diff --git a/packages/router-generator/src/filesystem/physical/getRouteNodes.ts b/packages/router-generator/src/filesystem/physical/getRouteNodes.ts
index 0c64052f6c..c603801483 100644
--- a/packages/router-generator/src/filesystem/physical/getRouteNodes.ts
+++ b/packages/router-generator/src/filesystem/physical/getRouteNodes.ts
@@ -244,15 +244,20 @@ export async function getRouteNodes(
               originalRoutePath = '/'
             }
 
+            // For layout routes, don't use '/' fallback - an empty path means
+            // "layout for the parent path" which is important for physical() mounts
+            // where route.tsx at root should have empty path, not '/'
+            const isLayoutRoute = routeType === 'layout'
+
             routePath =
               routePath.replace(new RegExp(`/${config.indexToken}$`), '/') ||
-              '/'
+              (isLayoutRoute ? '' : '/')
 
             originalRoutePath =
               originalRoutePath.replace(
                 new RegExp(`/${config.indexToken}$`),
                 '/',
-              ) || '/'
+              ) || (isLayoutRoute ? '' : '/')
           }
 
           routeNodes.push({
diff --git a/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routeTree.snapshot.ts b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routeTree.snapshot.ts
new file mode 100644
index 0000000000..2191ecf8b3
--- /dev/null
+++ b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routeTree.snapshot.ts
@@ -0,0 +1,104 @@
+/* eslint-disable */
+
+// @ts-nocheck
+
+// noinspection JSUnusedGlobalSymbols
+
+// This file was automatically generated by TanStack Router.
+// You should NOT make any changes in this file as it will be overwritten.
+// Additionally, you should also exclude this file from your linter and/or formatter to prevent it from being checked or modified.
+
+import { Route as rootRouteImport } from './routes/__root'
+import { Route as FeatureRouteRouteImport } from './routes/feature/route'
+import { Route as IndexRouteImport } from './routes/index'
+import { Route as FeatureIndexRouteImport } from './routes/feature/index'
+
+const FeatureRouteRoute = FeatureRouteRouteImport.update({
+  id: '/feature',
+  path: '/feature',
+  getParentRoute: () => rootRouteImport,
+} as any)
+const IndexRoute = IndexRouteImport.update({
+  id: '/',
+  path: '/',
+  getParentRoute: () => rootRouteImport,
+} as any)
+const FeatureIndexRoute = FeatureIndexRouteImport.update({
+  id: '/',
+  path: '/',
+  getParentRoute: () => FeatureRouteRoute,
+} as any)
+
+export interface FileRoutesByFullPath {
+  '/': typeof IndexRoute
+  '/feature': typeof FeatureRouteRouteWithChildren
+  '/feature/': typeof FeatureIndexRoute
+}
+export interface FileRoutesByTo {
+  '/': typeof IndexRoute
+  '/feature': typeof FeatureIndexRoute
+}
+export interface FileRoutesById {
+  __root__: typeof rootRouteImport
+  '/': typeof IndexRoute
+  '/feature': typeof FeatureRouteRouteWithChildren
+  '/feature/': typeof FeatureIndexRoute
+}
+export interface FileRouteTypes {
+  fileRoutesByFullPath: FileRoutesByFullPath
+  fullPaths: '/' | '/feature' | '/feature/'
+  fileRoutesByTo: FileRoutesByTo
+  to: '/' | '/feature'
+  id: '__root__' | '/' | '/feature' | '/feature/'
+  fileRoutesById: FileRoutesById
+}
+export interface RootRouteChildren {
+  IndexRoute: typeof IndexRoute
+  FeatureRouteRoute: typeof FeatureRouteRouteWithChildren
+}
+
+declare module '@tanstack/react-router' {
+  interface FileRoutesByPath {
+    '/feature': {
+      id: '/feature'
+      path: '/feature'
+      fullPath: '/feature'
+      preLoaderRoute: typeof FeatureRouteRouteImport
+      parentRoute: typeof rootRouteImport
+    }
+    '/': {
+      id: '/'
+      path: '/'
+      fullPath: '/'
+      preLoaderRoute: typeof IndexRouteImport
+      parentRoute: typeof rootRouteImport
+    }
+    '/feature/': {
+      id: '/feature/'
+      path: '/'
+      fullPath: '/feature/'
+      preLoaderRoute: typeof FeatureIndexRouteImport
+      parentRoute: typeof FeatureRouteRoute
+    }
+  }
+}
+
+interface FeatureRouteRouteChildren {
+  FeatureIndexRoute: typeof FeatureIndexRoute
+}
+
+const FeatureRouteRouteChildren: FeatureRouteRouteChildren = {
+  FeatureIndexRoute: FeatureIndexRoute,
+}
+
+const FeatureRouteRouteWithChildren = FeatureRouteRoute._addFileChildren(
+  FeatureRouteRouteChildren,
+)
+
+const rootRouteChildren: RootRouteChildren = {
+  IndexRoute: IndexRoute,
+  FeatureRouteRoute: FeatureRouteRouteWithChildren,
+}
+export const routeTree = rootRouteImport
+  ._addFileChildren(rootRouteChildren)
+  ._addFileTypes<FileRouteTypes>()
diff --git a/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes.ts b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes.ts
new file mode 100644
index 0000000000..b86d8ccdf1
--- /dev/null
+++ b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes.ts
@@ -0,0 +1,6 @@
+import { index, physical, rootRoute } from '@tanstack/virtual-file-routes'
+
+export const routes = rootRoute('__root.tsx', [
+  index('index.tsx'),
+  physical('/feature', 'feature'),
+])
diff --git a/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/__root.tsx b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/__root.tsx
new file mode 100644
index 0000000000..f463b796b4
--- /dev/null
+++ b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/__root.tsx
@@ -0,0 +1,5 @@
+import { createRootRoute, Outlet } from '@tanstack/react-router'
+
+export const Route = createRootRoute({
+  component: () => <Outlet />,
+})
diff --git a/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/feature/index.tsx b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/feature/index.tsx
new file mode 100644
index 0000000000..bd8bf1553e
--- /dev/null
+++ b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/feature/index.tsx
@@ -0,0 +1,5 @@
+import { createFileRoute } from '@tanstack/react-router'
+
+export const Route = createFileRoute('/feature/')({
+  component: () => <div>Feature Index</div>,
+})
diff --git a/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/feature/route.tsx b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/feature/route.tsx
new file mode 100644
index 0000000000..9ad7fad8ab
--- /dev/null
+++ b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/feature/route.tsx
@@ -0,0 +1,10 @@
+import { createFileRoute, Outlet } from '@tanstack/react-router'
+
+export const Route = createFileRoute('/feature')({
+  component: () => (
+    <div>
+      <h1>Feature Layout</h1>
+      <Outlet />
+    </div>
+  ),
+})
diff --git a/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/index.tsx b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/index.tsx
new file mode 100644
index 0000000000..fa6ed84966
--- /dev/null
+++ b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/routes/index.tsx
@@ -0,0 +1,5 @@
+import { createFileRoute } from '@tanstack/react-router'
+
+export const Route = createFileRoute('/')({
+  component: () => <div>Home</div>,
+})
diff --git a/packages/router-generator/tests/generator/virtual-physical-layout-and-index/tsr.config.json b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/tsr.config.json
new file mode 100644
index 0000000000..4d587108e3
--- /dev/null
+++ b/packages/router-generator/tests/generator/virtual-physical-layout-and-index/tsr.config.json
@@ -0,0 +1,5 @@
+{
+  "routesDirectory": "./routes",
+  "generatedRouteTree": "./routeTree.gen.ts",
+  "virtualRouteConfig": "./routes.ts"
+}