diff --git a/src/vs/editor/contrib/inlineCompletions/browser/ghostTextModel.ts b/src/vs/editor/contrib/inlineCompletions/browser/ghostTextModel.ts
index 58df06c72c3..469328725f7 100644
--- a/src/vs/editor/contrib/inlineCompletions/browser/ghostTextModel.ts
+++ b/src/vs/editor/contrib/inlineCompletions/browser/ghostTextModel.ts
@@ -147,8 +147,8 @@ export class SharedInlineCompletionCache extends Disposable {
 		triggerKind: InlineCompletionTriggerKind
 	) {
 		this.cache.value = new SynchronizedInlineCompletionsCache(
-			editor,
 			completionsSource,
+			editor,
 			() => this.onDidChangeEmitter.fire(),
 			triggerKind
 		);
diff --git a/src/vs/editor/contrib/inlineCompletions/browser/inlineCompletionsModel.ts b/src/vs/editor/contrib/inlineCompletions/browser/inlineCompletionsModel.ts
index 969623548bb..dc589f2806e 100644
--- a/src/vs/editor/contrib/inlineCompletions/browser/inlineCompletionsModel.ts
+++ b/src/vs/editor/contrib/inlineCompletions/browser/inlineCompletionsModel.ts
@@ -252,6 +252,8 @@ export class InlineCompletionsSession extends BaseGhostTextWidgetModel {
 		}));
 
 		this._register(this.editor.onDidChangeModelContent((e) => {
+			// Call this in case `onDidChangeModelContent` calls us first.
+			this.cache.value?.updateRanges();
 			this.updateFilteredInlineCompletions();
 			this.scheduleAutomaticUpdate();
 		}));
@@ -273,8 +275,17 @@ export class InlineCompletionsSession extends BaseGhostTextWidgetModel {
 
 		const model = this.editor.getModel();
 		this.filteredCompletions = this.cache.value.completions.filter(c => {
-			const originalValue = model.getValueInRange(c.synchronizedRange);
-			const matches = matchesSubString(originalValue, c.inlineCompletion.filterText);
+			let originalValue = model.getValueInRange(c.synchronizedRange);
+			let filterText = c.inlineCompletion.filterText;
+
+			const indent = model.getLineIndentColumn(c.synchronizedRange.startLineNumber);
+			if (c.synchronizedRange.startColumn <= indent) {
+				// Remove indentation
+				originalValue = originalValue.trimStart();
+				filterText = filterText.trimStart();
+			}
+
+			const matches = matchesSubString(originalValue, filterText);
 			return matches;
 		});
 	}
@@ -517,9 +528,9 @@ export class SynchronizedInlineCompletionsCache extends Disposable {
 	public readonly completions: readonly CachedInlineCompletion[];
 
 	constructor(
-		editor: IActiveCodeEditor,
 		completionsSource: TrackedInlineCompletions,
-		onChange: () => void,
+		private readonly editor: IActiveCodeEditor,
+		private readonly onChange: () => void,
 		public readonly triggerKind: InlineCompletionTriggerKind,
 	) {
 		super();
@@ -540,26 +551,30 @@ export class SynchronizedInlineCompletionsCache extends Disposable {
 		this.completions = completionsSource.items.map((c, idx) => new CachedInlineCompletion(c, decorationIds[idx]));
 
 		this._register(editor.onDidChangeModelContent(() => {
-			let hasChanged = false;
-			const model = editor.getModel();
-			for (const c of this.completions) {
-				const newRange = model.getDecorationRange(c.decorationId);
-				if (!newRange) {
-					onUnexpectedError(new Error('Decoration has no range'));
-					continue;
-				}
-				if (!c.synchronizedRange.equalsRange(newRange)) {
-					hasChanged = true;
-					c.synchronizedRange = newRange;
-				}
-			}
-			if (hasChanged) {
-				onChange();
-			}
+			this.updateRanges();
 		}));
 
 		this._register(completionsSource);
 	}
+
+	public updateRanges() {
+		let hasChanged = false;
+		const model = this.editor.getModel();
+		for (const c of this.completions) {
+			const newRange = model.getDecorationRange(c.decorationId);
+			if (!newRange) {
+				onUnexpectedError(new Error('Decoration has no range'));
+				continue;
+			}
+			if (!c.synchronizedRange.equalsRange(newRange)) {
+				hasChanged = true;
+				c.synchronizedRange = newRange;
+			}
+		}
+		if (hasChanged) {
+			this.onChange();
+		}
+	}
 }
 
 class CachedInlineCompletion {
diff --git a/src/vs/monaco.d.ts b/src/vs/monaco.d.ts
index 8f5298bcd7e..0632c0cc47e 100644
--- a/src/vs/monaco.d.ts
+++ b/src/vs/monaco.d.ts
@@ -6263,7 +6263,6 @@ declare namespace monaco.languages {
 	}
 
 	export interface InlineCompletion {
-		readonly filterText?: string;
 		/**
 		 * The text to insert.
 		 * If the text contains a line break, the range must end at the end of a line.
@@ -6275,6 +6274,11 @@ declare namespace monaco.languages {
 		readonly insertText: string | {
 			snippet: string;
 		};
+		/**
+		 * A text that is used to decide if this inline completion should be shown.
+		 * An inline completion is shown if the text to replace is a subword of the filter text.
+		 */
+		readonly filterText?: string;
 		/**
 		 * The range to replace.
 		 * Must begin and end on the same line.
diff --git a/src/vs/workbench/api/common/extHostLanguageFeatures.ts b/src/vs/workbench/api/common/extHostLanguageFeatures.ts
index 9d601d2413f..ab6dbb99bac 100644
--- a/src/vs/workbench/api/common/extHostLanguageFeatures.ts
+++ b/src/vs/workbench/api/common/extHostLanguageFeatures.ts
@@ -1175,11 +1175,9 @@ class InlineCompletionAdapterNew {
 				}
 
 				const insertText = item.insertText;
-				if (insertText === undefined) {
-					throw new Error('text or insertText must be defined');
-				}
 				return ({
 					insertText: typeof insertText === 'string' ? insertText : { snippet: insertText.value },
+					filterText: item.filterText,
 					range: item.range ? typeConvert.Range.from(item.range) : undefined,
 					command,
 					idx: idx,
diff --git a/src/vscode-dts/vscode.proposed.inlineCompletionsNew.d.ts b/src/vscode-dts/vscode.proposed.inlineCompletionsNew.d.ts
index 9556b4455d1..9abe1555ee0 100644
--- a/src/vscode-dts/vscode.proposed.inlineCompletionsNew.d.ts
+++ b/src/vscode-dts/vscode.proposed.inlineCompletionsNew.d.ts
@@ -104,6 +104,12 @@ declare module 'vscode' {
 		*/
 		insertText: string | SnippetString;
 
+		/**
+		 * A text that is used to decide if this inline completion should be shown.
+		 * An inline completion is shown if the text to replace is a subword of the filter text.
+		 */
+		filterText?: string;
+
 		/**
 		 * The range to replace.
 		 * Must begin and end on the same line.