diff --git a/crates/ty_ide/src/inlay_hints.rs b/crates/ty_ide/src/inlay_hints.rs
index b38e50a011..4e1e76cefb 100644
--- a/crates/ty_ide/src/inlay_hints.rs
+++ b/crates/ty_ide/src/inlay_hints.rs
@@ -67,7 +67,7 @@ pub fn inlay_hints<'db>(
 }
 
 /// Settings to control the behavior of inlay hints.
-#[derive(Clone, Default, Debug)]
+#[derive(Clone, Debug)]
 pub struct InlayHintSettings {
     /// Whether to show variable type hints.
     ///
@@ -76,6 +76,7 @@ pub struct InlayHintSettings {
     /// x": Literal[1]" = 1
     /// ```
     pub variable_types: bool,
+
     /// Whether to show function argument names.
     ///
     /// For example, this would enable / disable hints like the ones quoted below:
@@ -86,6 +87,15 @@ pub struct InlayHintSettings {
     pub function_argument_names: bool,
 }
 
+impl Default for InlayHintSettings {
+    fn default() -> Self {
+        Self {
+            variable_types: true,
+            function_argument_names: true,
+        }
+    }
+}
+
 struct InlayHintVisitor<'a, 'db> {
     db: &'db dyn Db,
     model: SemanticModel<'db>,
@@ -818,7 +828,7 @@ mod tests {
             def foo(x: str) -> int: ...
             def foo(x):
                 return x
-            
+
             foo(42)
             foo('hello')",
         );
diff --git a/crates/ty_server/src/session/options.rs b/crates/ty_server/src/session/options.rs
index 009c9e016b..25ac0595ea 100644
--- a/crates/ty_server/src/session/options.rs
+++ b/crates/ty_server/src/session/options.rs
@@ -243,8 +243,8 @@ struct InlayHintOptions {
 impl InlayHintOptions {
     fn into_settings(self) -> InlayHintSettings {
         InlayHintSettings {
-            variable_types: self.variable_types.unwrap_or_default(),
-            function_argument_names: self.function_argument_names.unwrap_or_default(),
+            variable_types: self.variable_types.unwrap_or(true),
+            function_argument_names: self.function_argument_names.unwrap_or(true),
         }
     }
 }
diff --git a/crates/ty_server/tests/e2e/inlay_hints.rs b/crates/ty_server/tests/e2e/inlay_hints.rs
index b95c1bdf5b..9516bc9d96 100644
--- a/crates/ty_server/tests/e2e/inlay_hints.rs
+++ b/crates/ty_server/tests/e2e/inlay_hints.rs
@@ -5,6 +5,60 @@ use ty_server::ClientOptions;
 
 use crate::TestServerBuilder;
 
+/// Tests that the default value of inlay hints settings is correct i.e., they're all enabled
+/// by default.
+#[test]
+fn default_inlay_hints() -> Result<()> {
+    let workspace_root = SystemPath::new("src");
+    let foo = SystemPath::new("src/foo.py");
+    let foo_content = "\
+x = 1
+
+def foo(a: int) -> int:
+    return a + 1
+
+foo(1)
+";
+
+    let mut server = TestServerBuilder::new()?
+        .with_initialization_options(ClientOptions::default())
+        .with_workspace(workspace_root, None)?
+        .with_file(foo, foo_content)?
+        .enable_inlay_hints(true)
+        .build()?
+        .wait_until_workspaces_are_initialized()?;
+
+    server.open_text_document(foo, &foo_content, 1);
+    let _ = server.await_notification::<PublishDiagnostics>()?;
+
+    let hints = server
+        .inlay_hints_request(foo, Range::new(Position::new(0, 0), Position::new(6, 0)))?
+        .unwrap();
+
+    insta::assert_json_snapshot!(hints, @r#"
+    [
+      {
+        "position": {
+          "line": 0,
+          "character": 1
+        },
+        "label": ": Literal[1]",
+        "kind": 1
+      },
+      {
+        "position": {
+          "line": 5,
+          "character": 4
+        },
+        "label": "a=",
+        "kind": 1
+      }
+    ]
+    "#);
+
+    Ok(())
+}
+
 /// Tests that disabling variable types inlay hints works correctly.
 #[test]
 fn variable_inlay_hints_disabled() -> Result<()> {