diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index 43dafe03456ab..ce707b6753eb8 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -26893,9 +26893,14 @@ namespace ts {
                         return instantiateInstantiableTypes(contextualType, inferenceContext.nonFixingMapper);
                     }
                     // For other purposes (e.g. determining whether to produce literal types) we only
-                    // incorporate inferences made from the return type in a function call.
+                    // incorporate inferences made from the return type in a function call. We remove
+                    // the 'boolean' type from the contextual type such that contextually typed boolean
+                    // literals actually end up widening to 'boolean' (see #48363).
                     if (inferenceContext.returnMapper) {
-                        return instantiateInstantiableTypes(contextualType, inferenceContext.returnMapper);
+                        const type = instantiateInstantiableTypes(contextualType, inferenceContext.returnMapper);
+                        return type.flags & TypeFlags.Union && containsType((type as UnionType).types, regularFalseType) && containsType((type as UnionType).types, regularTrueType) ?
+                            filterType(type, t => t !== regularFalseType && t !== regularTrueType) :
+                            type;
                     }
                 }
             }
diff --git a/tests/baselines/reference/contextuallyTypedBooleanLiterals.js b/tests/baselines/reference/contextuallyTypedBooleanLiterals.js
new file mode 100644
index 0000000000000..702a92440ad83
--- /dev/null
+++ b/tests/baselines/reference/contextuallyTypedBooleanLiterals.js
@@ -0,0 +1,55 @@
+//// [contextuallyTypedBooleanLiterals.ts]
+// Repro from #48363
+
+type Box<T> = {
+    get: () => T,
+    set: (value: T) => void
+}
+
+declare function box<T>(value: T): Box<T>;
+
+const bn1 = box(0);  // Box<number>
+const bn2: Box<number> = box(0);  // Ok
+
+const bb1 = box(false);  // Box<boolean>
+const bb2: Box<boolean> = box(false);  // Error, box<false> not assignable to Box<boolean>
+
+// Repro from #48150
+
+interface Observable<T>
+{
+  (): T;
+  (value: T): any;
+}
+
+declare function observable<T>(value: T): Observable<T>;
+
+const x: Observable<boolean> = observable(false);
+
+
+//// [contextuallyTypedBooleanLiterals.js]
+"use strict";
+// Repro from #48363
+var bn1 = box(0); // Box<number>
+var bn2 = box(0); // Ok
+var bb1 = box(false); // Box<boolean>
+var bb2 = box(false); // Error, box<false> not assignable to Box<boolean>
+var x = observable(false);
+
+
+//// [contextuallyTypedBooleanLiterals.d.ts]
+declare type Box<T> = {
+    get: () => T;
+    set: (value: T) => void;
+};
+declare function box<T>(value: T): Box<T>;
+declare const bn1: Box<number>;
+declare const bn2: Box<number>;
+declare const bb1: Box<boolean>;
+declare const bb2: Box<boolean>;
+interface Observable<T> {
+    (): T;
+    (value: T): any;
+}
+declare function observable<T>(value: T): Observable<T>;
+declare const x: Observable<boolean>;
diff --git a/tests/baselines/reference/contextuallyTypedBooleanLiterals.symbols b/tests/baselines/reference/contextuallyTypedBooleanLiterals.symbols
new file mode 100644
index 0000000000000..da1ec08b5bfcd
--- /dev/null
+++ b/tests/baselines/reference/contextuallyTypedBooleanLiterals.symbols
@@ -0,0 +1,70 @@
+=== tests/cases/compiler/contextuallyTypedBooleanLiterals.ts ===
+// Repro from #48363
+
+type Box<T> = {
+>Box : Symbol(Box, Decl(contextuallyTypedBooleanLiterals.ts, 0, 0))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 2, 9))
+
+    get: () => T,
+>get : Symbol(get, Decl(contextuallyTypedBooleanLiterals.ts, 2, 15))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 2, 9))
+
+    set: (value: T) => void
+>set : Symbol(set, Decl(contextuallyTypedBooleanLiterals.ts, 3, 17))
+>value : Symbol(value, Decl(contextuallyTypedBooleanLiterals.ts, 4, 10))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 2, 9))
+}
+
+declare function box<T>(value: T): Box<T>;
+>box : Symbol(box, Decl(contextuallyTypedBooleanLiterals.ts, 5, 1))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 7, 21))
+>value : Symbol(value, Decl(contextuallyTypedBooleanLiterals.ts, 7, 24))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 7, 21))
+>Box : Symbol(Box, Decl(contextuallyTypedBooleanLiterals.ts, 0, 0))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 7, 21))
+
+const bn1 = box(0);  // Box<number>
+>bn1 : Symbol(bn1, Decl(contextuallyTypedBooleanLiterals.ts, 9, 5))
+>box : Symbol(box, Decl(contextuallyTypedBooleanLiterals.ts, 5, 1))
+
+const bn2: Box<number> = box(0);  // Ok
+>bn2 : Symbol(bn2, Decl(contextuallyTypedBooleanLiterals.ts, 10, 5))
+>Box : Symbol(Box, Decl(contextuallyTypedBooleanLiterals.ts, 0, 0))
+>box : Symbol(box, Decl(contextuallyTypedBooleanLiterals.ts, 5, 1))
+
+const bb1 = box(false);  // Box<boolean>
+>bb1 : Symbol(bb1, Decl(contextuallyTypedBooleanLiterals.ts, 12, 5))
+>box : Symbol(box, Decl(contextuallyTypedBooleanLiterals.ts, 5, 1))
+
+const bb2: Box<boolean> = box(false);  // Error, box<false> not assignable to Box<boolean>
+>bb2 : Symbol(bb2, Decl(contextuallyTypedBooleanLiterals.ts, 13, 5))
+>Box : Symbol(Box, Decl(contextuallyTypedBooleanLiterals.ts, 0, 0))
+>box : Symbol(box, Decl(contextuallyTypedBooleanLiterals.ts, 5, 1))
+
+// Repro from #48150
+
+interface Observable<T>
+>Observable : Symbol(Observable, Decl(contextuallyTypedBooleanLiterals.ts, 13, 37))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 17, 21))
+{
+  (): T;
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 17, 21))
+
+  (value: T): any;
+>value : Symbol(value, Decl(contextuallyTypedBooleanLiterals.ts, 20, 3))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 17, 21))
+}
+
+declare function observable<T>(value: T): Observable<T>;
+>observable : Symbol(observable, Decl(contextuallyTypedBooleanLiterals.ts, 21, 1))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 23, 28))
+>value : Symbol(value, Decl(contextuallyTypedBooleanLiterals.ts, 23, 31))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 23, 28))
+>Observable : Symbol(Observable, Decl(contextuallyTypedBooleanLiterals.ts, 13, 37))
+>T : Symbol(T, Decl(contextuallyTypedBooleanLiterals.ts, 23, 28))
+
+const x: Observable<boolean> = observable(false);
+>x : Symbol(x, Decl(contextuallyTypedBooleanLiterals.ts, 25, 5))
+>Observable : Symbol(Observable, Decl(contextuallyTypedBooleanLiterals.ts, 13, 37))
+>observable : Symbol(observable, Decl(contextuallyTypedBooleanLiterals.ts, 21, 1))
+
diff --git a/tests/baselines/reference/contextuallyTypedBooleanLiterals.types b/tests/baselines/reference/contextuallyTypedBooleanLiterals.types
new file mode 100644
index 0000000000000..346a6e4fdb10d
--- /dev/null
+++ b/tests/baselines/reference/contextuallyTypedBooleanLiterals.types
@@ -0,0 +1,61 @@
+=== tests/cases/compiler/contextuallyTypedBooleanLiterals.ts ===
+// Repro from #48363
+
+type Box<T> = {
+>Box : Box<T>
+
+    get: () => T,
+>get : () => T
+
+    set: (value: T) => void
+>set : (value: T) => void
+>value : T
+}
+
+declare function box<T>(value: T): Box<T>;
+>box : <T>(value: T) => Box<T>
+>value : T
+
+const bn1 = box(0);  // Box<number>
+>bn1 : Box<number>
+>box(0) : Box<number>
+>box : <T>(value: T) => Box<T>
+>0 : 0
+
+const bn2: Box<number> = box(0);  // Ok
+>bn2 : Box<number>
+>box(0) : Box<number>
+>box : <T>(value: T) => Box<T>
+>0 : 0
+
+const bb1 = box(false);  // Box<boolean>
+>bb1 : Box<boolean>
+>box(false) : Box<boolean>
+>box : <T>(value: T) => Box<T>
+>false : false
+
+const bb2: Box<boolean> = box(false);  // Error, box<false> not assignable to Box<boolean>
+>bb2 : Box<boolean>
+>box(false) : Box<boolean>
+>box : <T>(value: T) => Box<T>
+>false : false
+
+// Repro from #48150
+
+interface Observable<T>
+{
+  (): T;
+  (value: T): any;
+>value : T
+}
+
+declare function observable<T>(value: T): Observable<T>;
+>observable : <T>(value: T) => Observable<T>
+>value : T
+
+const x: Observable<boolean> = observable(false);
+>x : Observable<boolean>
+>observable(false) : Observable<boolean>
+>observable : <T>(value: T) => Observable<T>
+>false : false
+
diff --git a/tests/baselines/reference/inferFromGenericFunctionReturnTypes3.errors.txt b/tests/baselines/reference/inferFromGenericFunctionReturnTypes3.errors.txt
index aea21ac2504ac..c6d0b89667175 100644
--- a/tests/baselines/reference/inferFromGenericFunctionReturnTypes3.errors.txt
+++ b/tests/baselines/reference/inferFromGenericFunctionReturnTypes3.errors.txt
@@ -1,5 +1,4 @@
 tests/cases/compiler/inferFromGenericFunctionReturnTypes3.ts(28,30): error TS2345: Argument of type 'string' is not assignable to parameter of type '"bar"'.
-tests/cases/compiler/inferFromGenericFunctionReturnTypes3.ts(175,47): error TS2322: Type 'boolean' is not assignable to type 'true'.
 tests/cases/compiler/inferFromGenericFunctionReturnTypes3.ts(180,26): error TS2322: Type '{ state: State.A; }[] | { state: State.B; }[]' is not assignable to type '{ state: State.A; }[]'.
   Type '{ state: State.B; }[]' is not assignable to type '{ state: State.A; }[]'.
     Type '{ state: State.B; }' is not assignable to type '{ state: State.A; }'.
@@ -7,7 +6,7 @@ tests/cases/compiler/inferFromGenericFunctionReturnTypes3.ts(180,26): error TS23
         Type 'State.B' is not assignable to type 'State.A'.
 
 
-==== tests/cases/compiler/inferFromGenericFunctionReturnTypes3.ts (3 errors) ====
+==== tests/cases/compiler/inferFromGenericFunctionReturnTypes3.ts (2 errors) ====
     // Repros from #5487
     
     function truePromise(): Promise<true> {
@@ -185,9 +184,6 @@ tests/cases/compiler/inferFromGenericFunctionReturnTypes3.ts(180,26): error TS23
     
     declare function foldLeft<U>(z: U, f: (acc: U, t: boolean) => U): U;
     let res: boolean = foldLeft(true, (acc, t) => acc && t);  // Error
-                                                  ~~~~~~~~
-!!! error TS2322: Type 'boolean' is not assignable to type 'true'.
-!!! related TS6502 tests/cases/compiler/inferFromGenericFunctionReturnTypes3.ts:174:39: The expected type comes from the return type of this signature.
     
     enum State { A, B }
     type Foo = { state: State }
diff --git a/tests/baselines/reference/inferFromGenericFunctionReturnTypes3.types b/tests/baselines/reference/inferFromGenericFunctionReturnTypes3.types
index bd2164e99e1d6..6eb2bbf32e681 100644
--- a/tests/baselines/reference/inferFromGenericFunctionReturnTypes3.types
+++ b/tests/baselines/reference/inferFromGenericFunctionReturnTypes3.types
@@ -461,14 +461,14 @@ declare function foldLeft<U>(z: U, f: (acc: U, t: boolean) => U): U;
 
 let res: boolean = foldLeft(true, (acc, t) => acc && t);  // Error
 >res : boolean
->foldLeft(true, (acc, t) => acc && t) : true
+>foldLeft(true, (acc, t) => acc && t) : boolean
 >foldLeft : <U>(z: U, f: (acc: U, t: boolean) => U) => U
 >true : true
->(acc, t) => acc && t : (acc: true, t: boolean) => boolean
->acc : true
+>(acc, t) => acc && t : (acc: boolean, t: boolean) => boolean
+>acc : boolean
 >t : boolean
 >acc && t : boolean
->acc : true
+>acc : boolean
 >t : boolean
 
 enum State { A, B }
diff --git a/tests/cases/compiler/contextuallyTypedBooleanLiterals.ts b/tests/cases/compiler/contextuallyTypedBooleanLiterals.ts
new file mode 100644
index 0000000000000..8cbe5f64def4b
--- /dev/null
+++ b/tests/cases/compiler/contextuallyTypedBooleanLiterals.ts
@@ -0,0 +1,32 @@
+// @strict: true
+// @declaration: true
+
+// @strict: true
+// @declaration: true
+
+// Repro from #48363
+
+type Box<T> = {
+    get: () => T,
+    set: (value: T) => void
+}
+
+declare function box<T>(value: T): Box<T>;
+
+const bn1 = box(0);  // Box<number>
+const bn2: Box<number> = box(0);  // Ok
+
+const bb1 = box(false);  // Box<boolean>
+const bb2: Box<boolean> = box(false);  // Error, box<false> not assignable to Box<boolean>
+
+// Repro from #48150
+
+interface Observable<T>
+{
+  (): T;
+  (value: T): any;
+}
+
+declare function observable<T>(value: T): Observable<T>;
+
+const x: Observable<boolean> = observable(false);