diff --git a/src/Umbraco.Web.UI.Client/src/packages/templating/templates/workspace/template-workspace-editor.element.ts b/src/Umbraco.Web.UI.Client/src/packages/templating/templates/workspace/template-workspace-editor.element.ts
index a81f4c0f54f4..a40e9c4b06a8 100644
--- a/src/Umbraco.Web.UI.Client/src/packages/templating/templates/workspace/template-workspace-editor.element.ts
+++ b/src/Umbraco.Web.UI.Client/src/packages/templating/templates/workspace/template-workspace-editor.element.ts
@@ -102,7 +102,7 @@ export class UmbTemplateWorkspaceEditorElement extends UmbLitElement {
 	}
 
 	#resetMasterTemplate() {
-		this.#templateWorkspaceContext?.setMasterTemplate(null);
+		this.#templateWorkspaceContext?.setMasterTemplate(null, true);
 	}
 
 	#openMasterTemplatePicker() {
@@ -121,7 +121,7 @@ export class UmbTemplateWorkspaceEditorElement extends UmbLitElement {
 			?.onSubmit()
 			.then((value) => {
 				if (!value?.selection) return;
-				this.#templateWorkspaceContext?.setMasterTemplate(value.selection[0] ?? null);
+				this.#templateWorkspaceContext?.setMasterTemplate(value.selection[0] ?? null, true);
 			})
 			.catch(() => undefined);
 	}
diff --git a/src/Umbraco.Web.UI.Client/src/packages/templating/templates/workspace/template-workspace.context.ts b/src/Umbraco.Web.UI.Client/src/packages/templating/templates/workspace/template-workspace.context.ts
index 35ff79bb43d8..0ea8f97d8cdd 100644
--- a/src/Umbraco.Web.UI.Client/src/packages/templating/templates/workspace/template-workspace.context.ts
+++ b/src/Umbraco.Web.UI.Client/src/packages/templating/templates/workspace/template-workspace.context.ts
@@ -67,7 +67,15 @@ export class UmbTemplateWorkspaceContext
 
 	override async load(unique: string) {
 		const response = await super.load(unique);
-		await this.setMasterTemplate(response.data?.masterTemplate?.unique ?? null);
+
+		// On load we want to set the master template details but not update the layout block in the Razor file.
+		// This is because you can still set a layout in code by setting `Layout = "_Layout.cshtml";` in the template file.
+		// This gets set automatically if you create a template under a parent, but you don't have to do that, you can
+		// just set  the `Layout` property in the Razor template file itself.
+		// So even if there's no master template set by there being a parent, there may still be one set in the Razor
+		// code, and we shouldn't overwrite it.
+		await this.setMasterTemplate(response.data?.masterTemplate?.unique ?? null, false);
+
 		return response;
 	}
 
@@ -79,9 +87,9 @@ export class UmbTemplateWorkspaceContext
 			},
 		});
 
-		// Set or reset the master template
-		// This is important to reset when a new template is created so the UI reflects the correct state
-		await this.setMasterTemplate(parent.unique);
+		// On create set or reset the master template depending on whether the template is being created under a parent.
+		// This is important to reset when a new template is created so the UI reflects the correct state.
+		await this.setMasterTemplate(parent.unique, true);
 
 		return data;
 	}
@@ -102,7 +110,7 @@ export class UmbTemplateWorkspaceContext
 		return this.getData()?.content ? this.getLayoutBlockRegexPattern().test(this.getData()?.content as string) : false;
 	}
 
-	async setMasterTemplate(unique: string | null) {
+	async setMasterTemplate(unique: string | null, updateLayoutBlock: boolean) {
 		if (unique === null) {
 			this.#masterTemplate.setValue(null);
 		} else {
@@ -113,7 +121,10 @@ export class UmbTemplateWorkspaceContext
 			}
 		}
 
-		this.#updateMasterTemplateLayoutBlock();
+		if (updateLayoutBlock) {
+			this.#updateMasterTemplateLayoutBlock();
+		}
+
 		this._data.updateCurrent({ masterTemplate: unique ? { unique } : null });
 
 		return unique;