diff --git a/doc/classes/CPUParticles2D.xml b/doc/classes/CPUParticles2D.xml
index 8111fa4d3cd..0a0fbbd2fac 100644
--- a/doc/classes/CPUParticles2D.xml
+++ b/doc/classes/CPUParticles2D.xml
@@ -236,6 +236,7 @@
 		<member name="orbit_velocity_random" type="float" setter="set_param_randomness" getter="get_param_randomness" default="0.0">
 			Orbital velocity randomness ratio.
 		</member>
+		<member name="physics_interpolation_mode" type="int" setter="set_physics_interpolation_mode" getter="get_physics_interpolation_mode" overrides="Node" enum="Node.PhysicsInterpolationMode" default="1" />
 		<member name="preprocess" type="float" setter="set_pre_process_time" getter="get_pre_process_time" default="0.0">
 			Particle system starts as if it had already run for this many seconds.
 		</member>
diff --git a/scene/2d/camera_2d.cpp b/scene/2d/camera_2d.cpp
index 51853418ee9..13a79e7847a 100644
--- a/scene/2d/camera_2d.cpp
+++ b/scene/2d/camera_2d.cpp
@@ -301,7 +301,9 @@ void Camera2D::_notification(int p_what) {
 			}
 			if (is_physics_interpolated_and_enabled()) {
 				_ensure_update_interpolation_data();
-				_interpolation_data.xform_curr = get_camera_transform();
+				if (Engine::get_singleton()->is_in_physics_frame()) {
+					_interpolation_data.xform_curr = get_camera_transform();
+				}
 			}
 
 		} break;
diff --git a/scene/2d/canvas_item.cpp b/scene/2d/canvas_item.cpp
index 70022a36601..a78a5354b6c 100644
--- a/scene/2d/canvas_item.cpp
+++ b/scene/2d/canvas_item.cpp
@@ -490,6 +490,20 @@ Transform2D CanvasItem::get_global_transform() const {
 	return global_transform;
 }
 
+// Same as get_global_transform() but no reset for `global_invalid`.
+Transform2D CanvasItem::get_global_transform_const() const {
+	if (global_invalid) {
+		const CanvasItem *pi = get_parent_item();
+		if (pi) {
+			global_transform = pi->get_global_transform_const() * get_transform();
+		} else {
+			global_transform = get_transform();
+		}
+	}
+
+	return global_transform;
+}
+
 void CanvasItem::_toplevel_raise_self() {
 	if (!is_inside_tree()) {
 		return;
diff --git a/scene/2d/canvas_item.h b/scene/2d/canvas_item.h
index 4f17d733b94..4ee5aef59b2 100644
--- a/scene/2d/canvas_item.h
+++ b/scene/2d/canvas_item.h
@@ -238,6 +238,7 @@ protected:
 
 	void item_rect_changed(bool p_size_changed = true);
 	void set_canvas_item_use_identity_transform(bool p_enable);
+	Transform2D get_global_transform_const() const;
 
 	void _notification(int p_what);
 	static void _bind_methods();
diff --git a/scene/2d/cpu_particles_2d.cpp b/scene/2d/cpu_particles_2d.cpp
index 7c3848fcdb0..7dbb6b9380a 100644
--- a/scene/2d/cpu_particles_2d.cpp
+++ b/scene/2d/cpu_particles_2d.cpp
@@ -30,6 +30,8 @@
 
 #include "cpu_particles_2d.h"
 #include "core/core_string_names.h"
+#include "core/fixed_array.h"
+#include "core/math/transform_interpolator.h"
 #include "core/os/os.h"
 #include "scene/2d/canvas_item.h"
 #include "scene/2d/particles_2d.h"
@@ -119,6 +121,10 @@ void CPUParticles2D::set_use_local_coordinates(bool p_enable) {
 	// When not using legacy, there is never a need for NOTIFICATION_TRANSFORM_CHANGED,
 	// so we leave it at the default (false).
 	set_canvas_item_use_identity_transform(!local_coords);
+
+	// We only need NOTIFICATION_TRANSFORM_CHANGED
+	// when following an interpolated target.
+	set_notify_transform(_interpolation_data.interpolated_follow);
 #endif
 }
 
@@ -755,7 +761,11 @@ void CPUParticles2D::_particles_process(float p_delta) {
 	Transform2D emission_xform;
 	Transform2D velocity_xform;
 	if (!local_coords) {
-		emission_xform = get_global_transform();
+		if (!_interpolation_data.interpolated_follow) {
+			emission_xform = get_global_transform();
+		} else {
+			TransformInterpolator::interpolate_transform_2d(_interpolation_data.global_xform_prev, _interpolation_data.global_xform_curr, emission_xform, Engine::get_singleton()->get_physics_interpolation_fraction());
+		}
 		velocity_xform = emission_xform;
 		velocity_xform[2] = Vector2();
 	}
@@ -1082,7 +1092,14 @@ void CPUParticles2D::_refresh_interpolation_state() {
 	}
 	bool interpolated = is_physics_interpolated_and_enabled();
 
-	if (_interpolated == interpolated) {
+	// The logic for whether to do an interpolated follow.
+	// This is rather complex, but basically:
+	// If project setting interpolation is ON but this particle system is switched OFF,
+	// and in global mode, we will follow the INTERPOLATED position rather than the actual position.
+	// This is so that particles aren't generated AHEAD of the interpolated parent.
+	bool follow = !interpolated && !local_coords && get_tree()->is_physics_interpolation_enabled();
+
+	if ((_interpolated == interpolated) && (follow == _interpolation_data.interpolated_follow)) {
 		return;
 	}
 
@@ -1093,14 +1110,13 @@ void CPUParticles2D::_refresh_interpolation_state() {
 	_set_redraw(false);
 
 	_interpolated = interpolated;
+	_interpolation_data.interpolated_follow = follow;
 
-#ifdef GODOT_CPU_PARTICLES_2D_LEGACY_COMPATIBILITY
 	// Refresh local coords state, blank inv_emission_transform.
 	set_use_local_coordinates(local_coords);
-#endif
 
 	set_process_internal(!_interpolated);
-	set_physics_process_internal(_interpolated);
+	set_physics_process_internal(_interpolated || _interpolation_data.interpolated_follow);
 
 	// Re-establish all connections.
 	_set_redraw(curr_redraw);
@@ -1161,6 +1177,13 @@ void CPUParticles2D::_notification(int p_what) {
 		if (_interpolated) {
 			_update_internal(true);
 		}
+
+		// If we are interpolated following, then reset physics interpolation
+		// when first appearing. This won't be called by canvas item, as in
+		// following mode, is_interpolated() is actually FALSE.
+		if (_interpolation_data.interpolated_follow) {
+			notification(NOTIFICATION_RESET_PHYSICS_INTERPOLATION);
+		}
 	}
 
 	if (p_what == NOTIFICATION_EXIT_TREE) {
@@ -1194,7 +1217,15 @@ void CPUParticles2D::_notification(int p_what) {
 		_update_internal(false);
 	}
 	if (p_what == NOTIFICATION_INTERNAL_PHYSICS_PROCESS) {
-		_update_internal(true);
+		if (_interpolated) {
+			_update_internal(true);
+		}
+		if (_interpolation_data.interpolated_follow) {
+			// Keep the interpolated follow target updated.
+			DEV_CHECK_ONCE(!_interpolated);
+			_interpolation_data.global_xform_prev = _interpolation_data.global_xform_curr;
+			_interpolation_data.global_xform_curr = get_global_transform();
+		}
 	}
 #ifdef GODOT_CPU_PARTICLES_2D_LEGACY_COMPATIBILITY
 	if (p_what == NOTIFICATION_TRANSFORM_CHANGED) {
@@ -1227,6 +1258,20 @@ void CPUParticles2D::_notification(int p_what) {
 			}
 		}
 	}
+#else
+	if (p_what == NOTIFICATION_TRANSFORM_CHANGED) {
+		if (_interpolation_data.interpolated_follow) {
+			// If the transform has been updated AFTER the physics tick, keep data flowing.
+			if (Engine::get_singleton()->is_in_physics_frame()) {
+				_interpolation_data.global_xform_curr = get_global_transform();
+			}
+		}
+	}
+	if (p_what == NOTIFICATION_RESET_PHYSICS_INTERPOLATION) {
+		// Make sure current is up to date with any pending global transform changes.
+		_interpolation_data.global_xform_curr = get_global_transform_const();
+		_interpolation_data.global_xform_prev = _interpolation_data.global_xform_curr;
+	}
 #endif
 }
 
@@ -1577,6 +1622,12 @@ CPUParticles2D::CPUParticles2D() {
 	set_color(Color(1, 1, 1, 1));
 
 	_update_mesh_texture();
+
+	// CPUParticles2D defaults to interpolation off.
+	// This is because the result often looks better when the particles are updated every frame.
+	// Note that children will need to explicitly turn back on interpolation if they want to use it,
+	// rather than relying on inherit mode.
+	set_physics_interpolation_mode(Node::PHYSICS_INTERPOLATION_MODE_OFF);
 }
 
 CPUParticles2D::~CPUParticles2D() {
diff --git a/scene/2d/cpu_particles_2d.h b/scene/2d/cpu_particles_2d.h
index daa94b40369..216b7b7f14a 100644
--- a/scene/2d/cpu_particles_2d.h
+++ b/scene/2d/cpu_particles_2d.h
@@ -200,8 +200,19 @@ private:
 	void _update_particle_data_buffer();
 
 	Mutex update_mutex;
+
+	// Whether this particle system is interpolated.
 	bool _interpolated = false;
 
+	struct InterpolationData {
+		// Whether this particle is non-interpolated, but following an interpolated parent.
+		bool interpolated_follow = false;
+
+		// If doing interpolated follow, we need to keep these updated per tick.
+		Transform2D global_xform_curr;
+		Transform2D global_xform_prev;
+	} _interpolation_data;
+
 	void _update_render_thread();
 
 	void _update_mesh_texture();
diff --git a/scene/main/node.cpp b/scene/main/node.cpp
index 274cfc25a51..99431068557 100644
--- a/scene/main/node.cpp
+++ b/scene/main/node.cpp
@@ -882,9 +882,7 @@ void Node::set_physics_interpolation_mode(PhysicsInterpolationMode p_mode) {
 }
 
 void Node::reset_physics_interpolation() {
-	if (is_physics_interpolated_and_enabled()) {
-		propagate_notification(NOTIFICATION_RESET_PHYSICS_INTERPOLATION);
-	}
+	propagate_notification(NOTIFICATION_RESET_PHYSICS_INTERPOLATION);
 }
 
 float Node::get_physics_process_delta_time() const {