diff --git a/buildingmotif/dataclasses/template.py b/buildingmotif/dataclasses/template.py
index 81c3a5a49..10f6708f4 100644
--- a/buildingmotif/dataclasses/template.py
+++ b/buildingmotif/dataclasses/template.py
@@ -337,7 +337,15 @@ def inline_dependencies(self) -> "Template":
                 deptempl_opt_args.update(deptempl.parameters)
 
             # convert our set of optional params to a list and assign to the parent template
-            templ.optional_args = list(templ_optional_args.union(deptempl_opt_args))
+            # 1. get required parameters from the original template
+            # 2. calculate all optional requirements from the dependency template and the original template
+            # 3. remove required parameters from the optional requirements
+            # This avoids a bug where an optional dependency makes reference to a required parameter, and then
+            # subsequent inlining of the dependency without optional args would remove the required parameter
+            required = templ.parameters - templ_optional_args
+            templ.optional_args = list(
+                templ_optional_args.union(deptempl_opt_args) - required
+            )
 
             # append the inlined template into the parent's body
             templ.body += deptempl.body
diff --git a/tests/unit/fixtures/optional-inline/template.yml b/tests/unit/fixtures/optional-inline/template.yml
new file mode 100644
index 000000000..39a0b2070
--- /dev/null
+++ b/tests/unit/fixtures/optional-inline/template.yml
@@ -0,0 +1,36 @@
+sensor:
+  body: >
+    @prefix P: <urn:___param___#> .
+    @prefix s223: <http://data.ashrae.org/standard223#> .
+    P:name a s223:Sensor ;
+      s223:observes P:property .
+
+
+water-temperature:
+  body: >
+    @prefix P: <urn:___param___#> .
+    @prefix quantitykind: <http://qudt.org/vocab/quantitykind/> .
+    @prefix qudt: <http://qudt.org/schema/qudt/> .
+    @prefix unit: <http://qudt.org/vocab/unit/> .
+    @prefix s223: <http://data.ashrae.org/standard223#> .
+    @prefix g36: <http://data.ashrae.org/standard223/1.0/extensions/g36#> .
+    P:name a s223:QuantifiableObservableProperty ;
+        qudt:hasQuantityKind quantitykind:Temperature;
+        qudt:hasUnit unit:DEG_C .
+
+
+
+hot-water-coil:
+  body: >
+    @prefix P: <urn:___param___#> .
+    @prefix s223: <http://data.ashrae.org/standard223#> .
+    @prefix g36: <http://data.ashrae.org/standard223/1.0/extensions/g36#> .
+    P:name a s223:HeatingCoil;
+      s223:hasProperty P:supply-water-temp .
+    P:supply-water-temp-sensor a s223:Sensor .
+  optional: ["supply-water-temp-sensor"]
+  dependencies:
+    - template: water-temperature
+      args: {"name": "supply-water-temp"}
+    - template: sensor
+      args: {"name": "supply-water-temp-sensor", "property": "supply-water-temp"}
diff --git a/tests/unit/test_template_api.py b/tests/unit/test_template_api.py
index 03f076d83..6ff5a085f 100644
--- a/tests/unit/test_template_api.py
+++ b/tests/unit/test_template_api.py
@@ -179,6 +179,16 @@ def test_template_inline_dependencies(bm: BuildingMOTIF):
     }
 
 
+def test_template_inline_dependencies_with_optional(bm: BuildingMOTIF):
+    # fixes https://github.com/NREL/BuildingMOTIF/issues/237
+    lib = Library.load(directory="tests/unit/fixtures/optional-inline")
+    templ = lib.get_template_by_name("hot-water-coil")
+    templ = templ.inline_dependencies()
+    bindings, _ = templ.fill(BLDG, include_optional=False)
+    assert "supply-water-temp" in bindings.keys()
+    assert "name" in bindings.keys()
+
+
 def test_template_evaluate_with_optional(bm: BuildingMOTIF):
     """
     Test that template evaluation works with optional parameters.