diff --git a/packages/language-service/ivy/adapters.ts b/packages/language-service/ivy/adapters.ts
index 28855dd210..f77ac2b2b8 100644
--- a/packages/language-service/ivy/adapters.ts
+++ b/packages/language-service/ivy/adapters.ts
@@ -25,7 +25,13 @@ export class LanguageServiceAdapter implements NgCompilerAdapter {
   readonly factoryTracker = null;      // no .ngfactory shims
   readonly unifiedModulesHost = null;  // only used in Bazel
   readonly rootDirs: AbsoluteFsPath[];
-  private readonly templateVersion = new Map<string, string>();
+
+  /**
+   * Map of resource filenames to the version of the file last read via `readResource`.
+   *
+   * Used to implement `getModifiedResourceFiles`.
+   */
+  private readonly lastReadResourceVersion = new Map<string, string>();
 
   constructor(private readonly project: ts.server.Project) {
     this.rootDirs = getRootDirs(this, project.getCompilationSettings());
@@ -81,14 +87,18 @@ export class LanguageServiceAdapter implements NgCompilerAdapter {
       throw new Error(`Failed to get script snapshot while trying to read ${fileName}`);
     }
     const version = this.project.getScriptVersion(fileName);
-    this.templateVersion.set(fileName, version);
+    this.lastReadResourceVersion.set(fileName, version);
     return snapshot.getText(0, snapshot.getLength());
   }
 
-  isTemplateDirty(fileName: string): boolean {
-    const lastVersion = this.templateVersion.get(fileName);
-    const latestVersion = this.project.getScriptVersion(fileName);
-    return lastVersion !== latestVersion;
+  getModifiedResourceFiles(): Set<string>|undefined {
+    const modifiedFiles = new Set<string>();
+    for (const [fileName, oldVersion] of this.lastReadResourceVersion) {
+      if (this.project.getScriptVersion(fileName) !== oldVersion) {
+        modifiedFiles.add(fileName);
+      }
+    }
+    return modifiedFiles.size > 0 ? modifiedFiles : undefined;
   }
 }
 
diff --git a/packages/language-service/ivy/compiler_factory.ts b/packages/language-service/ivy/compiler_factory.ts
index fed921d857..d243f0b164 100644
--- a/packages/language-service/ivy/compiler_factory.ts
+++ b/packages/language-service/ivy/compiler_factory.ts
@@ -6,7 +6,7 @@
  * found in the LICENSE file at https://angular.io/license
  */
 
-import {CompilationTicket, freshCompilationTicket, incrementalFromCompilerTicket, NgCompiler} from '@angular/compiler-cli/src/ngtsc/core';
+import {CompilationTicket, freshCompilationTicket, incrementalFromCompilerTicket, NgCompiler, resourceChangeTicket} from '@angular/compiler-cli/src/ngtsc/core';
 import {NgCompilerOptions} from '@angular/compiler-cli/src/ngtsc/core/api';
 import {TrackedIncrementalBuildStrategy} from '@angular/compiler-cli/src/ngtsc/incremental';
 import {TypeCheckingProgramStrategy} from '@angular/compiler-cli/src/ngtsc/typecheck/api';
@@ -37,53 +37,32 @@ export class CompilerFactory {
 
   getOrCreate(): NgCompiler {
     const program = this.programStrategy.getProgram();
-    if (this.compiler === null || program !== this.lastKnownProgram) {
-      let ticket: CompilationTicket;
-      if (this.compiler === null || this.lastKnownProgram === null) {
-        ticket = freshCompilationTicket(
-            program, this.options, this.incrementalStrategy, this.programStrategy, true, true);
-      } else {
-        ticket = incrementalFromCompilerTicket(
-            this.compiler, program, this.incrementalStrategy, this.programStrategy, new Set());
+    const modifiedResourceFiles = this.adapter.getModifiedResourceFiles() ?? new Set();
+
+    if (this.compiler !== null && program === this.lastKnownProgram) {
+      if (modifiedResourceFiles.size > 0) {
+        // Only resource files have changed since the last NgCompiler was created.
+        const ticket = resourceChangeTicket(this.compiler, modifiedResourceFiles);
+        this.compiler = NgCompiler.fromTicket(ticket, this.adapter);
       }
-      this.compiler = NgCompiler.fromTicket(ticket, this.adapter);
-      this.lastKnownProgram = program;
+
+      return this.compiler;
     }
+
+    let ticket: CompilationTicket;
+    if (this.compiler === null || this.lastKnownProgram === null) {
+      ticket = freshCompilationTicket(
+          program, this.options, this.incrementalStrategy, this.programStrategy, true, true);
+    } else {
+      ticket = incrementalFromCompilerTicket(
+          this.compiler, program, this.incrementalStrategy, this.programStrategy,
+          modifiedResourceFiles);
+    }
+    this.compiler = NgCompiler.fromTicket(ticket, this.adapter);
+    this.lastKnownProgram = program;
     return this.compiler;
   }
 
-  /**
-   * Create a new instance of the Ivy compiler if the program has changed since
-   * the last time the compiler was instantiated. If the program has not changed,
-   * return the existing instance.
-   * @param fileName override the template if this is an external template file
-   * @param options angular compiler options
-   */
-  getOrCreateWithChangedFile(fileName: string): NgCompiler {
-    const compiler = this.getOrCreate();
-    if (isExternalTemplate(fileName)) {
-      this.overrideTemplate(fileName, compiler);
-    }
-    return compiler;
-  }
-
-  private overrideTemplate(fileName: string, compiler: NgCompiler) {
-    if (!this.adapter.isTemplateDirty(fileName)) {
-      return;
-    }
-    // 1. Get the latest snapshot
-    const latestTemplate = this.adapter.readResource(fileName);
-    // 2. Find all components that use the template
-    const ttc = compiler.getTemplateTypeChecker();
-    const components = compiler.getComponentsWithTemplateFile(fileName);
-    // 3. Update component template
-    for (const component of components) {
-      if (ts.isClassDeclaration(component)) {
-        ttc.overrideComponentTemplate(component, latestTemplate);
-      }
-    }
-  }
-
   registerLastKnownProgram() {
     this.lastKnownProgram = this.programStrategy.getProgram();
   }
diff --git a/packages/language-service/ivy/language_service.ts b/packages/language-service/ivy/language_service.ts
index 1895ad595d..1b3a199b48 100644
--- a/packages/language-service/ivy/language_service.ts
+++ b/packages/language-service/ivy/language_service.ts
@@ -67,7 +67,7 @@ export class LanguageService {
   }
 
   getSemanticDiagnostics(fileName: string): ts.Diagnostic[] {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+    const compiler = this.compilerFactory.getOrCreate();
     const ttc = compiler.getTemplateTypeChecker();
     const diagnostics: ts.Diagnostic[] = [];
     if (isTypeScriptFile(fileName)) {
@@ -90,7 +90,7 @@ export class LanguageService {
 
   getDefinitionAndBoundSpan(fileName: string, position: number): ts.DefinitionInfoAndBoundSpan
       |undefined {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+    const compiler = this.compilerFactory.getOrCreate();
     const results =
         new DefinitionBuilder(this.tsLS, compiler).getDefinitionAndBoundSpan(fileName, position);
     this.compilerFactory.registerLastKnownProgram();
@@ -99,7 +99,7 @@ export class LanguageService {
 
   getTypeDefinitionAtPosition(fileName: string, position: number):
       readonly ts.DefinitionInfo[]|undefined {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+    const compiler = this.compilerFactory.getOrCreate();
     const results =
         new DefinitionBuilder(this.tsLS, compiler).getTypeDefinitionsAtPosition(fileName, position);
     this.compilerFactory.registerLastKnownProgram();
@@ -107,7 +107,7 @@ export class LanguageService {
   }
 
   getQuickInfoAtPosition(fileName: string, position: number): ts.QuickInfo|undefined {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+    const compiler = this.compilerFactory.getOrCreate();
     const templateInfo = getTemplateInfoAtPosition(fileName, position, compiler);
     if (templateInfo === undefined) {
       return undefined;
@@ -129,7 +129,7 @@ export class LanguageService {
   }
 
   getReferencesAtPosition(fileName: string, position: number): ts.ReferenceEntry[]|undefined {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+    const compiler = this.compilerFactory.getOrCreate();
     const results = new ReferencesAndRenameBuilder(this.strategy, this.tsLS, compiler)
                         .getReferencesAtPosition(fileName, position);
     this.compilerFactory.registerLastKnownProgram();
@@ -137,7 +137,7 @@ export class LanguageService {
   }
 
   getRenameInfo(fileName: string, position: number): ts.RenameInfo {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+    const compiler = this.compilerFactory.getOrCreate();
     const renameInfo = new ReferencesAndRenameBuilder(this.strategy, this.tsLS, compiler)
                            .getRenameInfo(absoluteFrom(fileName), position);
     if (!renameInfo.canRename) {
@@ -152,7 +152,7 @@ export class LanguageService {
   }
 
   findRenameLocations(fileName: string, position: number): readonly ts.RenameLocation[]|undefined {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+    const compiler = this.compilerFactory.getOrCreate();
     const results = new ReferencesAndRenameBuilder(this.strategy, this.tsLS, compiler)
                         .findRenameLocations(fileName, position);
     this.compilerFactory.registerLastKnownProgram();
@@ -161,7 +161,7 @@ export class LanguageService {
 
   private getCompletionBuilder(fileName: string, position: number):
       CompletionBuilder<TmplAstNode|AST>|null {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+    const compiler = this.compilerFactory.getOrCreate();
     const templateInfo = getTemplateInfoAtPosition(fileName, position, compiler);
     if (templateInfo === undefined) {
       return null;
@@ -219,7 +219,7 @@ export class LanguageService {
   }
 
   getTcb(fileName: string, position: number): GetTcbResponse {
-    return this.withCompiler<GetTcbResponse>(fileName, compiler => {
+    return this.withCompiler<GetTcbResponse>(compiler => {
       const templateInfo = getTemplateInfoAtPosition(fileName, position, compiler);
       if (templateInfo === undefined) {
         return undefined;
@@ -263,8 +263,8 @@ export class LanguageService {
     });
   }
 
-  private withCompiler<T>(fileName: string, p: (compiler: NgCompiler) => T): T {
-    const compiler = this.compilerFactory.getOrCreateWithChangedFile(fileName);
+  private withCompiler<T>(p: (compiler: NgCompiler) => T): T {
+    const compiler = this.compilerFactory.getOrCreate();
     const result = p(compiler);
     this.compilerFactory.registerLastKnownProgram();
     return result;
diff --git a/packages/language-service/ivy/test/compiler_spec.ts b/packages/language-service/ivy/test/compiler_spec.ts
index 980eafca62..87883fafc7 100644
--- a/packages/language-service/ivy/test/compiler_spec.ts
+++ b/packages/language-service/ivy/test/compiler_spec.ts
@@ -17,6 +17,38 @@ describe('language-service/compiler integration', () => {
     initMockFileSystem('Native');
   });
 
+  it('should react to a change in an external template', () => {
+    const cmpFile = absoluteFrom('/test.ts');
+    const tmplFile = absoluteFrom('/test.html');
+
+    const env = LanguageServiceTestEnvironment.setup([
+      {
+        name: cmpFile,
+        contents: `
+          import {Component} from '@angular/core';
+
+          @Component({
+            selector: 'test-cmp',
+            templateUrl: './test.html',
+          })
+          export class TestCmp {}
+        `,
+        isRoot: true,
+      },
+      {
+        name: tmplFile,
+        contents: '<other-cmp>Test</other-cmp>',
+      },
+    ]);
+
+    const diags = env.ngLS.getSemanticDiagnostics(cmpFile);
+    expect(diags.length).toBeGreaterThan(0);
+
+    env.updateFile(tmplFile, '<div>Test</div>');
+    const afterDiags = env.ngLS.getSemanticDiagnostics(cmpFile);
+    expect(afterDiags.length).toBe(0);
+  });
+
   it('should not produce errors from inline test declarations mixing with those of the app', () => {
     const appCmpFile = absoluteFrom('/test.cmp.ts');
     const appModuleFile = absoluteFrom('/test.mod.ts');
diff --git a/packages/language-service/ivy/test/completions_spec.ts b/packages/language-service/ivy/test/completions_spec.ts
index be61b17aef..080abfbf9b 100644
--- a/packages/language-service/ivy/test/completions_spec.ts
+++ b/packages/language-service/ivy/test/completions_spec.ts
@@ -6,14 +6,13 @@
  * found in the LICENSE file at https://angular.io/license
  */
 
-import {TmplAstNode} from '@angular/compiler';
 import {absoluteFrom, AbsoluteFsPath} from '@angular/compiler-cli/src/ngtsc/file_system';
 import {initMockFileSystem} from '@angular/compiler-cli/src/ngtsc/file_system/testing';
 import * as ts from 'typescript';
 import {DisplayInfoKind, unsafeCastDisplayInfoKindToScriptElementKind} from '../display_parts';
 import {LanguageService} from '../language_service';
 
-import {LanguageServiceTestEnvironment} from './env';
+import {extractCursorInfo, LanguageServiceTestEnvironment} from './env';
 
 const DIR_WITH_INPUT = {
   'Dir': `
@@ -640,7 +639,6 @@ function setup(
   AppCmp: ts.ClassDeclaration,
   ngLS: LanguageService,
   cursor: number,
-  nodes: TmplAstNode[],
   text: string,
 } {
   const codePath = absoluteFrom('/test.ts');
@@ -650,6 +648,7 @@ function setup(
 
   const otherDirectiveClassDecls = Object.values(otherDeclarations).join('\n\n');
 
+  const {cursor, text: templateWithoutCursor} = extractCursorInfo(templateWithCursor);
   const env = LanguageServiceTestEnvironment.setup([
     {
       name: codePath,
@@ -675,18 +674,15 @@ function setup(
     },
     {
       name: templatePath,
-      contents: 'Placeholder template',
+      contents: templateWithoutCursor,
     }
   ]);
-  const {nodes, cursor, text} =
-      env.overrideTemplateWithCursor(codePath, 'AppCmp', templateWithCursor);
   return {
     env,
     fileName: templatePath,
     AppCmp: env.getClass(codePath, 'AppCmp'),
     ngLS: env.ngLS,
-    nodes,
-    text,
+    text: templateWithoutCursor,
     cursor,
   };
 }
diff --git a/packages/language-service/ivy/test/definitions_spec.ts b/packages/language-service/ivy/test/definitions_spec.ts
index 5b0cd19aaa..056bf1b2a9 100644
--- a/packages/language-service/ivy/test/definitions_spec.ts
+++ b/packages/language-service/ivy/test/definitions_spec.ts
@@ -27,8 +27,8 @@ describe('definitions', () => {
     };
 
     const env = createModuleWithDeclarations([appFile], [templateFile]);
-    const {cursor} = env.overrideTemplateWithCursor(
-        absoluteFrom('/app.ts'), 'AppCmp', '<input #myInput /> {{myIn¦put.value}}');
+    const {cursor} = env.updateFileWithCursor(
+        absoluteFrom('/app.html'), '<input #myInput /> {{myIn¦put.value}}');
     env.expectNoSourceDiagnostics();
     const {definitions} = env.ngLS.getDefinitionAndBoundSpan(absoluteFrom('/app.html'), cursor)!;
     expect(definitions![0].name).toEqual('myInput');
diff --git a/packages/language-service/ivy/test/env.ts b/packages/language-service/ivy/test/env.ts
index 697432be9f..9da1e74836 100644
--- a/packages/language-service/ivy/test/env.ts
+++ b/packages/language-service/ivy/test/env.ts
@@ -46,13 +46,6 @@ function writeTsconfig(
 
 export type TestableOptions = StrictTemplateOptions;
 
-export interface TemplateOverwriteResult {
-  cursor: number;
-  nodes: TmplAstNode[];
-  component: ts.ClassDeclaration;
-  text: string;
-}
-
 export class LanguageServiceTestEnvironment {
   private constructor(
       readonly tsLS: ts.LanguageService, readonly ngLS: LanguageService,
@@ -118,26 +111,16 @@ export class LanguageServiceTestEnvironment {
     return getClassOrError(sf, className);
   }
 
-  overrideTemplateWithCursor(fileName: AbsoluteFsPath, className: string, contents: string):
-      TemplateOverwriteResult {
-    const program = this.tsLS.getProgram();
-    if (program === undefined) {
-      throw new Error(`Expected to get a ts.Program`);
-    }
-    const sf = getSourceFileOrError(program, fileName);
-    const component = getClassOrError(sf, className);
-
-    const ngCompiler = this.ngLS.compilerFactory.getOrCreate();
-    const templateTypeChecker = ngCompiler.getTemplateTypeChecker();
-
+  updateFileWithCursor(fileName: AbsoluteFsPath, contents: string): {cursor: number, text: string} {
     const {cursor, text} = extractCursorInfo(contents);
-
-    const {nodes} = templateTypeChecker.overrideComponentTemplate(component, text);
-    return {cursor, nodes, component, text};
+    this.updateFile(fileName, text);
+    return {cursor, text};
   }
 
   updateFile(fileName: AbsoluteFsPath, contents: string): void {
-    const scriptInfo = this.projectService.getScriptInfo(fileName);
+    const normalFileName = ts.server.toNormalizedPath(fileName);
+    const scriptInfo =
+        this.projectService.getOrCreateScriptInfoForNormalizedPath(normalFileName, true, '');
     if (scriptInfo === undefined) {
       throw new Error(`Could not find a file named ${fileName}`);
     }
diff --git a/packages/language-service/ivy/test/legacy/adapters_spec.ts b/packages/language-service/ivy/test/legacy/adapters_spec.ts
deleted file mode 100644
index 0b0a357d9d..0000000000
--- a/packages/language-service/ivy/test/legacy/adapters_spec.ts
+++ /dev/null
@@ -1,41 +0,0 @@
-/**
- * @license
- * Copyright Google LLC All Rights Reserved.
- *
- * Use of this source code is governed by an MIT-style license that can be
- * found in the LICENSE file at https://angular.io/license
- */
-
-import * as ts from 'typescript/lib/tsserverlibrary';
-
-import {LanguageServiceAdapter} from '../../adapters';
-
-import {MockService, setup, TEST_TEMPLATE} from './mock_host';
-
-describe('Language service adapter', () => {
-  let project: ts.server.Project;
-  let service: MockService;
-
-  beforeAll(() => {
-    const {project: _project, service: _service} = setup();
-    project = _project;
-    service = _service;
-  });
-
-  it('should mark template dirty if it has not seen the template before', () => {
-    const adapter = new LanguageServiceAdapter(project);
-    expect(adapter.isTemplateDirty(TEST_TEMPLATE)).toBeTrue();
-  });
-
-  it('should not mark template dirty if template has not changed', () => {
-    const adapter = new LanguageServiceAdapter(project);
-    adapter.readResource(TEST_TEMPLATE);
-    expect(adapter.isTemplateDirty(TEST_TEMPLATE)).toBeFalse();
-  });
-
-  it('should mark template dirty if template has changed', () => {
-    const adapter = new LanguageServiceAdapter(project);
-    service.overwrite(TEST_TEMPLATE, '<p>Hello World</p>');
-    expect(adapter.isTemplateDirty(TEST_TEMPLATE)).toBeTrue();
-  });
-});
diff --git a/packages/language-service/ivy/test/quick_info_spec.ts b/packages/language-service/ivy/test/quick_info_spec.ts
index 8a23f4b5a9..d7713bc047 100644
--- a/packages/language-service/ivy/test/quick_info_spec.ts
+++ b/packages/language-service/ivy/test/quick_info_spec.ts
@@ -6,7 +6,7 @@
  * found in the LICENSE file at https://angular.io/license
  */
 
-import {absoluteFrom} from '@angular/compiler-cli/src/ngtsc/file_system';
+import {absoluteFrom, AbsoluteFsPath} from '@angular/compiler-cli/src/ngtsc/file_system';
 import {initMockFileSystem, TestFile} from '@angular/compiler-cli/src/ngtsc/file_system/testing';
 
 import * as ts from 'typescript/lib/tsserverlibrary';
@@ -476,8 +476,8 @@ describe('quick info', () => {
       });
 
       it('should provide documentation', () => {
-        const {cursor} = env.overrideTemplateWithCursor(
-            absoluteFrom('/app.ts'), 'AppCmp', `<div>{{¦title}}</div>`);
+        const {cursor} =
+            env.updateFileWithCursor(absoluteFrom('/app.html'), `<div>{{¦title}}</div>`);
         const quickInfo = env.ngLS.getQuickInfoAtPosition(absoluteFrom('/app.html'), cursor);
         const documentation = toText(quickInfo!.documentation);
         expect(documentation).toBe('This is the title of the `AppCmp` Component.');
@@ -522,8 +522,7 @@ describe('quick info', () => {
       {templateOverride, expectedSpanText, expectedDisplayString}:
           {templateOverride: string, expectedSpanText: string, expectedDisplayString: string}):
       ts.QuickInfo {
-    const {cursor, text} =
-        env.overrideTemplateWithCursor(absoluteFrom('/app.ts'), 'AppCmp', templateOverride);
+    const {cursor, text} = env.updateFileWithCursor(absoluteFrom('/app.html'), templateOverride);
     env.expectNoSourceDiagnostics();
     env.expectNoTemplateDiagnostics(absoluteFrom('/app.ts'), 'AppCmp');
     const quickInfo = env.ngLS.getQuickInfoAtPosition(absoluteFrom('/app.html'), cursor);
diff --git a/packages/language-service/ivy/test/type_definitions_spec.ts b/packages/language-service/ivy/test/type_definitions_spec.ts
index 5822586745..01ec679cad 100644
--- a/packages/language-service/ivy/test/type_definitions_spec.ts
+++ b/packages/language-service/ivy/test/type_definitions_spec.ts
@@ -49,8 +49,7 @@ describe('type definitions', () => {
   });
 
   function getTypeDefinitionsAndAssertBoundSpan({templateOverride}: {templateOverride: string}) {
-    const {cursor, text} =
-        env.overrideTemplateWithCursor(absoluteFrom('/app.ts'), 'AppCmp', templateOverride);
+    const {cursor, text} = env.updateFileWithCursor(absoluteFrom('/app.html'), templateOverride);
     env.expectNoSourceDiagnostics();
     env.expectNoTemplateDiagnostics(absoluteFrom('/app.ts'), 'AppCmp');
     const defs = env.ngLS.getTypeDefinitionAtPosition(absoluteFrom('/app.html'), cursor);