diff --git a/core/java/android/app/ActivityOptions.java b/core/java/android/app/ActivityOptions.java
index b8c20bd..cc37456 100644
--- a/core/java/android/app/ActivityOptions.java
+++ b/core/java/android/app/ActivityOptions.java
@@ -488,6 +488,8 @@
     private static final String KEY_ALLOW_PASS_THROUGH_ON_TOUCH_OUTSIDE =
             "android.activity.allowPassThroughOnTouchOutside";
 
+    private static final String KEY_FLEXIBLE_LAUNCH_SIZE = "android.activity.flexibleLaunchSize";
+
     /**
      * @see #setLaunchCookie
      * @hide
@@ -588,6 +590,7 @@
     @BackgroundActivityStartMode
     private int mPendingIntentCreatorBackgroundActivityStartMode =
             MODE_BACKGROUND_ACTIVITY_START_SYSTEM_DEFINED;
+    private boolean mFlexibleLaunchSize = false;
     private boolean mDisableStartingWindow;
     private boolean mAllowPassThroughOnTouchOutside;
 
@@ -1451,6 +1454,7 @@
         mPendingIntentCreatorBackgroundActivityStartMode = opts.getInt(
                 KEY_PENDING_INTENT_CREATOR_BACKGROUND_ACTIVITY_START_MODE,
                 MODE_BACKGROUND_ACTIVITY_START_SYSTEM_DEFINED);
+        mFlexibleLaunchSize = opts.getBoolean(KEY_FLEXIBLE_LAUNCH_SIZE, /* defaultValue = */ false);
         mDisableStartingWindow = opts.getBoolean(KEY_DISABLE_STARTING_WINDOW);
         mAllowPassThroughOnTouchOutside = opts.getBoolean(KEY_ALLOW_PASS_THROUGH_ON_TOUCH_OUTSIDE);
         mAnimationAbortListener = IRemoteCallback.Stub.asInterface(
@@ -2346,6 +2350,24 @@
     }
 
     /**
+     * Sets whether the size of the launch bounds is flexible, meaning it can be overridden to a
+     * different size during the launch params calculation.
+     * @hide
+     */
+    public ActivityOptions setFlexibleLaunchSize(boolean isFlexible) {
+        mFlexibleLaunchSize = isFlexible;
+        return this;
+    }
+
+    /**
+     * Gets whether the size of the launch bounds is flexible.
+     * @hide
+     */
+    public boolean getFlexibleLaunchSize() {
+        return mFlexibleLaunchSize;
+    }
+
+    /**
      * Update the current values in this ActivityOptions from those supplied
      * in <var>otherOptions</var>.  Any values
      * defined in <var>otherOptions</var> replace those in the base options.
@@ -2601,6 +2623,9 @@
             b.putInt(KEY_PENDING_INTENT_CREATOR_BACKGROUND_ACTIVITY_START_MODE,
                     mPendingIntentCreatorBackgroundActivityStartMode);
         }
+        if (mFlexibleLaunchSize) {
+            b.putBoolean(KEY_FLEXIBLE_LAUNCH_SIZE, mFlexibleLaunchSize);
+        }
         if (mDisableStartingWindow) {
             b.putBoolean(KEY_DISABLE_STARTING_WINDOW, mDisableStartingWindow);
         }
diff --git a/core/java/android/window/DesktopModeFlags.java b/core/java/android/window/DesktopModeFlags.java
index 3cdf290..696b7b8 100644
--- a/core/java/android/window/DesktopModeFlags.java
+++ b/core/java/android/window/DesktopModeFlags.java
@@ -114,6 +114,8 @@
     ENABLE_RESIZING_METRICS(Flags::enableResizingMetrics, true),
     ENABLE_RESTORE_TO_PREVIOUS_SIZE_FROM_DESKTOP_IMMERSIVE(
             Flags::enableRestoreToPreviousSizeFromDesktopImmersive, true),
+    ENABLE_SHELL_INITIAL_BOUNDS_REGRESSION_BUG_FIX(
+            Flags::enableShellInitialBoundsRegressionBugFix, false),
     ENABLE_START_LAUNCH_TRANSITION_FROM_TASKBAR_BUGFIX(
             Flags::enableStartLaunchTransitionFromTaskbarBugfix, true),
     ENABLE_TASKBAR_OVERFLOW(Flags::enableTaskbarOverflow, false),
diff --git a/core/java/android/window/flags/lse_desktop_experience.aconfig b/core/java/android/window/flags/lse_desktop_experience.aconfig
index 355a87d..09f458b 100644
--- a/core/java/android/window/flags/lse_desktop_experience.aconfig
+++ b/core/java/android/window/flags/lse_desktop_experience.aconfig
@@ -38,6 +38,18 @@
 }
 
 flag {
+    name: "enable_shell_initial_bounds_regression_bug_fix"
+    namespace: "lse_desktop_experience"
+    description: "Enables fix for Shell initial bounds regression, forcing core to calculate /n"
+                 "initial bounds in desktop launch params while respecting cascading position /n"
+                 "passed by Shell."
+    bug: "396075922"
+    metadata {
+        purpose: PURPOSE_BUGFIX
+    }
+}
+
+flag {
     name: "enable_windowing_dynamic_initial_bounds"
     namespace: "lse_desktop_experience"
     description: "Enables new initial bounds for desktop windowing which adjust depending on app constraints"
diff --git a/libs/WindowManager/Shell/src/com/android/wm/shell/desktopmode/DesktopTasksController.kt b/libs/WindowManager/Shell/src/com/android/wm/shell/desktopmode/DesktopTasksController.kt
index 7e63250..5de3be4 100644
--- a/libs/WindowManager/Shell/src/com/android/wm/shell/desktopmode/DesktopTasksController.kt
+++ b/libs/WindowManager/Shell/src/com/android/wm/shell/desktopmode/DesktopTasksController.kt
@@ -1246,6 +1246,10 @@
                 pendingIntentBackgroundActivityStartMode =
                     ActivityOptions.MODE_BACKGROUND_ACTIVITY_START_ALLOW_ALWAYS
                 launchBounds = bounds
+                if (DesktopModeFlags.ENABLE_SHELL_INITIAL_BOUNDS_REGRESSION_BUG_FIX.isTrue) {
+                    // Sets launch bounds size as flexible so core can recalculate.
+                    flexibleLaunchSize = true
+                }
             }
 
         wct.sendPendingIntent(pendingIntent, intent, ops.toBundle())
diff --git a/services/core/java/com/android/server/wm/DesktopModeBoundsCalculator.java b/services/core/java/com/android/server/wm/DesktopModeBoundsCalculator.java
index 0106a64..7a959c1 100644
--- a/services/core/java/com/android/server/wm/DesktopModeBoundsCalculator.java
+++ b/services/core/java/com/android/server/wm/DesktopModeBoundsCalculator.java
@@ -52,6 +52,13 @@
             .getInt("persist.wm.debug.desktop_mode_landscape_app_padding", 25);
 
     /**
+     * Proportion of window height top offset with respect to bottom offset, used for central task
+     * positioning. Should be kept in sync with constant in
+     * {@link com.android.wm.shell.desktopmode.DesktopTaskPosition}
+     */
+    public static final float WINDOW_HEIGHT_PROPORTION = 0.375f;
+
+    /**
      * Updates launch bounds for an activity with respect to its activity options, window layout,
      * android manifest and task configuration.
      */
@@ -63,7 +70,16 @@
         final Rect stableBounds = new Rect();
         task.getDisplayArea().getStableRect(stableBounds);
 
-        if (options != null && options.getLaunchBounds() != null) {
+        // If the options bounds size is flexible, update size with calculated desired size.
+        final boolean updateOptionBoundsSize = options != null
+                && options.getFlexibleLaunchSize();
+        // If cascading is also enabled, the position of the options bounds must be respected
+        // during the size update.
+        final boolean shouldRespectOptionPosition =
+                updateOptionBoundsSize && DesktopModeFlags.ENABLE_CASCADING_WINDOWS.isTrue();
+
+        if (options != null && options.getLaunchBounds() != null
+                && !updateOptionBoundsSize) {
             outBounds.set(options.getLaunchBounds());
             logger.accept("inherit-from-options=" + outBounds);
         } else if (layout != null) {
@@ -76,26 +92,34 @@
                         stableBounds);
                 logger.accept("layout specifies sizes, inheriting size and applying gravity");
             } else if (verticalGravity > 0 || horizontalGravity > 0) {
-                outBounds.set(calculateInitialBounds(task, activity, stableBounds));
+                outBounds.set(calculateInitialBounds(task, activity, stableBounds, options,
+                        shouldRespectOptionPosition));
                 applyLayoutGravity(verticalGravity, horizontalGravity, outBounds,
                         stableBounds);
                 logger.accept("layout specifies gravity, applying desired bounds and gravity");
+                logger.accept("respecting option bounds cascaded position="
+                        + shouldRespectOptionPosition);
             }
         } else {
-            outBounds.set(calculateInitialBounds(task, activity, stableBounds));
+            outBounds.set(calculateInitialBounds(task, activity, stableBounds, options,
+                    shouldRespectOptionPosition));
             logger.accept("layout not specified, applying desired bounds");
+            logger.accept("respecting option bounds cascaded position="
+                    + shouldRespectOptionPosition);
         }
     }
 
     /**
      * Calculates the initial bounds required for an application to fill a scale of the display
      * bounds without any letterboxing. This is done by taking into account the applications
-     * fullscreen size, aspect ratio, orientation and resizability to calculate an area this is
-     * compatible with the applications previous configuration.
+     * fullscreen size, aspect ratio, orientation and resizability to calculate an area that is
+     * compatible with the applications previous configuration. These bounds are then cascaded to
+     * either the center or to a cascading position supplied by Shell via the option bounds.
      */
     @NonNull
     private static Rect calculateInitialBounds(@NonNull Task task,
-            @NonNull ActivityRecord activity, @NonNull Rect stableBounds
+            @NonNull ActivityRecord activity, @NonNull Rect stableBounds,
+            @Nullable ActivityOptions options, boolean shouldRespectOptionPosition
     ) {
         // Display bounds not taking into account insets.
         final TaskDisplayArea displayArea = task.getDisplayArea();
@@ -172,6 +196,9 @@
             }
             default -> idealSize;
         };
+        if (shouldRespectOptionPosition) {
+            return respectShellCascading(initialSize, stableBounds, options.getLaunchBounds());
+        }
         return centerInScreen(initialSize, screenBounds);
     }
 
@@ -266,14 +293,65 @@
      * Adjusts bounds to be positioned in the middle of the screen.
      */
     @NonNull
-    private static Rect centerInScreen(@NonNull Size desiredSize,
+    static Rect centerInScreen(@NonNull Size desiredSize,
             @NonNull Rect screenBounds) {
-        // TODO(b/325240051): Position apps with bottom heavy offset
-        final int heightOffset = (screenBounds.height() - desiredSize.getHeight()) / 2;
+        final int heightOffset = (int)
+                ((screenBounds.height() - desiredSize.getHeight()) * WINDOW_HEIGHT_PROPORTION);
         final int widthOffset = (screenBounds.width() - desiredSize.getWidth()) / 2;
         final Rect resultBounds = new Rect(0, 0,
                 desiredSize.getWidth(), desiredSize.getHeight());
         resultBounds.offset(screenBounds.left + widthOffset, screenBounds.top + heightOffset);
         return resultBounds;
     }
+
+    /**
+     * Calculates final initial bounds based on the task's desired size and the cascading anchor
+     * point extracted from the option bounds. Cascading behaviour should be kept in sync with
+     * logic in {@link com.android.wm.shell.desktopmode.DesktopTaskPosition}.
+     */
+    @NonNull
+    private static Rect respectShellCascading(@NonNull Size desiredSize, @NonNull Rect stableBounds,
+            @NonNull Rect optionBounds) {
+        final boolean leftAligned = stableBounds.left == optionBounds.left;
+        final boolean rightAligned = stableBounds.right == optionBounds.right;
+        final boolean topAligned = stableBounds.top == optionBounds.top;
+        final boolean bottomAligned = stableBounds.bottom == optionBounds.bottom;
+        if (leftAligned && topAligned) {
+            // Bounds cascaded to top left, respect top left position anchor point.
+            return new Rect(
+                    optionBounds.left,
+                    optionBounds.top,
+                    optionBounds.left + desiredSize.getWidth(),
+                    optionBounds.top + desiredSize.getHeight()
+            );
+        }
+        if (leftAligned && bottomAligned) {
+            // Bounds cascaded to bottom left, respect bottom left position anchor point.
+            return new Rect(
+                    optionBounds.left,
+                    optionBounds.bottom - desiredSize.getHeight(),
+                    optionBounds.left + desiredSize.getWidth(),
+                    optionBounds.bottom
+            );
+        }
+        if (rightAligned && topAligned) {
+            // Bounds cascaded to top right, respect top right position anchor point.
+            return new Rect(
+                    optionBounds.right - desiredSize.getWidth(),
+                    optionBounds.top,
+                    optionBounds.right,
+                    optionBounds.top + desiredSize.getHeight()
+            );
+        }
+        if (rightAligned && bottomAligned) {
+            // Bounds cascaded to bottom right, respect bottom right position anchor point.
+            return new Rect(
+                    optionBounds.right - desiredSize.getWidth(),
+                    optionBounds.bottom - desiredSize.getHeight(),
+                    optionBounds.right,
+                    optionBounds.bottom);
+        }
+        // Bounds not cascaded to any corner, default to center position.
+        return centerInScreen(desiredSize, stableBounds);
+    }
 }
diff --git a/services/core/java/com/android/server/wm/DesktopModeLaunchParamsModifier.java b/services/core/java/com/android/server/wm/DesktopModeLaunchParamsModifier.java
index a4eeb68..d466a64 100644
--- a/services/core/java/com/android/server/wm/DesktopModeLaunchParamsModifier.java
+++ b/services/core/java/com/android/server/wm/DesktopModeLaunchParamsModifier.java
@@ -42,6 +42,7 @@
 
     private static final String TAG =
             TAG_WITH_CLASS_NAME ? "DesktopModeLaunchParamsModifier" : TAG_ATM;
+
     private static final boolean DEBUG = false;
 
     private StringBuilder mLogBuilder;
@@ -133,6 +134,14 @@
         DesktopModeBoundsCalculator.updateInitialBounds(task, layout, activity, options,
                 outParams.mBounds, this::appendLog);
         appendLog("final desktop mode task bounds set to %s", outParams.mBounds);
+        if (options != null && options.getFlexibleLaunchSize()) {
+            // Return result done to prevent other modifiers from respecting option bounds and
+            // applying further cascading. Since other modifiers are being skipped in this case,
+            // this modifier is now also responsible to respecting the options launch windowing
+            // mode.
+            outParams.mWindowingMode = options.getLaunchWindowingMode();
+            return RESULT_DONE;
+        }
         return RESULT_CONTINUE;
     }
 
diff --git a/services/tests/wmtests/src/com/android/server/wm/DesktopModeLaunchParamsModifierTests.java b/services/tests/wmtests/src/com/android/server/wm/DesktopModeLaunchParamsModifierTests.java
index 3a06fff..bc37496 100644
--- a/services/tests/wmtests/src/com/android/server/wm/DesktopModeLaunchParamsModifierTests.java
+++ b/services/tests/wmtests/src/com/android/server/wm/DesktopModeLaunchParamsModifierTests.java
@@ -42,8 +42,10 @@
 import static com.android.dx.mockito.inline.extended.ExtendedMockito.spyOn;
 import static com.android.server.wm.DesktopModeBoundsCalculator.DESKTOP_MODE_INITIAL_BOUNDS_SCALE;
 import static com.android.server.wm.DesktopModeBoundsCalculator.DESKTOP_MODE_LANDSCAPE_APP_PADDING;
+import static com.android.server.wm.DesktopModeBoundsCalculator.centerInScreen;
 import static com.android.server.wm.LaunchParamsController.LaunchParamsModifier.PHASE_DISPLAY;
 import static com.android.server.wm.LaunchParamsController.LaunchParamsModifier.RESULT_CONTINUE;
+import static com.android.server.wm.LaunchParamsController.LaunchParamsModifier.RESULT_DONE;
 import static com.android.server.wm.LaunchParamsController.LaunchParamsModifier.RESULT_SKIP;
 
 import static org.junit.Assert.assertEquals;
@@ -60,6 +62,7 @@
 import android.platform.test.annotations.DisableFlags;
 import android.platform.test.annotations.EnableFlags;
 import android.platform.test.annotations.Presubmit;
+import android.util.Size;
 import android.view.Gravity;
 
 import androidx.test.filters.SmallTest;
@@ -1099,6 +1102,110 @@
     }
 
     @Test
+    @EnableFlags({Flags.FLAG_ENABLE_DESKTOP_WINDOWING_MODE,
+            Flags.FLAG_ENABLE_SHELL_INITIAL_BOUNDS_REGRESSION_BUG_FIX})
+    public void testOptionsBoundsSet_flexibleLaunchSize_windowingModeSet() {
+        setupDesktopModeLaunchParamsModifier();
+
+        final TestDisplayContent display = createNewDisplayContent(WINDOWING_MODE_FULLSCREEN);
+        final Task task = new TaskBuilder(mSupervisor).setActivityType(
+                ACTIVITY_TYPE_STANDARD).setDisplay(display).build();
+        final ActivityOptions options = ActivityOptions.makeBasic()
+                .setLaunchBounds(new Rect(
+                        DISPLAY_STABLE_BOUNDS.left,
+                        DISPLAY_STABLE_BOUNDS.top,
+                        /* right = */ 500,
+                        /* bottom = */ 500))
+                .setFlexibleLaunchSize(true);
+        options.setLaunchWindowingMode(WINDOWING_MODE_FREEFORM);
+
+        assertEquals(RESULT_DONE,
+                new CalculateRequestBuilder().setTask(task).setOptions(options).calculate());
+        assertEquals(WINDOWING_MODE_FREEFORM, mResult.mWindowingMode);
+    }
+
+    @Test
+    @EnableFlags({Flags.FLAG_ENABLE_DESKTOP_WINDOWING_MODE,
+            Flags.FLAG_ENABLE_SHELL_INITIAL_BOUNDS_REGRESSION_BUG_FIX})
+    public void testOptionsBoundsSet_flexibleLaunchSize_boundsSizeModified() {
+        setupDesktopModeLaunchParamsModifier();
+
+        final TestDisplayContent display = createNewDisplayContent(WINDOWING_MODE_FULLSCREEN);
+        final Task task = new TaskBuilder(mSupervisor).setActivityType(
+                ACTIVITY_TYPE_STANDARD).setDisplay(display).build();
+        final ActivityOptions options = ActivityOptions.makeBasic()
+                .setLaunchBounds(new Rect(
+                        DISPLAY_STABLE_BOUNDS.left,
+                        DISPLAY_STABLE_BOUNDS.top,
+                        /* right = */ 500,
+                        /* bottom = */ 500))
+                .setFlexibleLaunchSize(true);
+        final int modifiedWidth =
+                (int) (DISPLAY_BOUNDS.width() * DESKTOP_MODE_INITIAL_BOUNDS_SCALE);
+        final int modifiedHeight =
+                (int) (DISPLAY_BOUNDS.height() * DESKTOP_MODE_INITIAL_BOUNDS_SCALE);
+
+        assertEquals(RESULT_DONE,
+                new CalculateRequestBuilder().setTask(task).setOptions(options).calculate());
+        assertEquals(modifiedWidth, mResult.mBounds.width());
+        assertEquals(modifiedHeight, mResult.mBounds.height());
+    }
+
+    @Test
+    @EnableFlags({Flags.FLAG_ENABLE_DESKTOP_WINDOWING_MODE,
+            Flags.FLAG_ENABLE_SHELL_INITIAL_BOUNDS_REGRESSION_BUG_FIX})
+    public void testOptionsBoundsSet_flexibleLaunchSizeWithCascading_cornerCascadeRespected() {
+        setupDesktopModeLaunchParamsModifier();
+
+        final TestDisplayContent display = createNewDisplayContent(WINDOWING_MODE_FULLSCREEN);
+        final Task task = new TaskBuilder(mSupervisor).setActivityType(
+                ACTIVITY_TYPE_STANDARD).setDisplay(display).build();
+        // Set launch bounds with corner cascade.
+        final ActivityOptions options = ActivityOptions.makeBasic()
+                .setLaunchBounds(new Rect(
+                        DISPLAY_STABLE_BOUNDS.left,
+                        DISPLAY_STABLE_BOUNDS.top,
+                        /* right = */ 500,
+                        /* bottom = */ 500))
+                .setFlexibleLaunchSize(true);
+
+        assertEquals(RESULT_DONE,
+                new CalculateRequestBuilder().setTask(task).setOptions(options).calculate());
+        assertEquals(DISPLAY_STABLE_BOUNDS.left, mResult.mBounds.left);
+        assertEquals(DISPLAY_STABLE_BOUNDS.top, mResult.mBounds.top);
+    }
+
+    @Test
+    @EnableFlags({Flags.FLAG_ENABLE_DESKTOP_WINDOWING_MODE,
+            Flags.FLAG_ENABLE_SHELL_INITIAL_BOUNDS_REGRESSION_BUG_FIX})
+    public void testOptionsBoundsSet_flexibleLaunchSize_centerCascadeRespected() {
+        setupDesktopModeLaunchParamsModifier();
+
+        final TestDisplayContent display = createNewDisplayContent(WINDOWING_MODE_FULLSCREEN);
+        final Task task = new TaskBuilder(mSupervisor).setActivityType(
+                ACTIVITY_TYPE_STANDARD).setDisplay(display).build();
+        // Set launch bounds with center cascade.
+        final ActivityOptions options = ActivityOptions.makeBasic()
+                .setLaunchBounds(new Rect(
+                        /* left = */ 320,
+                        /* top = */ 100,
+                        /* right = */ 640,
+                        /* bottom = */ 200))
+                .setFlexibleLaunchSize(true);
+        final int modifiedWidth =
+                (int) (DISPLAY_BOUNDS.width() * DESKTOP_MODE_INITIAL_BOUNDS_SCALE);
+        final int modifiedHeight =
+                (int) (DISPLAY_BOUNDS.height() * DESKTOP_MODE_INITIAL_BOUNDS_SCALE);
+        final Rect centerCascadedBounds = centerInScreen(
+            new Size(modifiedWidth, modifiedHeight), DISPLAY_STABLE_BOUNDS);
+
+        assertEquals(RESULT_DONE,
+                new CalculateRequestBuilder().setTask(task).setOptions(options).calculate());
+        assertEquals(centerCascadedBounds, mResult.mBounds);
+        assertEquals(centerCascadedBounds.top, mResult.mBounds.top);
+    }
+
+    @Test
     @EnableFlags(Flags.FLAG_ENABLE_DESKTOP_WINDOWING_MODE)
     public void testNonEmptyLayoutBounds_CenterToDisplay() {
         setupDesktopModeLaunchParamsModifier();