diff --git a/config/src/config.rs b/config/src/config.rs
index 1fa17619f..6c1ac15b7 100644
--- a/config/src/config.rs
+++ b/config/src/config.rs
@@ -627,6 +627,12 @@ pub struct Config {
     #[dynamic(default = "default_true")]
     pub hide_mouse_cursor_when_typing: bool,
 
+    /// If true, the mouse cursor will be an arrow if
+    /// the application has captured the mouse.
+    /// This option is true by default.
+    #[dynamic(default = "default_true")]
+    pub use_arrow_mouse_cursor_when_mouse_reporting: bool,
+
     /// If non-zero, specifies the period (in seconds) at which various
     /// statistics are logged.  Note that there is a minimum period of
     /// 10 seconds.
diff --git a/docs/config/lua/config/use_arrow_mouse_cursor_when_mouse_reporting.md b/docs/config/lua/config/use_arrow_mouse_cursor_when_mouse_reporting.md
new file mode 100644
index 000000000..a5af27e0b
--- /dev/null
+++ b/docs/config/lua/config/use_arrow_mouse_cursor_when_mouse_reporting.md
@@ -0,0 +1,13 @@
+# `use_arrow_mouse_cursor_when_mouse_reporting`
+
+{{since('nightly')}}
+
+If `true`, the mouse cursor will be overridden to be an arrow
+when the application enables mouse reporting. Otherwise, it
+will remain as the text cursor (an I-beam).
+
+The default is `true`.
+
+```lua
+config.use_arrow_mouse_cursor_when_mouse_reporting = true
+```
diff --git a/wezterm-gui/src/termwindow/mouseevent.rs b/wezterm-gui/src/termwindow/mouseevent.rs
index 559d41a65..a1e103ed7 100644
--- a/wezterm-gui/src/termwindow/mouseevent.rs
+++ b/wezterm-gui/src/termwindow/mouseevent.rs
@@ -824,7 +824,9 @@ impl super::TermWindow {
             // When hovering over a hyperlink, show an appropriate
             // mouse cursor to give the cue that it is clickable
             MouseCursor::Hand
-        } else if pane.is_mouse_grabbed() || outside_window {
+        } else if outside_window
+            || (self.config.use_arrow_mouse_cursor_when_mouse_reporting && pane.is_mouse_grabbed())
+        {
             MouseCursor::Arrow
         } else {
             MouseCursor::Text