diff --git a/awx/ui_next/src/components/CodeEditor/VariablesField.jsx b/awx/ui_next/src/components/CodeEditor/VariablesField.jsx
index ed56f5376c..89260a6ea2 100644
--- a/awx/ui_next/src/components/CodeEditor/VariablesField.jsx
+++ b/awx/ui_next/src/components/CodeEditor/VariablesField.jsx
@@ -73,8 +73,29 @@ function VariablesField({
     },
     [shouldValidate, validate] // eslint-disable-line react-hooks/exhaustive-deps
   );
+  const [initialYamlValue] = useState(mode === YAML_MODE ? field.value : null);
+  const [isEdited, setIsEdited] = useState(false);
   const [isExpanded, setIsExpanded] = useState(false);
 
+  const handleModeChange = newMode => {
+    if (newMode === YAML_MODE && !isEdited && initialYamlValue) {
+      helpers.setValue(initialYamlValue);
+      setMode(newMode);
+      return;
+    }
+
+    try {
+      const newVal =
+        newMode === YAML_MODE
+          ? jsonToYaml(field.value)
+          : yamlToJson(field.value);
+      helpers.setValue(newVal);
+      setMode(newMode);
+    } catch (err) {
+      helpers.setError(err.message);
+    }
+  };
+
   return (
     <>
       <VariablesFieldInternals
@@ -87,7 +108,8 @@ function VariablesField({
         tooltip={tooltip}
         onExpand={() => setIsExpanded(true)}
         mode={mode}
-        setMode={setMode}
+        setMode={handleModeChange}
+        setIsEdited={setIsEdited}
         setShouldValidate={setShouldValidate}
       />
       <Modal
@@ -118,7 +140,8 @@ function VariablesField({
             tooltip={tooltip}
             fullHeight
             mode={mode}
-            setMode={setMode}
+            setMode={handleModeChange}
+            setIsEdited={setIsEdited}
             setShouldValidate={setShouldValidate}
           />
         </div>
@@ -155,6 +178,7 @@ function VariablesFieldInternals({
   mode,
   setMode,
   onExpand,
+  setIsEdited,
   setShouldValidate,
 }) {
   const [field, meta, helpers] = useField(name);
@@ -176,18 +200,7 @@ function VariablesFieldInternals({
                 [JSON_MODE, 'JSON'],
               ]}
               value={mode}
-              onChange={newMode => {
-                try {
-                  const newVal =
-                    newMode === YAML_MODE
-                      ? jsonToYaml(field.value)
-                      : yamlToJson(field.value);
-                  helpers.setValue(newVal);
-                  setMode(newMode);
-                } catch (err) {
-                  helpers.setError(err.message);
-                }
-              }}
+              onChange={setMode}
             />
           </SplitItem>
         </Split>
@@ -214,6 +227,7 @@ function VariablesFieldInternals({
         readOnly={readOnly}
         {...field}
         onChange={newVal => {
+          setIsEdited(true);
           helpers.setValue(newVal);
         }}
         fullHeight={fullHeight}
diff --git a/awx/ui_next/src/components/CodeEditor/VariablesField.test.jsx b/awx/ui_next/src/components/CodeEditor/VariablesField.test.jsx
index 24c896069e..20efb1a2a6 100644
--- a/awx/ui_next/src/components/CodeEditor/VariablesField.test.jsx
+++ b/awx/ui_next/src/components/CodeEditor/VariablesField.test.jsx
@@ -51,6 +51,59 @@ describe('VariablesField', () => {
     });
     wrapper.update();
     expect(wrapper.find('CodeEditor').prop('mode')).toEqual('yaml');
+    expect(wrapper.find('CodeEditor').prop('value')).toEqual(
+      '---\nfoo: bar\nbaz: 3'
+    );
+  });
+
+  it('should retain non-expanded yaml if value not edited', async () => {
+    const value = '---\na: &aa [a,b,c]\nb: *aa';
+    const wrapper = mountWithContexts(
+      <Formik initialValues={{ variables: value }}>
+        {() => (
+          <VariablesField id="the-field" name="variables" label="Variables" />
+        )}
+      </Formik>
+    );
+    const buttons = wrapper.find('Button');
+    expect(buttons).toHaveLength(2);
+    await act(async () => {
+      buttons.at(1).simulate('click');
+    });
+    wrapper.update();
+    const buttons2 = wrapper.find('Button');
+    await act(async () => {
+      buttons2.at(0).simulate('click');
+    });
+    wrapper.update();
+    expect(wrapper.find('CodeEditor').prop('mode')).toEqual('yaml');
+    expect(wrapper.find('CodeEditor').prop('value')).toEqual(value);
+  });
+
+  it('should retain expanded yaml if value is edited', async () => {
+    const value = '---\na: &aa [a,b,c]\nb: *aa';
+    const wrapper = mountWithContexts(
+      <Formik initialValues={{ variables: value }}>
+        {() => (
+          <VariablesField id="the-field" name="variables" label="Variables" />
+        )}
+      </Formik>
+    );
+    const buttons = wrapper.find('Button');
+    expect(buttons).toHaveLength(2);
+    await act(async () => {
+      buttons.at(1).simulate('click');
+    });
+    wrapper.update();
+    wrapper.find('CodeEditor').invoke('onChange')(
+      '{\n  "foo": "bar",\n  "baz": 3\n}'
+    );
+    const buttons2 = wrapper.find('Button');
+    await act(async () => {
+      buttons2.at(0).simulate('click');
+    });
+    wrapper.update();
+    expect(wrapper.find('CodeEditor').prop('mode')).toEqual('yaml');
     expect(wrapper.find('CodeEditor').prop('value')).toEqual(
       'foo: bar\nbaz: 3\n'
     );