diff --git a/services/inputflinger/dispatcher/CancelationOptions.h b/services/inputflinger/dispatcher/CancelationOptions.h
index 4a0889f..568d348 100644
--- a/services/inputflinger/dispatcher/CancelationOptions.h
+++ b/services/inputflinger/dispatcher/CancelationOptions.h
@@ -32,7 +32,8 @@
         CANCEL_POINTER_EVENTS = 1,
         CANCEL_NON_POINTER_EVENTS = 2,
         CANCEL_FALLBACK_EVENTS = 3,
-        ftl_last = CANCEL_FALLBACK_EVENTS,
+        CANCEL_HOVER_EVENTS = 4,
+        ftl_last = CANCEL_HOVER_EVENTS
     };
 
     // The criterion to use to determine which events should be canceled.
diff --git a/services/inputflinger/dispatcher/InputDispatcher.cpp b/services/inputflinger/dispatcher/InputDispatcher.cpp
index 2161e09..7eb7e36 100644
--- a/services/inputflinger/dispatcher/InputDispatcher.cpp
+++ b/services/inputflinger/dispatcher/InputDispatcher.cpp
@@ -746,7 +746,8 @@
             }
             touchedWindow.dispatchMode = InputTarget::DispatchMode::AS_IS;
         }
-        touchedWindow.addHoveringPointer(entry.deviceId, pointer);
+        const auto [x, y] = resolveTouchedPosition(entry);
+        touchedWindow.addHoveringPointer(entry.deviceId, pointer, x, y);
         if (canReceiveForegroundTouches(*newWindow->getInfo())) {
             touchedWindow.targetFlags |= InputTarget::Flags::FOREGROUND;
         }
@@ -873,6 +874,8 @@
             return {false, true};
         case CancelationOptions::Mode::CANCEL_FALLBACK_EVENTS:
             return {false, true};
+        case CancelationOptions::Mode::CANCEL_HOVER_EVENTS:
+            return {true, false};
     }
 }
 
@@ -2511,7 +2514,8 @@
 
             if (isHoverAction) {
                 // The "windowHandle" is the target of this hovering pointer.
-                tempTouchState.addHoveringPointerToWindow(windowHandle, entry.deviceId, pointer);
+                tempTouchState.addHoveringPointerToWindow(windowHandle, entry.deviceId, pointer, x,
+                                                          y);
             }
 
             // Set target flags.
@@ -5437,6 +5441,31 @@
         }
     }
 
+    // Check if the hovering should stop because the window is no longer eligible to receive it
+    // (for example, if the touchable region changed)
+    if (const auto& it = mTouchStatesByDisplay.find(displayId); it != mTouchStatesByDisplay.end()) {
+        TouchState& state = it->second;
+        for (TouchedWindow& touchedWindow : state.windows) {
+            std::vector<DeviceId> erasedDevices = touchedWindow.eraseHoveringPointersIf(
+                    [this, displayId, &touchedWindow](const PointerProperties& properties, float x,
+                                                      float y) REQUIRES(mLock) {
+                        const bool isStylus = properties.toolType == ToolType::STYLUS;
+                        const ui::Transform displayTransform = getTransformLocked(displayId);
+                        const bool stillAcceptsTouch =
+                                windowAcceptsTouchAt(*touchedWindow.windowHandle->getInfo(),
+                                                     displayId, x, y, isStylus, displayTransform);
+                        return !stillAcceptsTouch;
+                    });
+
+            for (DeviceId deviceId : erasedDevices) {
+                CancelationOptions options(CancelationOptions::Mode::CANCEL_HOVER_EVENTS,
+                                           "WindowInfo changed", traceContext.getTracker());
+                options.deviceId = deviceId;
+                synthesizeCancelationEventsForWindowLocked(touchedWindow.windowHandle, options);
+            }
+        }
+    }
+
     // Release information for windows that are no longer present.
     // This ensures that unused input channels are released promptly.
     // Otherwise, they might stick around until the window handle is destroyed
diff --git a/services/inputflinger/dispatcher/InputState.cpp b/services/inputflinger/dispatcher/InputState.cpp
index dfbe02f..e283fc3 100644
--- a/services/inputflinger/dispatcher/InputState.cpp
+++ b/services/inputflinger/dispatcher/InputState.cpp
@@ -638,6 +638,8 @@
             return memento.source & AINPUT_SOURCE_CLASS_POINTER;
         case CancelationOptions::Mode::CANCEL_NON_POINTER_EVENTS:
             return !(memento.source & AINPUT_SOURCE_CLASS_POINTER);
+        case CancelationOptions::Mode::CANCEL_HOVER_EVENTS:
+            return memento.hovering;
         default:
             return false;
     }
diff --git a/services/inputflinger/dispatcher/TouchState.cpp b/services/inputflinger/dispatcher/TouchState.cpp
index 0c9ad3c..2bf63be 100644
--- a/services/inputflinger/dispatcher/TouchState.cpp
+++ b/services/inputflinger/dispatcher/TouchState.cpp
@@ -112,17 +112,18 @@
 }
 
 void TouchState::addHoveringPointerToWindow(const sp<WindowInfoHandle>& windowHandle,
-                                            DeviceId deviceId, const PointerProperties& pointer) {
+                                            DeviceId deviceId, const PointerProperties& pointer,
+                                            float x, float y) {
     for (TouchedWindow& touchedWindow : windows) {
         if (touchedWindow.windowHandle == windowHandle) {
-            touchedWindow.addHoveringPointer(deviceId, pointer);
+            touchedWindow.addHoveringPointer(deviceId, pointer, x, y);
             return;
         }
     }
 
     TouchedWindow touchedWindow;
     touchedWindow.windowHandle = windowHandle;
-    touchedWindow.addHoveringPointer(deviceId, pointer);
+    touchedWindow.addHoveringPointer(deviceId, pointer, x, y);
     windows.push_back(touchedWindow);
 }
 
diff --git a/services/inputflinger/dispatcher/TouchState.h b/services/inputflinger/dispatcher/TouchState.h
index 9d4bb3d..3fbe584 100644
--- a/services/inputflinger/dispatcher/TouchState.h
+++ b/services/inputflinger/dispatcher/TouchState.h
@@ -49,7 +49,8 @@
             DeviceId deviceId, const std::vector<PointerProperties>& touchingPointers,
             std::optional<nsecs_t> firstDownTimeInTarget = std::nullopt);
     void addHoveringPointerToWindow(const sp<android::gui::WindowInfoHandle>& windowHandle,
-                                    DeviceId deviceId, const PointerProperties& pointer);
+                                    DeviceId deviceId, const PointerProperties& pointer, float x,
+                                    float y);
     void removeHoveringPointer(DeviceId deviceId, int32_t pointerId);
     void clearHoveringPointers(DeviceId deviceId);
 
diff --git a/services/inputflinger/dispatcher/TouchedWindow.cpp b/services/inputflinger/dispatcher/TouchedWindow.cpp
index 1f86f66..fa5be1a 100644
--- a/services/inputflinger/dispatcher/TouchedWindow.cpp
+++ b/services/inputflinger/dispatcher/TouchedWindow.cpp
@@ -36,6 +36,13 @@
                         }) != pointers.end();
 }
 
+bool hasPointerId(const std::vector<TouchedWindow::HoveringPointer>& pointers, int32_t pointerId) {
+    return std::find_if(pointers.begin(), pointers.end(),
+                        [&pointerId](const TouchedWindow::HoveringPointer& pointer) {
+                            return pointer.properties.id == pointerId;
+                        }) != pointers.end();
+}
+
 } // namespace
 
 bool TouchedWindow::hasHoveringPointers() const {
@@ -78,16 +85,18 @@
     return hasPointerId(state.hoveringPointers, pointerId);
 }
 
-void TouchedWindow::addHoveringPointer(DeviceId deviceId, const PointerProperties& pointer) {
-    std::vector<PointerProperties>& hoveringPointers = mDeviceStates[deviceId].hoveringPointers;
+void TouchedWindow::addHoveringPointer(DeviceId deviceId, const PointerProperties& properties,
+                                       float x, float y) {
+    std::vector<HoveringPointer>& hoveringPointers = mDeviceStates[deviceId].hoveringPointers;
     const size_t initialSize = hoveringPointers.size();
-    std::erase_if(hoveringPointers, [&pointer](const PointerProperties& properties) {
-        return properties.id == pointer.id;
+    std::erase_if(hoveringPointers, [&properties](const HoveringPointer& pointer) {
+        return pointer.properties.id == properties.id;
     });
     if (hoveringPointers.size() != initialSize) {
-        LOG(ERROR) << __func__ << ": " << pointer << ", device " << deviceId << " was in " << *this;
+        LOG(ERROR) << __func__ << ": " << properties << ", device " << deviceId << " was in "
+                   << *this;
     }
-    hoveringPointers.push_back(pointer);
+    hoveringPointers.push_back({properties, x, y});
 }
 
 Result<void> TouchedWindow::addTouchingPointers(DeviceId deviceId,
@@ -173,8 +182,8 @@
                 return true;
             }
         }
-        for (const PointerProperties& properties : state.hoveringPointers) {
-            if (properties.toolType == ToolType::STYLUS) {
+        for (const HoveringPointer& pointer : state.hoveringPointers) {
+            if (pointer.properties.toolType == ToolType::STYLUS) {
                 return true;
             }
         }
@@ -270,8 +279,8 @@
     }
     DeviceState& state = stateIt->second;
 
-    std::erase_if(state.hoveringPointers, [&pointerId](const PointerProperties& properties) {
-        return properties.id == pointerId;
+    std::erase_if(state.hoveringPointers, [&pointerId](const HoveringPointer& pointer) {
+        return pointer.properties.id == pointerId;
     });
 
     if (!state.hasPointers()) {
@@ -279,6 +288,22 @@
     }
 }
 
+std::vector<DeviceId> TouchedWindow::eraseHoveringPointersIf(
+        std::function<bool(const PointerProperties&, float /*x*/, float /*y*/)> condition) {
+    std::vector<DeviceId> erasedDevices;
+    for (auto& [deviceId, state] : mDeviceStates) {
+        std::erase_if(state.hoveringPointers, [&](const HoveringPointer& pointer) {
+            if (condition(pointer.properties, pointer.x, pointer.y)) {
+                erasedDevices.push_back(deviceId);
+                return true;
+            }
+            return false;
+        });
+    }
+
+    return erasedDevices;
+}
+
 void TouchedWindow::removeAllHoveringPointersForDevice(DeviceId deviceId) {
     const auto stateIt = mDeviceStates.find(deviceId);
     if (stateIt == mDeviceStates.end()) {
@@ -312,6 +337,11 @@
     return out;
 }
 
+std::ostream& operator<<(std::ostream& out, const TouchedWindow::HoveringPointer& pointer) {
+    out << pointer.properties << " at (" << pointer.x << ", " << pointer.y << ")";
+    return out;
+}
+
 std::ostream& operator<<(std::ostream& out, const TouchedWindow& window) {
     out << window.dump();
     return out;
diff --git a/services/inputflinger/dispatcher/TouchedWindow.h b/services/inputflinger/dispatcher/TouchedWindow.h
index 4f0ad16..c38681e 100644
--- a/services/inputflinger/dispatcher/TouchedWindow.h
+++ b/services/inputflinger/dispatcher/TouchedWindow.h
@@ -38,7 +38,7 @@
     bool hasHoveringPointers() const;
     bool hasHoveringPointers(DeviceId deviceId) const;
     bool hasHoveringPointer(DeviceId deviceId, int32_t pointerId) const;
-    void addHoveringPointer(DeviceId deviceId, const PointerProperties& pointer);
+    void addHoveringPointer(DeviceId deviceId, const PointerProperties& pointer, float x, float y);
     void removeHoveringPointer(DeviceId deviceId, int32_t pointerId);
 
     // Touching
@@ -69,6 +69,15 @@
     void clearHoveringPointers(DeviceId deviceId);
     std::string dump() const;
 
+    struct HoveringPointer {
+        PointerProperties properties;
+        float x;
+        float y;
+    };
+
+    std::vector<DeviceId> eraseHoveringPointersIf(
+            std::function<bool(const PointerProperties&, float /*x*/, float /*y*/)> condition);
+
 private:
     struct DeviceState {
         std::vector<PointerProperties> touchingPointers;
@@ -78,7 +87,7 @@
         // NOTE: This is not initialized in case of HOVER entry/exit and DISPATCH_AS_OUTSIDE
         // scenario.
         std::optional<nsecs_t> downTimeInTarget;
-        std::vector<PointerProperties> hoveringPointers;
+        std::vector<HoveringPointer> hoveringPointers;
 
         bool hasPointers() const { return !touchingPointers.empty() || !hoveringPointers.empty(); };
     };
diff --git a/services/inputflinger/tests/InputDispatcher_test.cpp b/services/inputflinger/tests/InputDispatcher_test.cpp
index 73ab0da..48930ef 100644
--- a/services/inputflinger/tests/InputDispatcher_test.cpp
+++ b/services/inputflinger/tests/InputDispatcher_test.cpp
@@ -1923,6 +1923,99 @@
     window->consumeMotionEvent(WithMotionAction(ACTION_SCROLL));
 }
 
+/**
+ * Two windows: a trusted overlay and a regular window underneath. Both windows are visible.
+ * Mouse is hovered, and the hover event should only go to the overlay.
+ * However, next, the touchable region of the trusted overlay shrinks. The mouse position hasn't
+ * changed, but the cursor would now end up hovering above the regular window underneatch.
+ * If the mouse is now clicked, this would generate an ACTION_DOWN event, which would go to the
+ * regular window. However, the trusted overlay is also watching for outside touch.
+ * The trusted overlay should get two events:
+ * 1) The ACTION_OUTSIDE event, since the click is now not inside its touchable region
+ * 2) The HOVER_EXIT event, since the mouse pointer is no longer hovering inside this window
+ *
+ * This test reproduces a crash where there is an overlap between dispatch modes for the trusted
+ * overlay touch target, since the event is causing both an ACTION_OUTSIDE, and as a HOVER_EXIT.
+ */
+TEST_F(InputDispatcherTest, MouseClickUnderShrinkingTrustedOverlay) {
+    std::shared_ptr<FakeApplicationHandle> app = std::make_shared<FakeApplicationHandle>();
+    sp<FakeWindowHandle> overlay = sp<FakeWindowHandle>::make(app, mDispatcher, "Trusted overlay",
+                                                              ui::LogicalDisplayId::DEFAULT);
+    overlay->setTrustedOverlay(true);
+    overlay->setWatchOutsideTouch(true);
+    overlay->setFrame(Rect(0, 0, 200, 200));
+
+    sp<FakeWindowHandle> window = sp<FakeWindowHandle>::make(app, mDispatcher, "Regular window",
+                                                             ui::LogicalDisplayId::DEFAULT);
+    window->setFrame(Rect(0, 0, 200, 200));
+
+    mDispatcher->onWindowInfosChanged({{*overlay->getInfo(), *window->getInfo()}, {}, 0, 0});
+    // Hover the mouse into the overlay
+    mDispatcher->notifyMotion(MotionArgsBuilder(ACTION_HOVER_MOVE, AINPUT_SOURCE_MOUSE)
+                                      .pointer(PointerBuilder(0, ToolType::MOUSE).x(100).y(110))
+                                      .build());
+    overlay->consumeMotionEvent(WithMotionAction(ACTION_HOVER_ENTER));
+
+    // Now, shrink the touchable region of the overlay! This will cause the cursor to suddenly have
+    // the regular window as the touch target
+    overlay->setTouchableRegion(Region({0, 0, 0, 0}));
+    mDispatcher->onWindowInfosChanged({{*overlay->getInfo(), *window->getInfo()}, {}, 0, 0});
+
+    // Now we can click with the mouse. The click should go into the regular window
+    mDispatcher->notifyMotion(MotionArgsBuilder(ACTION_DOWN, AINPUT_SOURCE_MOUSE)
+                                      .pointer(PointerBuilder(0, ToolType::MOUSE).x(100).y(110))
+                                      .build());
+    overlay->consumeMotionEvent(WithMotionAction(ACTION_HOVER_EXIT));
+    overlay->consumeMotionEvent(WithMotionAction(ACTION_OUTSIDE));
+    window->consumeMotionEvent(WithMotionAction(ACTION_DOWN));
+}
+
+/**
+ * Similar to above, but also has a spy on top that also catches the HOVER
+ * events. Also, instead of ACTION_DOWN, we are continuing to send the hovering
+ * stream to ensure that the spy receives hover events correctly.
+ */
+TEST_F(InputDispatcherTest, MouseClickUnderShrinkingTrustedOverlayWithSpy) {
+    std::shared_ptr<FakeApplicationHandle> app = std::make_shared<FakeApplicationHandle>();
+    sp<FakeWindowHandle> spyWindow =
+            sp<FakeWindowHandle>::make(app, mDispatcher, "Spy", ui::LogicalDisplayId::DEFAULT);
+    spyWindow->setFrame(Rect(0, 0, 200, 200));
+    spyWindow->setTrustedOverlay(true);
+    spyWindow->setSpy(true);
+    sp<FakeWindowHandle> overlay = sp<FakeWindowHandle>::make(app, mDispatcher, "Trusted overlay",
+                                                              ui::LogicalDisplayId::DEFAULT);
+    overlay->setTrustedOverlay(true);
+    overlay->setWatchOutsideTouch(true);
+    overlay->setFrame(Rect(0, 0, 200, 200));
+
+    sp<FakeWindowHandle> window = sp<FakeWindowHandle>::make(app, mDispatcher, "Regular window",
+                                                             ui::LogicalDisplayId::DEFAULT);
+    window->setFrame(Rect(0, 0, 200, 200));
+
+    mDispatcher->onWindowInfosChanged(
+            {{*spyWindow->getInfo(), *overlay->getInfo(), *window->getInfo()}, {}, 0, 0});
+    // Hover the mouse into the overlay
+    mDispatcher->notifyMotion(MotionArgsBuilder(ACTION_HOVER_MOVE, AINPUT_SOURCE_MOUSE)
+                                      .pointer(PointerBuilder(0, ToolType::MOUSE).x(100).y(110))
+                                      .build());
+    spyWindow->consumeMotionEvent(WithMotionAction(ACTION_HOVER_ENTER));
+    overlay->consumeMotionEvent(WithMotionAction(ACTION_HOVER_ENTER));
+
+    // Now, shrink the touchable region of the overlay! This will cause the cursor to suddenly have
+    // the regular window as the touch target
+    overlay->setTouchableRegion(Region({0, 0, 0, 0}));
+    mDispatcher->onWindowInfosChanged(
+            {{*spyWindow->getInfo(), *overlay->getInfo(), *window->getInfo()}, {}, 0, 0});
+
+    // Now we can click with the mouse. The click should go into the regular window
+    mDispatcher->notifyMotion(MotionArgsBuilder(ACTION_HOVER_MOVE, AINPUT_SOURCE_MOUSE)
+                                      .pointer(PointerBuilder(0, ToolType::MOUSE).x(110).y(110))
+                                      .build());
+    spyWindow->consumeMotionEvent(WithMotionAction(ACTION_HOVER_MOVE));
+    overlay->consumeMotionEvent(WithMotionAction(ACTION_HOVER_EXIT));
+    window->consumeMotionEvent(WithMotionAction(ACTION_HOVER_ENTER));
+}
+
 using InputDispatcherMultiDeviceTest = InputDispatcherTest;
 
 /**