diff --git a/Gems/Multiplayer/Code/Include/Multiplayer/Components/NetworkTransformComponent.h b/Gems/Multiplayer/Code/Include/Multiplayer/Components/NetworkTransformComponent.h
index 35bf6e9f50..b0370e9027 100644
--- a/Gems/Multiplayer/Code/Include/Multiplayer/Components/NetworkTransformComponent.h
+++ b/Gems/Multiplayer/Code/Include/Multiplayer/Components/NetworkTransformComponent.h
@@ -50,7 +50,7 @@ namespace Multiplayer
         void OnDeactivate(Multiplayer::EntityIsMigrating entityIsMigrating) override;
 
     private:
-        void OnTransformChangedEvent(const AZ::Transform& worldTm);
+        void OnTransformChangedEvent(const AZ::Transform& localTm, const AZ::Transform& worldTm);
         void OnParentIdChangedEvent(AZ::EntityId oldParent, AZ::EntityId newParent);
 
         AZ::TransformChangedEvent::Handler m_transformChangedHandler;
diff --git a/Gems/Multiplayer/Code/Source/Components/NetworkTransformComponent.cpp b/Gems/Multiplayer/Code/Source/Components/NetworkTransformComponent.cpp
index d284f100ff..bd1e1bf0d9 100644
--- a/Gems/Multiplayer/Code/Source/Components/NetworkTransformComponent.cpp
+++ b/Gems/Multiplayer/Code/Source/Components/NetworkTransformComponent.cpp
@@ -14,7 +14,7 @@
 
 namespace Multiplayer
 {
-    void NetworkTransformComponent::NetworkTransformComponent::Reflect(AZ::ReflectContext* context)
+    void NetworkTransformComponent::Reflect(AZ::ReflectContext* context)
     {
         AZ::SerializeContext* serializeContext = azrtti_cast<AZ::SerializeContext*>(context);
         if (serializeContext)
@@ -43,6 +43,11 @@ namespace Multiplayer
         GetNetBindComponent()->AddEntityPreRenderEventHandler(m_entityPreRenderEventHandler);
         GetNetBindComponent()->AddEntityCorrectionEventHandler(m_entityCorrectionEventHandler);
         ParentEntityIdAddEvent(m_parentChangedEventHandler);
+
+        if (!HasController())
+        {
+            OnParentChanged(GetParentEntityId());
+        }
     }
 
     void NetworkTransformComponent::OnDeactivate([[maybe_unused]] Multiplayer::EntityIsMigrating entityIsMigrating)
@@ -77,9 +82,20 @@ namespace Multiplayer
                 }
             }
 
-            if (!GetTransformComponent()->GetWorldTM().IsClose(blendTransform))
+            AzFramework::TransformComponent* transformComponent = GetTransformComponent();
+            if (GetParentEntityId() == InvalidNetEntityId)
             {
-                GetTransformComponent()->SetWorldTM(blendTransform);
+                if (!transformComponent->GetWorldTM().IsClose(blendTransform))
+                {
+                    transformComponent->SetWorldTM(blendTransform);
+                }
+            }
+            else
+            {
+                if (!transformComponent->GetLocalTM().IsClose(blendTransform))
+                {
+                    transformComponent->SetLocalTM(blendTransform);
+                }
             }
         }
     }
@@ -93,31 +109,45 @@ namespace Multiplayer
         targetTransform.SetUniformScale(GetScale());
 
         // Hard set the entities transform
-        if (!GetTransformComponent()->GetWorldTM().IsClose(targetTransform))
+        AzFramework::TransformComponent* transformComponent = GetTransformComponent();
+        if (GetParentEntityId() == InvalidNetEntityId)
         {
-            GetTransformComponent()->SetWorldTM(targetTransform);
+            if (!transformComponent->GetWorldTM().IsClose(targetTransform))
+            {
+                transformComponent->SetWorldTM(targetTransform);
+            }
+        }
+        else
+        {
+            if (!transformComponent->GetLocalTM().IsClose(targetTransform))
+            {
+                transformComponent->SetLocalTM(targetTransform);
+            }
         }
     }
 
     void NetworkTransformComponent::OnParentChanged(NetEntityId parentId)
     {
-        const ConstNetworkEntityHandle parentEntityHandle = GetNetworkEntityManager()->GetEntity(parentId);
-        if (parentEntityHandle.Exists())
+        if (AZ::TransformInterface* transformComponent = GetEntity()->GetTransform())
         {
-            if (const AZ::Entity* parentEntity = parentEntityHandle.GetEntity())
+            const ConstNetworkEntityHandle parentEntityHandle = GetNetworkEntityManager()->GetEntity(parentId);
+            if (parentEntityHandle.Exists())
             {
-                GetEntity()->GetTransform()->SetParent(parentEntity->GetId());
+                if (const AZ::Entity* parentEntity = parentEntityHandle.GetEntity())
+                {
+                    transformComponent->SetParent(parentEntity->GetId());
+                }
+            }
+            else
+            {
+                transformComponent->SetParent(AZ::EntityId());
             }
-        }
-        else
-        {
-            GetEntity()->GetTransform()->SetParent(AZ::EntityId());
         }
     }
 
     NetworkTransformComponentController::NetworkTransformComponentController(NetworkTransformComponent& parent)
         : NetworkTransformComponentControllerBase(parent)
-        , m_transformChangedHandler([this](const AZ::Transform&, const AZ::Transform& worldTm) { OnTransformChangedEvent(worldTm); })
+        , m_transformChangedHandler([this](const AZ::Transform& localTm, const AZ::Transform& worldTm) { OnTransformChangedEvent(localTm, worldTm); })
         , m_parentIdChangedHandler([this](AZ::EntityId oldParent, AZ::EntityId newParent) { OnParentIdChangedEvent(oldParent, newParent); })
     {
         ;
@@ -125,11 +155,14 @@ namespace Multiplayer
 
     void NetworkTransformComponentController::OnActivate([[maybe_unused]] Multiplayer::EntityIsMigrating entityIsMigrating)
     {
-        GetParent().GetTransformComponent()->BindTransformChangedEventHandler(m_transformChangedHandler);
-        OnTransformChangedEvent(GetParent().GetTransformComponent()->GetWorldTM());
+        if (AzFramework::TransformComponent* parentTransform = GetParent().GetTransformComponent())
+        {
+            parentTransform->BindTransformChangedEventHandler(m_transformChangedHandler);
+            OnTransformChangedEvent(parentTransform->GetLocalTM(), parentTransform->GetWorldTM());
 
-        GetParent().GetTransformComponent()->BindParentChangedEventHandler(m_parentIdChangedHandler);
-        OnParentIdChangedEvent(AZ::EntityId(), GetParent().GetTransformComponent()->GetParentId());
+            parentTransform->BindParentChangedEventHandler(m_parentIdChangedHandler);
+            OnParentIdChangedEvent(AZ::EntityId(), parentTransform->GetParentId());
+        }
     }
 
     void NetworkTransformComponentController::OnDeactivate([[maybe_unused]] Multiplayer::EntityIsMigrating entityIsMigrating)
@@ -137,11 +170,12 @@ namespace Multiplayer
         ;
     }
 
-    void NetworkTransformComponentController::OnTransformChangedEvent(const AZ::Transform& worldTm)
+    void NetworkTransformComponentController::OnTransformChangedEvent(const AZ::Transform& localTm, const AZ::Transform& worldTm)
     {
-        SetRotation(worldTm.GetRotation());
-        SetTranslation(worldTm.GetTranslation());
-        SetScale(worldTm.GetUniformScale());
+        const AZ::Transform& localOrWorld = GetParentEntityId() == InvalidNetEntityId ? worldTm : localTm;
+        SetRotation(localOrWorld.GetRotation());
+        SetTranslation(localOrWorld.GetTranslation());
+        SetScale(localOrWorld.GetUniformScale());
     }
 
     void NetworkTransformComponentController::OnParentIdChangedEvent([[maybe_unused]] AZ::EntityId oldParent, AZ::EntityId newParent)
@@ -150,7 +184,10 @@ namespace Multiplayer
         if (parentEntity)
         {
             const ConstNetworkEntityHandle parentHandle(parentEntity, GetNetworkEntityTracker());
-            SetParentEntityId(parentHandle.GetNetEntityId());
+            if (parentHandle.Exists())
+            {
+                SetParentEntityId(parentHandle.GetNetEntityId());
+            }
         }
     }
 }
diff --git a/Gems/Multiplayer/Code/Tests/CommonHierarchySetup.h b/Gems/Multiplayer/Code/Tests/CommonHierarchySetup.h
index 2deac1aa27..3a5409c7ed 100644
--- a/Gems/Multiplayer/Code/Tests/CommonHierarchySetup.h
+++ b/Gems/Multiplayer/Code/Tests/CommonHierarchySetup.h
@@ -11,6 +11,7 @@
 #include <MockInterfaces.h>
 #include <AzCore/Component/Entity.h>
 #include <AzCore/Console/Console.h>
+#include <AzCore/Math/Vector3.h>
 #include <AzCore/Name/Name.h>
 #include <AzCore/Name/NameDictionary.h>
 #include <AzCore/Serialization/SerializeContext.h>
@@ -248,17 +249,19 @@ namespace Multiplayer
 
         void SetupEntity(const AZStd::unique_ptr<AZ::Entity>& entity, NetEntityId netId, NetEntityRole role)
         {
-            const auto netBindComponent = entity->FindComponent<Multiplayer::NetBindComponent>();
-            EXPECT_NE(netBindComponent, nullptr);
-            netBindComponent->PreInit(entity.get(), PrefabEntityId{ AZ::Name("test"), 1 }, netId, role);
-            entity->Init();
+            if (const auto netBindComponent = entity->FindComponent<Multiplayer::NetBindComponent>())
+            {
+                netBindComponent->PreInit(entity.get(), PrefabEntityId{ AZ::Name("test"), 1 }, netId, role);
+                entity->Init();
+            }
         }
 
         static void StopEntity(const AZStd::unique_ptr<AZ::Entity>& entity)
         {
-            const auto netBindComponent = entity->FindComponent<Multiplayer::NetBindComponent>();
-            EXPECT_NE(netBindComponent, nullptr);
-            netBindComponent->StopEntity();
+            if (const auto netBindComponent = entity->FindComponent<Multiplayer::NetBindComponent>())
+            {
+                netBindComponent->StopEntity();
+            }
         }
 
         static void StopAndDeactivateEntity(AZStd::unique_ptr<AZ::Entity>& entity)
@@ -311,6 +314,29 @@ namespace Multiplayer
             entity->FindComponent<NetworkTransformComponent>()->NotifyStateDeltaChanges(notifyRecord);
         }
 
+        void SetTranslationOnNetworkTransform(const AZStd::unique_ptr<AZ::Entity>& entity, AZ::Vector3 translation)
+        {
+            /* Derived from NetworkTransformComponent.AutoComponent.xml */
+            constexpr int totalBits = 6 /*NetworkTransformComponentInternal::AuthorityToClientDirtyEnum::Count*/;
+            constexpr int translationBit = 1 /*NetworkTransformComponentInternal::AuthorityToClientDirtyEnum::translation_DirtyFlag*/;
+
+            ReplicationRecord currentRecord;
+            currentRecord.m_authorityToClient.AddBits(totalBits);
+            currentRecord.m_authorityToClient.SetBit(translationBit, true);
+
+            constexpr uint32_t bufferSize = 100;
+            AZStd::array<uint8_t, bufferSize> buffer = {};
+            NetworkInputSerializer inSerializer(buffer.begin(), bufferSize);
+            static_cast<ISerializer*>(&inSerializer)->Serialize(translation,
+                "translation" /* Derived from NetworkTransformComponent.AutoComponent.xml */);
+
+            NetworkOutputSerializer outSerializer(buffer.begin(), bufferSize);
+
+            ReplicationRecord notifyRecord = currentRecord;
+            entity->FindComponent<NetworkTransformComponent>()->SerializeStateDeltaMessage(currentRecord, outSerializer);
+            entity->FindComponent<NetworkTransformComponent>()->NotifyStateDeltaChanges(notifyRecord);
+        }
+
         template <typename Component>
         void SetHierarchyRootFieldOnNetworkHierarchyChild(const AZStd::unique_ptr<AZ::Entity>& entity, NetEntityId value)
         {
diff --git a/Gems/Multiplayer/Code/Tests/MultiplayerSystemTests.cpp b/Gems/Multiplayer/Code/Tests/MultiplayerSystemTests.cpp
index 2463a8e4cb..d6c3117d6f 100644
--- a/Gems/Multiplayer/Code/Tests/MultiplayerSystemTests.cpp
+++ b/Gems/Multiplayer/Code/Tests/MultiplayerSystemTests.cpp
@@ -95,8 +95,9 @@ namespace UnitTest
 
     TEST_F(MultiplayerSystemTests, TestConnectionDatum)
     {
-        IMultiplayerConnectionMock connMock1 = IMultiplayerConnectionMock(aznumeric_cast<AzNetworking::ConnectionId>(10), AzNetworking::IpAddress(), AzNetworking::ConnectionRole::Acceptor);
-        IMultiplayerConnectionMock connMock2 = IMultiplayerConnectionMock(aznumeric_cast<AzNetworking::ConnectionId>(15), AzNetworking::IpAddress(), AzNetworking::ConnectionRole::Acceptor);
+        using namespace testing;
+        NiceMock<IMultiplayerConnectionMock> connMock1(aznumeric_cast<AzNetworking::ConnectionId>(10), AzNetworking::IpAddress(), AzNetworking::ConnectionRole::Acceptor);
+        NiceMock<IMultiplayerConnectionMock> connMock2(aznumeric_cast<AzNetworking::ConnectionId>(15), AzNetworking::IpAddress(), AzNetworking::ConnectionRole::Acceptor);
         m_mpComponent->OnConnect(&connMock1);
         m_mpComponent->OnConnect(&connMock2);
 
diff --git a/Gems/Multiplayer/Code/Tests/NetworkTransformTests.cpp b/Gems/Multiplayer/Code/Tests/NetworkTransformTests.cpp
new file mode 100644
index 0000000000..94cb94e000
--- /dev/null
+++ b/Gems/Multiplayer/Code/Tests/NetworkTransformTests.cpp
@@ -0,0 +1,320 @@
+/*
+ * Copyright (c) Contributors to the Open 3D Engine Project. For complete copyright and license terms please see the LICENSE at the root of this distribution.
+ *
+ * SPDX-License-Identifier: Apache-2.0 OR MIT
+ *
+ */
+
+#include <CommonHierarchySetup.h>
+#include <MockInterfaces.h>
+#include <AzCore/Component/Entity.h>
+#include <AzCore/Console/Console.h>
+#include <AzCore/Name/Name.h>
+#include <AzCore/UnitTest/TestTypes.h>
+#include <AzCore/UnitTest/UnitTest.h>
+#include <AzFramework/Components/TransformComponent.h>
+#include <AzTest/AzTest.h>
+#include <Multiplayer/Components/NetBindComponent.h>
+#include <NetworkEntity/EntityReplication/EntityReplicator.h>
+
+namespace Multiplayer
+{
+    using namespace testing;
+    using namespace ::UnitTest;
+
+    /*
+     * (Networked) Parent -> (Networked) Child
+     */
+    class ServerNetTransformTests : public HierarchyTests
+    {
+    public:
+        void SetUp() override
+        {
+            HierarchyTests::SetUp();
+
+            m_root = AZStd::make_unique<EntityInfo>(1, "root", NetEntityId{ 1 }, EntityInfo::Role::Root);
+            m_child = AZStd::make_unique<EntityInfo>(2, "child", NetEntityId{ 2 }, EntityInfo::Role::Child);
+
+            CreateNetworkParentChild(*m_root, *m_child);
+
+            AZ::Transform rootTransform = AZ::Transform::CreateIdentity();
+            rootTransform.SetTranslation(AZ::Vector3::CreateOne());
+            m_root->m_entity->FindComponent<AzFramework::TransformComponent>()->SetWorldTM(rootTransform);
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->SetWorldTM(rootTransform);
+
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->SetParent(m_root->m_entity->GetId());
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->SetLocalTM(AZ::Transform::CreateIdentity());
+
+            AZ::EntityBus::Broadcast(&AZ::EntityBus::Events::OnEntityActivated, m_root->m_entity->GetId());
+
+            MultiplayerTick();
+        }
+
+        void TearDown() override
+        {
+            m_child.reset();
+            m_root.reset();
+
+            HierarchyTests::TearDown();
+        }
+
+        void PopulateNetworkEntity(const EntityInfo& entityInfo)
+        {
+            entityInfo.m_entity->CreateComponent<AzFramework::TransformComponent>();
+            entityInfo.m_entity->CreateComponent<NetBindComponent>();
+            entityInfo.m_entity->CreateComponent<NetworkTransformComponent>();
+        }
+
+        void CreateNetworkParentChild(EntityInfo& root, EntityInfo& child)
+        {
+            PopulateNetworkEntity(root);
+            SetupEntity(root.m_entity, root.m_netId, NetEntityRole::Authority);
+
+            PopulateNetworkEntity(child);
+            SetupEntity(child.m_entity, child.m_netId, NetEntityRole::Authority);
+
+            // Create an entity replicator for the child entity
+            const NetworkEntityHandle childHandle(child.m_entity.get(), m_networkEntityTracker.get());
+            child.m_replicator = AZStd::make_unique<EntityReplicator>(*m_entityReplicationManager, m_mockConnection.get(), NetEntityRole::Client, childHandle);
+            child.m_replicator->Initialize(childHandle);
+
+            // Create an entity replicator for the root entity
+            const NetworkEntityHandle rootHandle(root.m_entity.get(), m_networkEntityTracker.get());
+            root.m_replicator = AZStd::make_unique<EntityReplicator>(*m_entityReplicationManager, m_mockConnection.get(), NetEntityRole::Client, rootHandle);
+            root.m_replicator->Initialize(rootHandle);
+
+            root.m_entity->Activate();
+            child.m_entity->Activate();
+        }
+
+        AZStd::unique_ptr<EntityInfo> m_root;
+        AZStd::unique_ptr<EntityInfo> m_child;
+
+        void MultiplayerTick()
+        {
+            m_root->m_entity->FindComponent<NetBindComponent>()->NotifyPreRender(0.1f);
+            m_child->m_entity->FindComponent<NetBindComponent>()->NotifyPreRender(0.1f);
+        }
+    };
+
+    TEST_F(ServerNetTransformTests, SanityCheck)
+    {
+        EXPECT_EQ(
+            m_root->m_entity->FindComponent<AzFramework::TransformComponent>()->GetWorldTM().GetTranslation(),
+            AZ::Vector3::CreateOne()
+        );
+
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetWorldTM().GetTranslation(),
+            AZ::Vector3::CreateOne()
+        );
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetLocalTM().GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+    }
+
+    TEST_F(ServerNetTransformTests, NetTransformSavesLocalTransformWhenParentSet)
+    {
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<NetworkTransformComponent>()->GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+    }
+
+    TEST_F(ServerNetTransformTests, NetTransformSavesWorldTransformWhenParentIsNotSet)
+    {
+        m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->SetParent(AZ::EntityId());
+        MultiplayerTick();
+
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<NetworkTransformComponent>()->GetTranslation(),
+            AZ::Vector3::CreateOne() // back at the parent translation
+        );
+    }
+
+    TEST_F(ServerNetTransformTests, ParentMovesChildNetTransformDoesntChange)
+    {
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<NetworkTransformComponent>()->GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+
+        // move the parent
+        AZ::Transform rootTransform = AZ::Transform::CreateIdentity();
+        rootTransform.SetTranslation(AZ::Vector3::CreateOne() * 10.f);
+        m_root->m_entity->FindComponent<AzFramework::TransformComponent>()->SetWorldTM(rootTransform);
+
+        MultiplayerTick();
+
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetWorldTM().GetTranslation(),
+            AZ::Vector3::CreateOne() * 10.f
+        );
+        // child local tm doesn't change
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetLocalTM().GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<NetworkTransformComponent>()->GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+    }
+
+    /*
+     * (Networked) Parent -> (Networked) Child
+     */
+    class ClientNetTransformTests : public HierarchyTests
+    {
+    public:
+        void SetUp() override
+        {
+            HierarchyTests::SetUp();
+
+            m_root = AZStd::make_unique<EntityInfo>(1, "root", NetEntityId{ 1 }, EntityInfo::Role::Root);
+            m_child = AZStd::make_unique<EntityInfo>(2, "child", NetEntityId{ 2 }, EntityInfo::Role::Child);
+
+            CreateNetworkParentChild(*m_root, *m_child);
+        }
+
+        void TearDown() override
+        {
+            m_child.reset();
+            m_root.reset();
+
+            HierarchyTests::TearDown();
+        }
+
+        void PopulateNetworkEntity(const EntityInfo& entityInfo)
+        {
+            entityInfo.m_entity->CreateComponent<AzFramework::TransformComponent>();
+            entityInfo.m_entity->CreateComponent<NetBindComponent>();
+            entityInfo.m_entity->CreateComponent<NetworkTransformComponent>();
+        }
+
+        void CreateNetworkParentChild(EntityInfo& root, EntityInfo& child)
+        {
+            PopulateNetworkEntity(root);
+            SetupEntity(root.m_entity, root.m_netId, NetEntityRole::Client);
+
+            PopulateNetworkEntity(child);
+            SetupEntity(child.m_entity, child.m_netId, NetEntityRole::Client);
+
+            // Create an entity replicator for the child entity
+            const NetworkEntityHandle childHandle(child.m_entity.get(), m_networkEntityTracker.get());
+            child.m_replicator = AZStd::make_unique<EntityReplicator>(*m_entityReplicationManager, m_mockConnection.get(), NetEntityRole::Authority, childHandle);
+            child.m_replicator->Initialize(childHandle);
+
+            // Create an entity replicator for the root entity
+            const NetworkEntityHandle rootHandle(root.m_entity.get(), m_networkEntityTracker.get());
+            root.m_replicator = AZStd::make_unique<EntityReplicator>(*m_entityReplicationManager, m_mockConnection.get(), NetEntityRole::Authority, rootHandle);
+            root.m_replicator->Initialize(rootHandle);
+        }
+
+        AZStd::unique_ptr<EntityInfo> m_root;
+        AZStd::unique_ptr<EntityInfo> m_child;
+
+        void MultiplayerTick()
+        {
+            m_root->m_entity->FindComponent<NetBindComponent>()->NotifyPreRender(0.1f);
+            m_child->m_entity->FindComponent<NetBindComponent>()->NotifyPreRender(0.1f);
+        }
+    };
+
+    TEST_F(ClientNetTransformTests, ClientSetsLocalTmWhenParentIsSet)
+    {
+        m_root->m_entity->Activate();
+        m_child->m_entity->Activate();
+
+        SetTranslationOnNetworkTransform(m_root->m_entity, AZ::Vector3::CreateOne());
+
+        SetParentIdOnNetworkTransform(m_child->m_entity, NetEntityId{ 1 });
+        SetTranslationOnNetworkTransform(m_child->m_entity, AZ::Vector3::CreateZero());
+
+        AZ::EntityBus::Broadcast(&AZ::EntityBus::Events::OnEntityActivated, m_root->m_entity->GetId());
+
+        MultiplayerTick();
+
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetWorldTM().GetTranslation(),
+            AZ::Vector3::CreateOne()
+        );
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetLocalTM().GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+    }
+
+    TEST_F(ClientNetTransformTests, ClientSetsWorldTmWhenParentIsNotSet)
+    {
+        m_root->m_entity->Activate();
+        m_child->m_entity->Activate();
+
+        SetTranslationOnNetworkTransform(m_root->m_entity, AZ::Vector3::CreateOne());
+        SetTranslationOnNetworkTransform(m_child->m_entity, AZ::Vector3::CreateZero());
+
+        AZ::EntityBus::Broadcast(&AZ::EntityBus::Events::OnEntityActivated, m_root->m_entity->GetId());
+
+        MultiplayerTick();
+
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetWorldTM().GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetLocalTM().GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+    }
+
+    TEST_F(ClientNetTransformTests, ChildFollowsWhenParentMovesOnServer)
+    {
+        m_root->m_entity->Activate();
+        m_child->m_entity->Activate();
+
+        SetTranslationOnNetworkTransform(m_root->m_entity, AZ::Vector3::CreateOne());
+
+        SetParentIdOnNetworkTransform(m_child->m_entity, NetEntityId{ 1 });
+        SetTranslationOnNetworkTransform(m_child->m_entity, AZ::Vector3::CreateZero());
+
+        AZ::EntityBus::Broadcast(&AZ::EntityBus::Events::OnEntityActivated, m_root->m_entity->GetId());
+
+        MultiplayerTick();
+
+        // now parent moves
+        SetTranslationOnNetworkTransform(m_root->m_entity, AZ::Vector3::CreateOne() * 2.f);
+        MultiplayerTick();
+
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetWorldTM().GetTranslation(),
+            AZ::Vector3::CreateOne() * 2.f
+        );
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetLocalTM().GetTranslation(),
+            AZ::Vector3::CreateZero()
+        );
+    }
+
+    TEST_F(ClientNetTransformTests, ChildAttachesToParentIfParentIdIsSetBeforeActivation)
+    {
+        m_root->m_entity->Activate();
+
+        SetTranslationOnNetworkTransform(m_root->m_entity, AZ::Vector3::CreateOne());
+
+        SetParentIdOnNetworkTransform(m_child->m_entity, NetEntityId{ 1 });
+        SetTranslationOnNetworkTransform(m_child->m_entity, AZ::Vector3::CreateZero());
+
+        m_child->m_entity->Activate();
+
+        AZ::EntityBus::Broadcast(&AZ::EntityBus::Events::OnEntityActivated, m_root->m_entity->GetId());
+
+        MultiplayerTick();
+
+        EXPECT_EQ(
+            m_child->m_entity->FindComponent<AzFramework::TransformComponent>()->GetParentId(),
+            AZ::EntityId(1)
+        );
+    }
+}
diff --git a/Gems/Multiplayer/Code/multiplayer_tests_files.cmake b/Gems/Multiplayer/Code/multiplayer_tests_files.cmake
index 3f4fcc9efa..93fb807b66 100644
--- a/Gems/Multiplayer/Code/multiplayer_tests_files.cmake
+++ b/Gems/Multiplayer/Code/multiplayer_tests_files.cmake
@@ -7,13 +7,14 @@
 #
 
 set(FILES
-    Tests/Main.cpp
-    Tests/MockInterfaces.h
     Tests/ClientHierarchyTests.cpp
-    Tests/ServerHierarchyTests.cpp
     Tests/CommonHierarchySetup.h
     Tests/IMultiplayerConnectionMock.h
+    Tests/Main.cpp
+    Tests/MockInterfaces.h
     Tests/MultiplayerSystemTests.cpp
+    Tests/NetworkTransformTests.cpp
     Tests/RewindableContainerTests.cpp
     Tests/RewindableObjectTests.cpp
+    Tests/ServerHierarchyTests.cpp
 )