diff --git a/src/vs/workbench/contrib/terminalContrib/inlineHint/browser/terminal.initialHint.contribution.ts b/src/vs/workbench/contrib/terminalContrib/inlineHint/browser/terminal.initialHint.contribution.ts
index b8d75933b373f..9b43d89020b4a 100644
--- a/src/vs/workbench/contrib/terminalContrib/inlineHint/browser/terminal.initialHint.contribution.ts
+++ b/src/vs/workbench/contrib/terminalContrib/inlineHint/browser/terminal.initialHint.contribution.ts
@@ -81,8 +81,9 @@ export class TerminalInitialHintContribution extends Disposable implements ITerm
 	static get(instance: ITerminalInstance | IDetachedTerminalInstance): TerminalInitialHintContribution | null {
 		return instance.getContribution<TerminalInitialHintContribution>(TerminalInitialHintContribution.ID);
 	}
-	private _decoration: IDecoration | undefined;
+	private readonly _decoration = this._register(new MutableDisposable<IDecoration>());
 	private _xterm: IXtermTerminal & { raw: RawXtermTerminal } | undefined;
+	private readonly _cursorMoveListener = this._register(new MutableDisposable());
 
 	constructor(
 		private readonly _ctx: ITerminalContributionContext | IDetachedCompatibleTerminalContributionContext,
@@ -108,6 +109,12 @@ export class TerminalInitialHintContribution extends Disposable implements ITerm
 		this._register(this._addon.onDidRequestCreateHint(() => this._createHint()));
 	}
 
+	private _disposeHint(): void {
+		this._hintWidget?.remove();
+		this._hintWidget = undefined;
+		this._decoration.clear();
+	}
+
 	private _createHint(): void {
 		const instance = this._ctx.instance instanceof TerminalInstance ? this._ctx.instance : undefined;
 		const commandDetectionCapability = instance?.capabilities.get(TerminalCapability.CommandDetection);
@@ -119,7 +126,7 @@ export class TerminalInitialHintContribution extends Disposable implements ITerm
 			return;
 		}
 
-		if (!this._decoration) {
+		if (!this._decoration.value) {
 			const marker = this._xterm.raw.registerMarker();
 			if (!marker) {
 				return;
@@ -129,13 +136,10 @@ export class TerminalInitialHintContribution extends Disposable implements ITerm
 				return;
 			}
 			this._register(marker);
-			this._decoration = this._xterm.raw.registerDecoration({
+			this._decoration.value = this._xterm.raw.registerDecoration({
 				marker,
 				x: this._xterm.raw.buffer.active.cursorX + 1,
 			});
-			if (this._decoration) {
-				this._register(this._decoration);
-			}
 		}
 
 		this._register(this._xterm.raw.onKey(() => this.dispose()));
@@ -155,11 +159,19 @@ export class TerminalInitialHintContribution extends Disposable implements ITerm
 			}));
 		}
 
-		if (!this._decoration) {
+		// Listen to cursor move and recreate the hint (only if no input has been received)
+		// Fixes #286080 an issue where the hint would not reposition correctly when the terminal's prompt changed
+		this._cursorMoveListener.value = this._xterm.raw.onCursorMove(() => {
+			if (!inputModel?.value) {
+				this._disposeHint();
+				this._createHint();
+			}
+		});
+
+		if (!this._decoration.value) {
 			return;
 		}
-		this._register(this._decoration);
-		this._register(this._decoration.onRender((e) => {
+		this._register(this._decoration.value.onRender((e) => {
 			if (!this._hintWidget && this._xterm?.isFocused) {
 				const widget = this._register(this._instantiationService.createInstance(TerminalInitialHintWidget, instance));
 				this._addon?.dispose();