diff --git a/packages/pyright-internal/src/analyzer/typeEvaluator.ts b/packages/pyright-internal/src/analyzer/typeEvaluator.ts
index 77767766f..fc9add6b7 100644
--- a/packages/pyright-internal/src/analyzer/typeEvaluator.ts
+++ b/packages/pyright-internal/src/analyzer/typeEvaluator.ts
@@ -17338,10 +17338,16 @@ export function createTypeEvaluator(importLookup: ImportLookup, evaluatorOptions
         // Handle typed dicts. They also use a form of structural typing for type
         // checking, as defined in PEP 589.
         if (ClassType.isTypedDictClass(destType) && ClassType.isTypedDictClass(srcType)) {
-            if ((flags & CanAssignFlags.EnforceInvariance) !== 0 && !ClassType.isSameGenericClass(destType, srcType)) {
+            if (!canAssignTypedDict(evaluatorInterface, destType, srcType, diag, recursionCount)) {
                 return false;
             }
-            return canAssignTypedDict(evaluatorInterface, destType, srcType, diag, recursionCount);
+
+            // If invariance is being enforced, the two TypedDicts must be assignable to each other.
+            if ((flags & CanAssignFlags.EnforceInvariance) !== 0 && !ClassType.isSameGenericClass(destType, srcType)) {
+                return canAssignTypedDict(evaluatorInterface, srcType, destType, /* diag */ undefined, recursionCount);
+            }
+
+            return true;
         }
 
         // Handle special-case type promotions.
diff --git a/packages/pyright-internal/src/tests/samples/typedDict16.py b/packages/pyright-internal/src/tests/samples/typedDict16.py
new file mode 100644
index 000000000..dac520961
--- /dev/null
+++ b/packages/pyright-internal/src/tests/samples/typedDict16.py
@@ -0,0 +1,80 @@
+# This sample tests that type compatibility between TypedDicts.
+
+from typing import List, TypedDict
+
+
+class TD0(TypedDict):
+    key: str
+
+
+class TD1(TD0):
+    value: str
+
+
+class TD2(TypedDict):
+    key: str
+    value: str
+
+
+v1: TD2 = TD1(key="", value="")
+v2: TD1 = TD2(key="", value="")
+
+v3 = [v2]
+v4: List[TD2] = v3
+v5 = [v1]
+v6: List[TD1] = v5
+
+
+class TD10(TypedDict, total=False):
+    key: str
+
+
+class TD11(TD10):
+    value: str
+
+
+class TD12(TypedDict):
+    key: str
+    value: str
+
+
+# This should generate an error.
+v10: TD12 = TD11(key="", value="")
+
+# This should generate an error.
+v11: TD11 = TD12(key="", value="")
+
+
+v12 = [v10]
+# This should generate an error.
+v13: List[TD10] = v12
+
+v14 = [v11]
+# This should generate an error.
+v15: List[TD12] = v14
+
+
+class TD20(TypedDict):
+    key: str
+    value: str
+
+
+class TD21(TypedDict):
+    key: str
+    value: str
+    extra: str
+
+
+# This should generate an error.
+v20: TD21 = TD20(key="", value="")
+
+v21: TD20 = TD21(key="", value="", extra="")
+
+
+v22 = [v20]
+# This should generate an error.
+v23: List[TD20] = v22
+
+v24: List[TD20] = [v21]
+# This should generate an error.
+v25: List[TD21] = v24
diff --git a/packages/pyright-internal/src/tests/typeEvaluator2.test.ts b/packages/pyright-internal/src/tests/typeEvaluator2.test.ts
index 68f90e318..31745b3ca 100644
--- a/packages/pyright-internal/src/tests/typeEvaluator2.test.ts
+++ b/packages/pyright-internal/src/tests/typeEvaluator2.test.ts
@@ -986,3 +986,9 @@ test('TypedDict15', () => {
 
     TestUtils.validateResults(analysisResults, 2);
 });
+
+test('TypedDict16', () => {
+    const analysisResults = TestUtils.typeAnalyzeSampleFiles(['typedDict16.py']);
+
+    TestUtils.validateResults(analysisResults, 7);
+});