diff --git a/.vscode/launch.json b/.vscode/launch.json
index d3b1c133e..3356019dd 100644
--- a/.vscode/launch.json
+++ b/.vscode/launch.json
@@ -56,6 +56,18 @@
       },
       "outputCapture": "std"
     },
+    {
+      "type": "node",
+      "request": "launch",
+      "name": "Build fastboot-app",
+      "program": "/Users/edward/hacking/sample/node_modules/.bin/ember",
+      "cwd": "${workspaceFolder}/test-packages/fastboot-app",
+      "args": ["build"],
+      "env": {
+        "JOBS": "1"
+      },
+      "outputCapture": "std"
+    },
     {
       "type": "node",
       "request": "launch",
diff --git a/packages/compat/src/detect-babel-plugins.ts b/packages/compat/src/detect-babel-plugins.ts
new file mode 100644
index 000000000..de78c4647
--- /dev/null
+++ b/packages/compat/src/detect-babel-plugins.ts
@@ -0,0 +1,37 @@
+import { PluginItem } from '@babel/core';
+
+export function isEmberAutoImportDynamic(item: PluginItem): boolean {
+  let pluginPath: string;
+  if (typeof item === 'string') {
+    pluginPath = item;
+  } else if (Array.isArray(item) && item.length > 0 && typeof item[0] === 'string') {
+    pluginPath = item[0];
+  } else {
+    return false;
+  }
+  return /(^|\/)ember-auto-import\//.test(pluginPath);
+}
+
+export function isCompactReexports(item: PluginItem): boolean {
+  let pluginPath: string;
+  if (typeof item === 'string') {
+    pluginPath = item;
+  } else if (Array.isArray(item) && item.length > 0 && typeof item[0] === 'string') {
+    pluginPath = item[0];
+  } else {
+    return false;
+  }
+  return /(^|\/)babel-plugin-compact-reexports\//.test(pluginPath);
+}
+
+export function isColocationPlugin(item: PluginItem): boolean {
+  let pluginPath: string;
+  if (typeof item === 'string') {
+    pluginPath = item;
+  } else if (Array.isArray(item) && item.length > 0 && typeof item[0] === 'string') {
+    pluginPath = item[0];
+  } else {
+    return false;
+  }
+  return /(^|\/)ember-cli-htmlbars\/lib\/colocated-babel-plugin/.test(pluginPath);
+}
diff --git a/packages/compat/src/detect-ember-auto-import.ts b/packages/compat/src/detect-ember-auto-import.ts
deleted file mode 100644
index 9fe4ce35f..000000000
--- a/packages/compat/src/detect-ember-auto-import.ts
+++ /dev/null
@@ -1,13 +0,0 @@
-import { PluginItem } from '@babel/core';
-
-export function isEmberAutoImportDynamic(item: PluginItem): boolean {
-  let pluginPath: string;
-  if (typeof item === 'string') {
-    pluginPath = item;
-  } else if (Array.isArray(item) && item.length > 0 && typeof item[0] === 'string') {
-    pluginPath = item[0];
-  } else {
-    return false;
-  }
-  return /(^|\/)ember-auto-import\//.test(pluginPath);
-}
diff --git a/packages/compat/src/v1-addon.ts b/packages/compat/src/v1-addon.ts
index cc16c0fcd..327dfe281 100644
--- a/packages/compat/src/v1-addon.ts
+++ b/packages/compat/src/v1-addon.ts
@@ -22,8 +22,7 @@ import V1App from './v1-app';
 import modulesCompat from './modules-compat';
 import writeFile from 'broccoli-file-creator';
 import SynthesizeTemplateOnlyComponents from './synthesize-template-only-components';
-import { isEmberAutoImportDynamic } from './detect-ember-auto-import';
-import { isCompactReexports } from './detect-compact-reexports';
+import { isEmberAutoImportDynamic, isCompactReexports, isColocationPlugin } from './detect-babel-plugins';
 import { ResolvedDep } from '@embroider/core/src/resolver';
 
 const stockTreeNames = Object.freeze([
@@ -179,12 +178,18 @@ export default class V1Addon {
       },
     });
 
-    if (this.needsCustomBabel()) {
-      // there is customized babel behavior needed, so we will leave
-      // ember-cli-babel in place, but modify its config so it doesn't do the
-      // things we don't want to do in stage1.
-      this.updateBabelConfig();
-    } else {
+    // first, look into the babel config and related packages to decide whether
+    // we need to run babel at all in this stage.
+    let needsCustomBabel = this.needsCustomBabel();
+
+    // regardless of the answer, we modify the babel config, because even if
+    // we're unregistering ember-cli-babel, some addons manually invoke
+    // ember-cli-babel in their custom hooks, and in that case we want to be
+    // sure we've taken out the babel plugins that really shouldn't run at this
+    // stage.
+    this.updateBabelConfig();
+
+    if (!needsCustomBabel) {
       // no custom babel behavior, so we don't run the ember-cli-babel
       // preprocessor at all. We still need to register a no-op preprocessor to
       // prevent ember-cli from emitting a deprecation warning.
@@ -247,8 +252,7 @@ export default class V1Addon {
       return true;
     }
 
-    let babelConfig = this.options.babel as TransformOptions | undefined;
-    if (babelConfig && babelConfig.plugins && babelConfig.plugins.length > 0) {
+    if ((this.options.babel?.plugins?.filter(babelPluginAllowedInStage1)?.length ?? 0) > 0) {
       // this addon has custom babel plugins, so we need to run them here in
       // stage1
       return true;
@@ -1016,6 +1020,13 @@ function babelPluginAllowedInStage1(plugin: PluginItem) {
     return false;
   }
 
+  if (isColocationPlugin(plugin)) {
+    // template co-location is a first-class feature we support directly, so
+    // whether or not the app brought a plugin for it we're going to do it our
+    // way.
+    return false;
+  }
+
   return true;
 }
 
diff --git a/packages/compat/src/v1-app.ts b/packages/compat/src/v1-app.ts
index ff2fa4a52..74005622d 100644
--- a/packages/compat/src/v1-app.ts
+++ b/packages/compat/src/v1-app.ts
@@ -18,7 +18,7 @@ import resolvePackagePath from 'resolve-package-path';
 import Concat from 'broccoli-concat';
 import mapKeys from 'lodash/mapKeys';
 import SynthesizeTemplateOnlyComponents from './synthesize-template-only-components';
-import { isEmberAutoImportDynamic } from './detect-ember-auto-import';
+import { isEmberAutoImportDynamic } from './detect-babel-plugins';
 
 // This controls and types the interface between our new world and the classic
 // v1 app instance.
diff --git a/test-packages/fastboot-addon/index.js b/test-packages/fastboot-addon/index.js
index 5d4fffb6c..61d363113 100644
--- a/test-packages/fastboot-addon/index.js
+++ b/test-packages/fastboot-addon/index.js
@@ -6,4 +6,7 @@ module.exports = {
     manifest.vendorFiles.push('fastboot-addon/sample.js');
     return manifest;
   },
+  included(...args) {
+    this._super.included.call(this, ...args);
+  },
 };