diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.cpp
index e4507227b5..d7de634c11 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.cpp
@@ -303,6 +303,45 @@ namespace AzToolsFramework
             return true;
         }
 
+        bool PrefabLoader::SaveTemplateToFile(TemplateId templateId, AZ::IO::PathView absolutePath)
+        {
+            AZ_Assert(absolutePath.IsAbsolute(), "SaveTemplateToFile requires an absolute path for saving the initial prefab file.");
+
+            const auto& domAndFilepath = StoreTemplateIntoFileFormat(templateId);
+            if (!domAndFilepath)
+            {
+                return false;
+            }
+
+            // Verify that the absolute path provided to this matches the relative path saved in the template.
+            // Otherwise, the saved prefab won't be able to be loaded.
+            auto relativePath = GenerateRelativePath(absolutePath);
+            if (relativePath != domAndFilepath->second)
+            {
+                AZ_Error(
+                    "Prefab", false,
+                    "PrefabLoader::SaveTemplateToFile - "
+                    "Failed to save template '%s' to location '%.*s'."
+                    "Error: Relative path '%.*s' for location didn't match template name.",
+                    domAndFilepath->second.c_str(), AZ_STRING_ARG(absolutePath.Native()), AZ_STRING_ARG(relativePath.Native()));
+                return false;
+            }
+
+            auto outcome = AzFramework::FileFunc::WriteJsonFile(domAndFilepath->first, absolutePath);
+            if (!outcome.IsSuccess())
+            {
+                AZ_Error(
+                    "Prefab", false,
+                    "PrefabLoader::SaveTemplateToFile - "
+                    "Failed to save template '%s' to location '%.*s'."
+                    "Error: %s",
+                    domAndFilepath->second.c_str(), AZ_STRING_ARG(absolutePath.Native()), outcome.GetError().c_str());
+                return false;
+            }
+            m_prefabSystemComponentInterface->SetTemplateDirtyFlag(templateId, false);
+            return true;
+        }
+
         bool PrefabLoader::SaveTemplateToString(TemplateId templateId, AZStd::string& output)
         {
             const auto& domAndFilepath = StoreTemplateIntoFileFormat(templateId);
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.h
index aed24e153e..3722e14a97 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.h
@@ -72,6 +72,16 @@ namespace AzToolsFramework
              */
             bool SaveTemplate(TemplateId templateId) override;
 
+            /**
+             * Saves a Prefab Template to the provided absolute source path, which needs to match the relative path in the template.
+             * Converts Prefab Template form into .prefab form by collapsing nested Template info
+             * into a source path and patches.
+             * @param templateId Id of the template to be saved
+             * @param absolutePath Absolute path to save the file to
+             * @return bool on whether the operation succeeded or not
+             */
+            bool SaveTemplateToFile(TemplateId templateId, AZ::IO::PathView absolutePath) override;
+
             /**
              * Saves a Prefab Template into the provided output string.
              * Converts Prefab Template form into .prefab form by collapsing nested Template info
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoaderInterface.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoaderInterface.h
index d71fbff80f..0e551cee6b 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoaderInterface.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoaderInterface.h
@@ -60,6 +60,16 @@ namespace AzToolsFramework
             */
             virtual bool SaveTemplate(TemplateId templateId) = 0;
 
+            /**
+             * Saves a Prefab Template to the provided absolute source path, which needs to match the relative path in the template.
+             * Converts Prefab Template form into .prefab form by collapsing nested Template info
+             * into a source path and patches.
+             * @param templateId Id of the template to be saved
+             * @param absolutePath Absolute path to save the file to
+             * @return bool on whether the operation succeeded or not
+             */
+            virtual bool SaveTemplateToFile(TemplateId templateId, AZ::IO::PathView absolutePath) = 0;
+
             /**
             * Saves a Prefab Template into the provided output string.
             * Converts Prefab Template form into .prefab form by collapsing nested Template info
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
index 9dd5199ea2..fadcc1b81f 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
@@ -64,7 +64,7 @@ namespace AzToolsFramework
             m_prefabUndoCache.Destroy();
         }
 
-        PrefabOperationResult PrefabPublicHandler::CreatePrefab(const AZStd::vector<AZ::EntityId>& entityIds, AZ::IO::PathView filePath)
+        PrefabOperationResult PrefabPublicHandler::CreatePrefab(const AZStd::vector<AZ::EntityId>& entityIds, AZ::IO::PathView absolutePath)
         {
             EntityList inputEntityList, topLevelEntities;
             AZ::EntityId commonRootEntityId;
@@ -76,6 +76,8 @@ namespace AzToolsFramework
                 return findCommonRootOutcome;
             }
 
+            AZ_Assert(absolutePath.IsAbsolute(), "CreatePrefab requires an absolute path for saving the initial prefab file.");
+
             InstanceOptionalReference instanceToCreate;
             {
                 // Initialize Undo Batch object
@@ -144,7 +146,8 @@ namespace AzToolsFramework
 
                 // Create the Prefab
                 instanceToCreate = prefabEditorEntityOwnershipInterface->CreatePrefab(
-                    entities, AZStd::move(instancePtrs), filePath, commonRootEntityOwningInstance);
+                    entities, AZStd::move(instancePtrs), m_prefabLoaderInterface->GenerateRelativePath(absolutePath),
+                    commonRootEntityOwningInstance);
 
                 if (!instanceToCreate)
                 {
@@ -254,7 +257,7 @@ namespace AzToolsFramework
             }
 
             // Save Template to file
-            m_prefabLoaderInterface->SaveTemplate(instanceToCreate->get().GetTemplateId());
+            m_prefabLoaderInterface->SaveTemplateToFile(instanceToCreate->get().GetTemplateId(), absolutePath);
             
             return AZ::Success();
         }
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.h
index 7e2357dd44..e68a3e0b1e 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.h
@@ -46,7 +46,7 @@ namespace AzToolsFramework
             void UnregisterPrefabPublicHandlerInterface();
 
             // PrefabPublicInterface...
-            PrefabOperationResult CreatePrefab(const AZStd::vector<AZ::EntityId>& entityIds, AZ::IO::PathView filePath) override;
+            PrefabOperationResult CreatePrefab(const AZStd::vector<AZ::EntityId>& entityIds, AZ::IO::PathView absolutePath) override;
             PrefabOperationResult InstantiatePrefab(AZStd::string_view filePath, AZ::EntityId parent, const AZ::Vector3& position) override;
             PrefabOperationResult SavePrefab(AZ::IO::Path filePath) override;
             PrefabEntityResult CreateEntity(AZ::EntityId parentId, const AZ::Vector3& position) override;
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicInterface.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicInterface.h
index 0750c4d264..2e9152fd1b 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicInterface.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicInterface.h
@@ -46,10 +46,10 @@ namespace AzToolsFramework
              * Create a prefab out of the entities provided, at the path provided.
              * Automatically detects descendants of entities, and discerns between entities and child instances.
              * @param entityIds The entities that should form the new prefab (along with their descendants).
-             * @param filePath The path for the new prefab file.
+             * @param filePath The absolute path for the new prefab file.
              * @return An outcome object; on failure, it comes with an error message detailing the cause of the error.
              */
-            virtual PrefabOperationResult CreatePrefab(const AZStd::vector<AZ::EntityId>& entityIds, AZ::IO::PathView filePath) = 0;
+            virtual PrefabOperationResult CreatePrefab(const AZStd::vector<AZ::EntityId>& entityIds, AZ::IO::PathView absolutePath) = 0;
 
             /**
              * Instantiate a prefab from a prefab file.
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/UI/Prefab/PrefabIntegrationManager.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/UI/Prefab/PrefabIntegrationManager.cpp
index 61d4433c0e..021b97a7dd 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/UI/Prefab/PrefabIntegrationManager.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/UI/Prefab/PrefabIntegrationManager.cpp
@@ -333,8 +333,7 @@ namespace AzToolsFramework
                 }
             }
 
-            auto createPrefabOutcome = s_prefabPublicInterface->CreatePrefab(
-                selectedEntities, s_prefabLoaderInterface->GenerateRelativePath(prefabFilePath.data()));
+            auto createPrefabOutcome = s_prefabPublicInterface->CreatePrefab(selectedEntities, prefabFilePath.data());
 
             if (!createPrefabOutcome.IsSuccess())
             {