diff --git a/.changes/v1.12/BUG FIXES-20250604-131240.yaml b/.changes/v1.12/BUG FIXES-20250604-131240.yaml
new file mode 100644
index 0000000000..8c8cf6b428
--- /dev/null
+++ b/.changes/v1.12/BUG FIXES-20250604-131240.yaml	
@@ -0,0 +1,5 @@
+kind: BUG FIXES
+body: partial ephemeral values were rejected in ephemeral outputs
+time: 2025-06-04T13:12:40.440242-04:00
+custom:
+    Issue: "37210"
diff --git a/internal/terraform/context_plan_ephemeral_test.go b/internal/terraform/context_plan_ephemeral_test.go
index dd234e0fef..7793b1b6d1 100644
--- a/internal/terraform/context_plan_ephemeral_test.go
+++ b/internal/terraform/context_plan_ephemeral_test.go
@@ -678,6 +678,47 @@ resource "ephem_write_only" "test" {
 				},
 			},
 		},
+
+		"ad-hoc-ephemeral-output": {
+			module: map[string]string{
+				"child/main.tf": `
+output "value" {
+    value = {
+        applying = terraform.applying
+        static = "test"
+    }
+
+	// It's valid to assign any partially ephemeral value, the output will always be
+	// entirely ephemeral.
+    ephemeral = true
+}
+`,
+				"main.tf": `
+module "child" {
+    source = "./child"
+}
+
+output "root" {
+    // We expect a diagnostic here indicating that this value is ephemeral. This
+    // ensures that the module output was valid and the ephemeral marks were
+    // correctly re-applied during evaluation.
+    value = module.child.value
+}
+`,
+			},
+			expectPlanDiagnostics: func(m *configs.Config) (diags tfdiags.Diagnostics) {
+				return diags.Append(&hcl.Diagnostic{
+					Severity: hcl.DiagError,
+					Summary:  "Ephemeral value not allowed",
+					Detail:   "This output value is not declared as returning an ephemeral value, so it cannot be set to a result derived from an ephemeral value.",
+					Subject: &hcl.Range{
+						Filename: filepath.Join(m.Module.SourceDir, "main.tf"),
+						Start:    hcl.Pos{Line: 10, Column: 13, Byte: 277},
+						End:      hcl.Pos{Line: 10, Column: 31, Byte: 295},
+					},
+				})
+			},
+		},
 	} {
 		t.Run(name, func(t *testing.T) {
 			m := testModuleInline(t, tc.module)
diff --git a/internal/terraform/node_output.go b/internal/terraform/node_output.go
index 46121f15c6..93f28d16c3 100644
--- a/internal/terraform/node_output.go
+++ b/internal/terraform/node_output.go
@@ -493,18 +493,7 @@ If you do intend to export this data, annotate the output value as sensitive by
 	// "flagWarnOutputErrors", because they relate to features that were added
 	// more recently than the historical change to treat invalid output values
 	// as errors rather than warnings.
-	if n.Config.Ephemeral && !marks.Has(val, marks.Ephemeral) {
-		// An ephemeral output value must always be ephemeral
-		// This is to prevent accidental persistence upstream
-		// from here.
-		diags = diags.Append(&hcl.Diagnostic{
-			Severity: hcl.DiagError,
-			Summary:  "Value not allowed in ephemeral output",
-			Detail:   "This output value is declared as returning an ephemeral value, so it can only be set to an ephemeral value.",
-			Subject:  n.Config.Expr.Range().Ptr(),
-		})
-		return diags
-	} else if !n.Config.Ephemeral && marks.Contains(val, marks.Ephemeral) {
+	if !n.Config.Ephemeral && marks.Contains(val, marks.Ephemeral) {
 		diags = diags.Append(&hcl.Diagnostic{
 			Severity: hcl.DiagError,
 			Summary:  "Ephemeral value not allowed",