diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
index 475510c52f..d4485f8e99 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
@@ -182,6 +182,22 @@ namespace AzToolsFramework
                 instanceToParentUnder = prefabEditorEntityOwnershipInterface->GetRootPrefabInstance();
                 parent = instanceToParentUnder->get().GetContainerEntityId();
             }
+
+            //Detect whether this instantiation would produce a cyclical dependency
+            auto relativePath = m_prefabLoaderInterface->GetRelativePathToProject(filePath);
+            Prefab::TemplateId templateId = m_prefabSystemComponentInterface->GetTemplateIdFromFilePath(relativePath);
+
+            // If the template isn't currently loaded, there's no way for it to be in the hierarchy so we just skip the check.
+            if (templateId != Prefab::InvalidTemplateId && IsPrefabInInstanceAncestorHierarchy(templateId, instanceToParentUnder->get()))
+            {
+                return AZ::Failure(
+                    AZStd::string::format(
+                        "Instantiate Prefab operation aborted - Cyclical dependency detected\n(%s depends on %s).",
+                        relativePath.Native().c_str(),
+                        instanceToParentUnder->get().GetTemplateSourcePath().Native().c_str()
+                    )
+                );
+            }
             
             {
                 // Initialize Undo Batch object
@@ -192,7 +208,7 @@ namespace AzToolsFramework
                     instanceToParentUnderDomBeforeCreate, instanceToParentUnder->get());
 
                 // Instantiate the Prefab
-                auto instanceToCreate = prefabEditorEntityOwnershipInterface->InstantiatePrefab(filePath, instanceToParentUnder);
+                auto instanceToCreate = prefabEditorEntityOwnershipInterface->InstantiatePrefab(relativePath, instanceToParentUnder);
 
                 if (!instanceToCreate)
                 {
@@ -242,6 +258,23 @@ namespace AzToolsFramework
             return AZ::Success();
         }
 
+        bool PrefabPublicHandler::IsPrefabInInstanceAncestorHierarchy(TemplateId prefabTemplateId, InstanceOptionalConstReference instance)
+        {
+            InstanceOptionalConstReference currentInstance = instance;
+
+            while (currentInstance.has_value())
+            {
+                if (currentInstance->get().GetTemplateId() == prefabTemplateId)
+                {
+                    return true;
+                }
+
+                currentInstance = currentInstance->get().GetParentInstance();
+            }
+
+            return false;
+        }
+
         void PrefabPublicHandler::CreateLink(
             const EntityList& topLevelEntities, Instance& sourceInstance, TemplateId targetTemplateId,
             UndoSystem::URSequencePoint* undoBatch, AZ::EntityId commonRootEntityId)
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.h
index 5ade666a40..03b3827328 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.h
@@ -106,6 +106,14 @@ namespace AzToolsFramework
                 const AZStd::vector<AZ::EntityId>& entityIds, EntityList& inputEntityList, EntityList& topLevelEntities,
                 AZ::EntityId& commonRootEntityId, InstanceOptionalReference& commonRootEntityOwningInstance);
 
+            /* Detects whether an instance of prefabTemplateId is present in the hierarchy of ancestors of instance.
+             *
+             * \param prefabTemplateId The template id to test for
+             * \param instance The instance whose ancestor hierarchy prefabTemplateId will be tested against.
+             * \return true if an instance of the template of id prefabTemplateId could be found in the ancestor hierarchy of instance, false otherwise.
+             */
+            bool IsPrefabInInstanceAncestorHierarchy(TemplateId prefabTemplateId, InstanceOptionalConstReference instance);
+
             static Instance* GetParentInstance(Instance* instance);
             static Instance* GetAncestorOfInstanceThatIsChildOfRoot(const Instance* ancestor, Instance* descendant);
             static void GenerateContainerEntityTransform(const EntityList& topLevelEntities, AZ::Vector3& translation, AZ::Quaternion& rotation);
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
index 4413586e77..3910e80f75 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
@@ -721,6 +721,8 @@ namespace AzToolsFramework
 
         TemplateId PrefabSystemComponent::GetTemplateIdFromFilePath(AZ::IO::PathView filePath) const
         {
+            AZ_Assert(!filePath.IsAbsolute(), "Prefab - GetTemplateIdFromFilePath was passed an absolute path. Prefabs use paths relative to the project folder.");
+
             auto found = m_templateFilePathToIdMap.find(filePath);
             if (found != m_templateFilePathToIdMap.end())
             {