diff --git a/crates/editor/src/edit_prediction_tests.rs b/crates/editor/src/edit_prediction_tests.rs
index 684213e481762d7fb09a0bd6d8b7a0b9fc6d4a36..52939a9e5a8fd1a35a3a3c0bcd2a04b893bd6628 100644
--- a/crates/editor/src/edit_prediction_tests.rs
+++ b/crates/editor/src/edit_prediction_tests.rs
@@ -954,7 +954,7 @@ async fn test_cursor_popover_edit_prediction_keybind_cases(cx: &mut gpui::TestAp
                 cx.update_editor(|editor, _window, cx| {
                     assert!(editor.active_edit_prediction.is_some());
                     assert!(editor.stale_edit_prediction_in_menu.is_none());
-                    editor.take_active_edit_prediction(cx);
+                    editor.take_active_edit_prediction(true, cx);
                     assert!(editor.active_edit_prediction.is_none());
                     assert!(editor.stale_edit_prediction_in_menu.is_some());
                 });
@@ -1054,6 +1054,33 @@ fn assert_editor_active_move_completion(
     })
 }
 
+#[gpui::test]
+async fn test_cancel_clears_stale_edit_prediction_in_menu(cx: &mut gpui::TestAppContext) {
+    init_test(cx, |_| {});
+    load_default_keymap(cx);
+
+    let mut cx = EditorTestContext::new(cx).await;
+    let provider = cx.new(|_| FakeEditPredictionDelegate::default());
+    assign_editor_completion_provider(provider.clone(), &mut cx);
+    cx.set_state("let x = ˇ;");
+
+    propose_edits(&provider, vec![(8..8, "42")], &mut cx);
+    cx.update_editor(|editor, window, cx| editor.update_visible_edit_prediction(window, cx));
+
+    cx.update_editor(|editor, _window, _cx| {
+        assert!(editor.active_edit_prediction.is_some());
+        assert!(editor.stale_edit_prediction_in_menu.is_none());
+    });
+
+    cx.simulate_keystroke("escape");
+    cx.run_until_parked();
+
+    cx.update_editor(|editor, _window, _cx| {
+        assert!(editor.active_edit_prediction.is_none());
+        assert!(editor.stale_edit_prediction_in_menu.is_none());
+    });
+}
+
 fn accept_completion(cx: &mut EditorTestContext) {
     cx.update_editor(|editor, window, cx| {
         editor.accept_edit_prediction(&crate::AcceptEditPrediction, window, cx)
diff --git a/crates/editor/src/editor.rs b/crates/editor/src/editor.rs
index 3fb832b3ac7b2ebb6aa3f47b2dcd590d7eb081df..a6ad7219b59195bad61e73b44090d549b3ad7bf5 100644
--- a/crates/editor/src/editor.rs
+++ b/crates/editor/src/editor.rs
@@ -8427,7 +8427,7 @@ impl Editor {
             provider.discard(reason, cx);
         }
 
-        self.take_active_edit_prediction(cx)
+        self.take_active_edit_prediction(reason == EditPredictionDiscardReason::Ignored, cx)
     }
 
     fn report_edit_prediction_event(&self, id: Option<SharedString>, accepted: bool, cx: &App) {
@@ -8495,14 +8495,22 @@ impl Editor {
         self.active_edit_prediction.is_some()
     }
 
-    fn take_active_edit_prediction(&mut self, cx: &mut Context<Self>) -> bool {
+    fn take_active_edit_prediction(
+        &mut self,
+        preserve_stale_in_menu: bool,
+        cx: &mut Context<Self>,
+    ) -> bool {
         let Some(active_edit_prediction) = self.active_edit_prediction.take() else {
+            if !preserve_stale_in_menu {
+                self.stale_edit_prediction_in_menu = None;
+            }
             return false;
         };
 
         self.splice_inlays(&active_edit_prediction.inlay_ids, Default::default(), cx);
         self.clear_highlights(HighlightKey::EditPredictionHighlight, cx);
-        self.stale_edit_prediction_in_menu = Some(active_edit_prediction);
+        self.stale_edit_prediction_in_menu =
+            preserve_stale_in_menu.then_some(active_edit_prediction);
         true
     }
 
@@ -8715,7 +8723,7 @@ impl Editor {
             return None;
         }
 
-        self.take_active_edit_prediction(cx);
+        self.take_active_edit_prediction(true, cx);
         let Some(provider) = self.edit_prediction_provider() else {
             self.edit_prediction_settings = EditPredictionSettings::Disabled;
             return None;
@@ -25205,7 +25213,7 @@ impl Editor {
         {
             self.hide_context_menu(window, cx);
         }
-        self.take_active_edit_prediction(cx);
+        self.take_active_edit_prediction(true, cx);
         cx.emit(EditorEvent::Blurred);
         cx.notify();
     }