diff --git a/fixtures/flight/__tests__/__e2e__/action.test.js b/fixtures/flight/__tests__/__e2e__/action.test.js
new file mode 100644
index 0000000000000..e52623322ccd3
--- /dev/null
+++ b/fixtures/flight/__tests__/__e2e__/action.test.js
@@ -0,0 +1,35 @@
+// @ts-check
+
+import {test, expect} from '@playwright/test';
+
+test('action returning client component with deduped references', async ({
+  page,
+}) => {
+  const pageErrors = [];
+
+  page.on('pageerror', error => {
+    pageErrors.push(error.stack);
+  });
+
+  await page.goto('/');
+
+  const button = await page.getByRole('button', {
+    name: 'Return element from action',
+  });
+
+  await button.click();
+
+  await expect(
+    page.getByTestId('temporary-references-action-result')
+  ).toHaveText('Hello');
+
+  // Click the button one more time to send the previous result (i.e. the
+  // returned element) back to the server.
+  await button.click();
+
+  await expect(pageErrors).toEqual([]);
+
+  await expect(
+    page.getByTestId('temporary-references-action-result')
+  ).toHaveText('HelloHello');
+});
diff --git a/fixtures/flight/server/region.js b/fixtures/flight/server/region.js
index bc4ba05ddf3b4..cb1aac5da8d73 100644
--- a/fixtures/flight/server/region.js
+++ b/fixtures/flight/server/region.js
@@ -50,7 +50,7 @@ const {readFile} = require('fs').promises;
 
 const React = require('react');
 
-async function renderApp(res, returnValue, formState) {
+async function renderApp(res, returnValue, formState, temporaryReferences) {
   const {renderToPipeableStream} = await import(
     'react-server-dom-webpack/server'
   );
@@ -101,7 +101,9 @@ async function renderApp(res, returnValue, formState) {
   );
   // For client-invoked server actions we refresh the tree and return a return value.
   const payload = {root, returnValue, formState};
-  const {pipe} = renderToPipeableStream(payload, moduleMap);
+  const {pipe} = renderToPipeableStream(payload, moduleMap, {
+    temporaryReferences,
+  });
   pipe(res);
 }
 
@@ -110,8 +112,13 @@ app.get('/', async function (req, res) {
 });
 
 app.post('/', bodyParser.text(), async function (req, res) {
-  const {decodeReply, decodeReplyFromBusboy, decodeAction, decodeFormState} =
-    await import('react-server-dom-webpack/server');
+  const {
+    decodeReply,
+    decodeReplyFromBusboy,
+    decodeAction,
+    decodeFormState,
+    createTemporaryReferenceSet,
+  } = await import('react-server-dom-webpack/server');
   const serverReference = req.get('rsc-action');
   if (serverReference) {
     // This is the client-side case
@@ -124,15 +131,17 @@ app.post('/', bodyParser.text(), async function (req, res) {
       throw new Error('Invalid action');
     }
 
+    const temporaryReferences = createTemporaryReferenceSet();
+
     let args;
     if (req.is('multipart/form-data')) {
       // Use busboy to streamingly parse the reply from form-data.
       const bb = busboy({headers: req.headers});
-      const reply = decodeReplyFromBusboy(bb);
+      const reply = decodeReplyFromBusboy(bb, {}, {temporaryReferences});
       req.pipe(bb);
       args = await reply;
     } else {
-      args = await decodeReply(req.body);
+      args = await decodeReply(req.body, {}, {temporaryReferences});
     }
     const result = action.apply(null, args);
     try {
@@ -142,7 +151,7 @@ app.post('/', bodyParser.text(), async function (req, res) {
       // We handle the error on the client
     }
     // Refresh the client and return the value
-    renderApp(res, result, null);
+    renderApp(res, result, null, temporaryReferences);
   } else {
     // This is the progressive enhancement case
     const UndiciRequest = require('undici').Request;
diff --git a/fixtures/flight/src/App.js b/fixtures/flight/src/App.js
index 027056c515021..1c9575dcfb43e 100644
--- a/fixtures/flight/src/App.js
+++ b/fixtures/flight/src/App.js
@@ -12,10 +12,11 @@ import Button from './Button.js';
 import Form from './Form.js';
 import {Dynamic} from './Dynamic.js';
 import {Client} from './Client.js';
+import {TemporaryReferences} from './TemporaryReferences.js';
 
 import {Note} from './cjs/Note.js';
 
-import {like, greet, increment} from './actions.js';
+import {like, greet, increment, returnElement} from './actions.js';
 
 import {getServerState} from './ServerState.js';
 
@@ -61,6 +62,7 @@ export default async function App() {
           </div>
           <Client />
           <Note />
+          <TemporaryReferences action={returnElement} />
         </Container>
       </body>
     </html>
diff --git a/fixtures/flight/src/Deduped.js b/fixtures/flight/src/Deduped.js
new file mode 100644
index 0000000000000..1c694cd0092d8
--- /dev/null
+++ b/fixtures/flight/src/Deduped.js
@@ -0,0 +1,8 @@
+'use client';
+
+import * as React from 'react';
+
+export default function Deduped({children, thing}) {
+  console.log({thing});
+  return <div>{children}</div>;
+}
diff --git a/fixtures/flight/src/TemporaryReferences.js b/fixtures/flight/src/TemporaryReferences.js
new file mode 100644
index 0000000000000..c21a514ad3617
--- /dev/null
+++ b/fixtures/flight/src/TemporaryReferences.js
@@ -0,0 +1,14 @@
+'use client';
+
+import * as React from 'react';
+
+export function TemporaryReferences({action}) {
+  const [result, formAction] = React.useActionState(action, null);
+
+  return (
+    <form action={formAction}>
+      <button>Return element from action</button>
+      <div data-testid="temporary-references-action-result">{result}</div>
+    </form>
+  );
+}
diff --git a/fixtures/flight/src/actions.js b/fixtures/flight/src/actions.js
index aa19871a9dcbb..463bb7cd98332 100644
--- a/fixtures/flight/src/actions.js
+++ b/fixtures/flight/src/actions.js
@@ -1,6 +1,8 @@
 'use server';
 
+import * as React from 'react';
 import {setServerState} from './ServerState.js';
+import Deduped from './Deduped.js';
 
 export async function like() {
   setServerState('Liked!');
@@ -22,3 +24,14 @@ export async function greet(formData) {
 export async function increment(n) {
   return n + 1;
 }
+
+export async function returnElement(prevElement) {
+  const text = <div>Hello</div>;
+
+  return (
+    <Deduped thing={text}>
+      {prevElement}
+      {text}
+    </Deduped>
+  );
+}
diff --git a/fixtures/flight/src/index.js b/fixtures/flight/src/index.js
index b4b538a3a9992..6864fe927c22d 100644
--- a/fixtures/flight/src/index.js
+++ b/fixtures/flight/src/index.js
@@ -1,12 +1,18 @@
 import * as React from 'react';
 import {use, Suspense, useState, startTransition} from 'react';
 import ReactDOM from 'react-dom/client';
-import {createFromFetch, encodeReply} from 'react-server-dom-webpack/client';
+import {
+  createFromFetch,
+  createTemporaryReferenceSet,
+  encodeReply,
+} from 'react-server-dom-webpack/client';
 
 // TODO: This should be a dependency of the App but we haven't implemented CSS in Node yet.
 import './style.css';
 
 let updateRoot;
+const temporaryReferences = createTemporaryReferenceSet();
+
 async function callServer(id, args) {
   const response = fetch('/', {
     method: 'POST',
@@ -14,9 +20,12 @@ async function callServer(id, args) {
       Accept: 'text/x-component',
       'rsc-action': id,
     },
-    body: await encodeReply(args),
+    body: await encodeReply(args, {temporaryReferences}),
+  });
+  const {returnValue, root} = await createFromFetch(response, {
+    callServer,
+    temporaryReferences,
   });
-  const {returnValue, root} = await createFromFetch(response, {callServer});
   // Refresh the tree with the new RSC payload.
   startTransition(() => {
     updateRoot(root);
@@ -39,6 +48,7 @@ async function hydrateApp() {
     }),
     {
       callServer,
+      temporaryReferences,
       findSourceMapURL(fileName) {
         return (
           document.location.origin +