diff --git a/changelogs/fragments/63940-template-lookup-hostvars-regression.yml b/changelogs/fragments/63940-template-lookup-hostvars-regression.yml
new file mode 100644
index 00000000000000..2eefdcf01e9d7f
--- /dev/null
+++ b/changelogs/fragments/63940-template-lookup-hostvars-regression.yml
@@ -0,0 +1,2 @@
+bugfixes:
+  - template lookup - fix regression when templating hostvars (https://github.com/ansible/ansible/issues/63940)
diff --git a/lib/ansible/vars/hostvars.py b/lib/ansible/vars/hostvars.py
index db0e0591065b32..1d3c5ef94320cd 100644
--- a/lib/ansible/vars/hostvars.py
+++ b/lib/ansible/vars/hostvars.py
@@ -111,6 +111,12 @@ def __repr__(self):
             out[host] = self.get(host)
         return repr(out)
 
+    def __deepcopy__(self, memo):
+        # We do not need to deepcopy because HostVars is immutable,
+        # however we have to implement the method so we can deepcopy
+        # variables' dicts that contain HostVars.
+        return self
+
 
 class HostVarsVars(Mapping):
 
diff --git a/test/integration/targets/lookups/runme.sh b/test/integration/targets/lookups/runme.sh
index e92afab462d7d5..698ff190456663 100755
--- a/test/integration/targets/lookups/runme.sh
+++ b/test/integration/targets/lookups/runme.sh
@@ -11,3 +11,5 @@ pip install passlib
 ANSIBLE_ROLES_PATH=../ ansible-playbook lookups.yml "$@"
 
 ansible-playbook template_lookup_vaulted.yml --vault-password-file test_vault_pass "$@"
+
+ansible-playbook -i template_deepcopy/hosts template_deepcopy/playbook.yml "$@"
diff --git a/test/integration/targets/lookups/template_deepcopy/hosts b/test/integration/targets/lookups/template_deepcopy/hosts
new file mode 100644
index 00000000000000..ecd3b9665b3284
--- /dev/null
+++ b/test/integration/targets/lookups/template_deepcopy/hosts
@@ -0,0 +1 @@
+h1 ansible_connection=local host_var=foo
diff --git a/test/integration/targets/lookups/template_deepcopy/playbook.yml b/test/integration/targets/lookups/template_deepcopy/playbook.yml
new file mode 100644
index 00000000000000..da55c16752bdc3
--- /dev/null
+++ b/test/integration/targets/lookups/template_deepcopy/playbook.yml
@@ -0,0 +1,10 @@
+- hosts: h1
+  gather_facts: no
+  tasks:
+    - set_fact:
+        templated_foo: "{{ lookup('template', 'template.in') }}"
+
+    - name: Test that the hostvar was templated correctly
+      assert:
+        that:
+          - templated_foo == "foo\n"
diff --git a/test/integration/targets/lookups/template_deepcopy/template.in b/test/integration/targets/lookups/template_deepcopy/template.in
new file mode 100644
index 00000000000000..77de0adf82736c
--- /dev/null
+++ b/test/integration/targets/lookups/template_deepcopy/template.in
@@ -0,0 +1 @@
+{{hostvars['h1'].host_var}}