diff --git a/Gems/Atom/Feature/Common/Code/Include/Atom/Feature/Decals/DecalFeatureProcessorInterface.h b/Gems/Atom/Feature/Common/Code/Include/Atom/Feature/Decals/DecalFeatureProcessorInterface.h
index 214feb2040..2ec7b535d0 100644
--- a/Gems/Atom/Feature/Common/Code/Include/Atom/Feature/Decals/DecalFeatureProcessorInterface.h
+++ b/Gems/Atom/Feature/Common/Code/Include/Atom/Feature/Decals/DecalFeatureProcessorInterface.h
@@ -88,7 +88,8 @@ namespace AZ
 
             //! Sets the transform of the decal
             //! Equivalent to calling SetDecalPosition() + SetDecalOrientation() + SetDecalHalfSize()
-            virtual void SetDecalTransform(DecalHandle handle, const AZ::Transform& world) = 0;
+            virtual void SetDecalTransform(DecalHandle handle, const AZ::Transform& world,
+                const AZ::Vector3& nonUniformScale = AZ::Vector3::CreateOne()) = 0;
 
             //! Sets the material information for this decal
             virtual void SetDecalMaterial(DecalHandle handle, const AZ::Data::AssetId) = 0;
diff --git a/Gems/Atom/Feature/Common/Code/Source/Decals/DecalFeatureProcessor.cpp b/Gems/Atom/Feature/Common/Code/Source/Decals/DecalFeatureProcessor.cpp
index 7abc6698fa..b4ce2e6cc9 100644
--- a/Gems/Atom/Feature/Common/Code/Source/Decals/DecalFeatureProcessor.cpp
+++ b/Gems/Atom/Feature/Common/Code/Source/Decals/DecalFeatureProcessor.cpp
@@ -262,7 +262,7 @@ namespace AZ
             }
         }
 
-        void DecalFeatureProcessor::SetDecalTransform(DecalHandle handle, const AZ::Transform& world)
+        void DecalFeatureProcessor::SetDecalTransform(DecalHandle handle, const AZ::Transform& world, const AZ::Vector3& nonUniformScale)
         {
             // https://jira.agscollab.com/browse/ATOM-4330
             // Original Open 3D Engine uploads a 4x4 matrix rather than quaternion, rotation, scale.
@@ -274,7 +274,7 @@ namespace AZ
             if (handle.IsValid())
             {
                 Quaternion orientation = world.GetRotation();
-                Vector3 scale = world.GetScale();
+                Vector3 scale = world.GetScale() * nonUniformScale;
 
                 SetDecalHalfSize(handle, scale);
                 SetDecalPosition(handle, world.GetTranslation());
diff --git a/Gems/Atom/Feature/Common/Code/Source/Decals/DecalFeatureProcessor.h b/Gems/Atom/Feature/Common/Code/Source/Decals/DecalFeatureProcessor.h
index 9c4acf6322..5a37a5cf11 100644
--- a/Gems/Atom/Feature/Common/Code/Source/Decals/DecalFeatureProcessor.h
+++ b/Gems/Atom/Feature/Common/Code/Source/Decals/DecalFeatureProcessor.h
@@ -73,7 +73,8 @@ namespace AZ
 
             //! Sets the transform of the decal
             //! Equivalent to calling SetDecalPosition() + SetDecalOrientation() + SetDecalHalfSize()
-            void SetDecalTransform(DecalHandle handle, const AZ::Transform& world) override;
+            void SetDecalTransform(DecalHandle handle, const AZ::Transform& world,
+                const AZ::Vector3& nonUniformScale = AZ::Vector3::CreateOne()) override;
 
             //! Sets the material information for this decal
             void SetDecalMaterial(DecalHandle handle, const AZ::Data::AssetId) override;
diff --git a/Gems/Atom/Feature/Common/Code/Source/Decals/DecalTextureArrayFeatureProcessor.cpp b/Gems/Atom/Feature/Common/Code/Source/Decals/DecalTextureArrayFeatureProcessor.cpp
index 9d1ea4e680..1f1bcc21b2 100644
--- a/Gems/Atom/Feature/Common/Code/Source/Decals/DecalTextureArrayFeatureProcessor.cpp
+++ b/Gems/Atom/Feature/Common/Code/Source/Decals/DecalTextureArrayFeatureProcessor.cpp
@@ -269,11 +269,12 @@ namespace AZ
             }
         }
 
-        void DecalTextureArrayFeatureProcessor::SetDecalTransform(DecalHandle handle, const AZ::Transform& world)
+        void DecalTextureArrayFeatureProcessor::SetDecalTransform(DecalHandle handle, const AZ::Transform& world,
+            const AZ::Vector3& nonUniformScale)
         {
             if (handle.IsValid())
             {
-                SetDecalHalfSize(handle, world.GetScale());
+                SetDecalHalfSize(handle, nonUniformScale * world.GetScale());
                 SetDecalPosition(handle, world.GetTranslation());
                 SetDecalOrientation(handle, world.GetRotation());
 
diff --git a/Gems/Atom/Feature/Common/Code/Source/Decals/DecalTextureArrayFeatureProcessor.h b/Gems/Atom/Feature/Common/Code/Source/Decals/DecalTextureArrayFeatureProcessor.h
index 7ab073c7f9..50d51fbe7f 100644
--- a/Gems/Atom/Feature/Common/Code/Source/Decals/DecalTextureArrayFeatureProcessor.h
+++ b/Gems/Atom/Feature/Common/Code/Source/Decals/DecalTextureArrayFeatureProcessor.h
@@ -82,7 +82,8 @@ namespace AZ
 
             //! Sets the transform of the decal
             //! Equivalent to calling SetDecalPosition() + SetDecalOrientation() + SetDecalHalfSize()
-            void SetDecalTransform(const DecalHandle handle, const AZ::Transform& world) override;
+            void SetDecalTransform(const DecalHandle handle, const AZ::Transform& world,
+                const AZ::Vector3& nonUniformScale = AZ::Vector3::CreateOne()) override;
 
             //! Sets the material information for this decal
             void SetDecalMaterial(const DecalHandle handle, const AZ::Data::AssetId id) override;
diff --git a/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Decals/DecalComponentController.cpp b/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Decals/DecalComponentController.cpp
index 22a7e1c6c0..3c748e352e 100644
--- a/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Decals/DecalComponentController.cpp
+++ b/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Decals/DecalComponentController.cpp
@@ -75,6 +75,12 @@ namespace AZ
             incompatible.push_back(AZ_CRC_CE("DecalService"));
         }
 
+        void DecalComponentController::GetDependentServices(AZ::ComponentDescriptor::DependencyArrayType& dependent)
+        {
+            dependent.push_back(AZ_CRC_CE("TransformService"));
+            dependent.push_back(AZ_CRC_CE("NonUniformScaleService"));
+        }
+
         DecalComponentController::DecalComponentController(const DecalComponentConfig& config)
             : m_configuration(config)
         {
@@ -90,6 +96,11 @@ namespace AZ
                 m_handle = m_featureProcessor->AcquireDecal();
             }
 
+            m_cachedNonUniformScale = AZ::Vector3::CreateOne();
+            AZ::NonUniformScaleRequestBus::EventResult(m_cachedNonUniformScale, m_entityId, &AZ::NonUniformScaleRequests::GetScale);
+            AZ::NonUniformScaleRequestBus::Event(m_entityId, &AZ::NonUniformScaleRequests::RegisterScaleChangedEvent,
+                m_nonUniformScaleChangedHandler);
+
             AZ::Transform local, world;
             AZ::TransformBus::Event(entityId, &AZ::TransformBus::Events::GetLocalAndWorld, local, world);
             OnTransformChanged(local, world);
@@ -103,6 +114,7 @@ namespace AZ
         {
             DecalRequestBus::Handler::BusDisconnect(m_entityId);
             TransformNotificationBus::Handler::BusDisconnect(m_entityId);
+            m_nonUniformScaleChangedHandler.Disconnect();
             if (m_featureProcessor)
             {
                 m_featureProcessor->ReleaseDecal(m_handle);
@@ -125,7 +137,18 @@ namespace AZ
         {
             if (m_featureProcessor)
             {
-                m_featureProcessor->SetDecalTransform(m_handle, world);
+                m_featureProcessor->SetDecalTransform(m_handle, world, m_cachedNonUniformScale);
+            }
+        }
+
+        void DecalComponentController::HandleNonUniformScaleChange(const AZ::Vector3& nonUniformScale)
+        {
+            m_cachedNonUniformScale = nonUniformScale;
+            if (m_featureProcessor)
+            {
+                AZ::Transform world = AZ::Transform::CreateIdentity();
+                AZ::TransformBus::EventResult(world, m_entityId, &AZ::TransformBus::Events::GetWorldTM);
+                m_featureProcessor->SetDecalTransform(m_handle, world, nonUniformScale);
             }
         }
 
diff --git a/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Decals/DecalComponentController.h b/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Decals/DecalComponentController.h
index dc6b6e70ea..14204c43dc 100644
--- a/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Decals/DecalComponentController.h
+++ b/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Decals/DecalComponentController.h
@@ -14,6 +14,7 @@
 
 #include <AzCore/Component/Component.h>
 #include <AzCore/Component/TransformBus.h>
+#include <AzCore/Component/NonUniformScaleBus.h>
 #include <AtomLyIntegration/CommonFeatures/Decals/DecalBus.h>
 #include <AtomLyIntegration/CommonFeatures/Decals/DecalComponentConfig.h>
 #include <Atom/Feature/Decals/DecalFeatureProcessorInterface.h>
@@ -33,6 +34,7 @@ namespace AZ
             static void Reflect(AZ::ReflectContext* context);
             static void GetProvidedServices(AZ::ComponentDescriptor::DependencyArrayType& provided);
             static void GetIncompatibleServices(AZ::ComponentDescriptor::DependencyArrayType& incompatible);
+            static void GetDependentServices(AZ::ComponentDescriptor::DependencyArrayType& dependent);
 
             DecalComponentController() = default;
             DecalComponentController(const DecalComponentConfig& config);
@@ -64,11 +66,18 @@ namespace AZ
             void OpacityChanged();
             void SortKeyChanged();
             void MaterialChanged();
+            void HandleNonUniformScaleChange(const AZ::Vector3& nonUniformScale);
 
             DecalComponentConfig m_configuration;
             DecalFeatureProcessorInterface* m_featureProcessor = nullptr;
             DecalFeatureProcessorInterface::DecalHandle m_handle;
             EntityId m_entityId;
+            AZ::Vector3 m_cachedNonUniformScale = AZ::Vector3::CreateOne();
+
+            AZ::NonUniformScaleChangedEvent::Handler m_nonUniformScaleChangedHandler
+            {
+                [&](const AZ::Vector3& nonUniformScale) { HandleNonUniformScaleChange(nonUniformScale); }
+            };
         };
     } // namespace Render
 } // AZ namespace