace UnitTest
         m_instanceUpdateExecutorInterface->UpdateTemplateInstancesInQueue();
 
         //verify the update worked
-        rootInstance = m_prefabSystemComponent->InstantiatePrefab(rootTemplateId);
+        rootInstance = m_prefabSystemComponent->InstantiatePrefab(
+            rootTemplateId, AZStd::nullopt,
+            [](const AzToolsFramework::EntityList& entities)
+            {
+                AzToolsFramework::EditorEntityContextRequestBus::Broadcast(
+                    &AzToolsFramework::EditorEntityContextRequests::HandleEntitiesAdded, entities);
+            });
         aliases = rootInstance->GetNestedInstanceAliases(nestedTemplateId);
         nestedInstanceRef = rootInstance->FindNestedInstance(aliases[0]);
         nestedContainerEntityId = nestedInstanceRef->get().GetContainerEntityId();
@@ -244,7 +263,13 @@ namespace UnitTest
         m_instanceUpdateExecutorInterface->UpdateTemplateInstancesInQueue();
 
         //verify the undo update worked
-        rootInstance = m_prefabSystemComponent->InstantiatePrefab(rootTemplateId);
+        rootInstance = m_prefabSystemComponent->InstantiatePrefab(
+            rootTemplateId, AZStd::nullopt,
+            [](const AzToolsFramework::EntityList& entities)
+            {
+                AzToolsFramework::EditorEntityContextRequestBus::Broadcast(
+                    &AzToolsFramework::EditorEntityContextRequests::HandleEntitiesAdded, entities);
+            });
         aliases = rootInstance->GetNestedInstanceAliases(nestedTemplateId);
         nestedInstanceRef = rootInstance->FindNestedInstance(aliases[0]);
         nestedContainerEntityId = nestedInstanceRef->get().GetContainerEntityId();
@@ -259,7 +284,13 @@ namespace UnitTest
         undoLinkUpdateNode.Redo();
         m_instanceUpdateExecutorInterface->UpdateTemplateInstancesInQueue();
 
-        rootInstance = m_prefabSystemComponent->InstantiatePrefab(rootTemplateId);
+        rootInstance = m_prefabSystemComponent->InstantiatePrefab(
+            rootTemplateId, AZStd::nullopt,
+            [](const AzToolsFramework::EntityList& entities)
+            {
+                AzToolsFramework::EditorEntityContextRequestBus::Broadcast(
+                    &AzToolsFramework::EditorEntityContextRequests::HandleEntitiesAdded, entities);
+            });
         aliases = rootInstance->GetNestedInstanceAliases(nestedTemplateId);
         nestedInstanceRef = rootInstance->FindNestedInstance(aliases[0]);
         nestedContainerEntityId = nestedInstanceRef->get().GetContainerEntityId();
@@ -287,7 +318,13 @@ namespace UnitTest
         m_instanceUpdateExecutorInterface->UpdateTemplateInstancesInQueue();
 
         //verify the update worked
-        rootInstance = m_prefabSystemComponent->InstantiatePrefab(rootTemplateId);
+        rootInstance = m_prefabSystemComponent->InstantiatePrefab(
+            rootTemplateId, AZStd::nullopt,
+            [](const AzToolsFramework::EntityList& entities)
+            {
+                AzToolsFramework::EditorEntityContextRequestBus::Broadcast(
+                    &AzToolsFramework::EditorEntityContextRequests::HandleEntitiesAdded, entities);
+            });
         aliases = rootInstance->GetNestedInstanceAliases(nestedTemplateId);
         nestedInstanceRef = rootInstance->FindNestedInstance(aliases[0]);
         nestedContainerEntityId = nestedInstanceRef->get().GetContainerEntityId();
diff --git a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoTests.cpp b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoTests.cpp
index 5c68b30e8f..cfba41696c 100644
--- a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoTests.cpp
+++ b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoTests.cpp
@@ -79,7 +79,14 @@ namespace UnitTest
 
         // verify template updated correctly
         //instantiate second instance for checking if propogation works
-        AZStd::unique_ptr<Instance> secondInstance = m_prefabSystemComponent->InstantiatePrefab(templateId);
+        AZStd::unique_ptr<Instance> secondInstance = m_prefabSystemComponent->InstantiatePrefab(
+            templateId, AZStd::nullopt,
+            [](const AzToolsFramework::EntityList& entities)
+            {
+                AzToolsFramework::EditorEntityContextRequestBus::Broadcast(
+                    &AzToolsFramework::EditorEntityContextRequests::HandleEntitiesAdded, entities);
+            });
+
         ASSERT_TRUE(secondInstance);
 
         ValidateInstanceEntitiesActive(*secondInstance);