diff --git a/.changeset/sweet-keys-dress.md b/.changeset/sweet-keys-dress.md
index e931856a84..4217f2fcf4 100644
--- a/.changeset/sweet-keys-dress.md
+++ b/.changeset/sweet-keys-dress.md
@@ -2,4 +2,4 @@
 '@backstage/cli': patch
 ---
 
-Updated the default [sucrase](https://github.com/alangpierce/sucrase)-based Jest transform to include inline source maps.
+Updated the default [sucrase](https://github.com/alangpierce/sucrase)-based Jest transform to include source maps if the environment variable `ENABLE_SOURCE_MAPS` is non-empty. This can be used to better support editor test debugging integrations.
diff --git a/docs/local-dev/cli-build-system.md b/docs/local-dev/cli-build-system.md
index db8d03a7fd..5df9b751c5 100644
--- a/docs/local-dev/cli-build-system.md
+++ b/docs/local-dev/cli-build-system.md
@@ -465,7 +465,7 @@ The overrides in a single `package.json` may for example look like this:
   },
 ```
 
-If you want to configure editor integration for tests we recommend executing the bundled configuration directly with Jest, rather than running through the Yarn test script. For example, with the Jest extension for VS Code, the configuration would look like this:
+If you want to configure editor integration for tests we recommend executing the bundled configuration directly with Jest, rather than running through the Yarn test script. For example, with the Jest extension for VS Code the configuration would look like this:
 
 ```json
 {
@@ -473,6 +473,30 @@ If you want to configure editor integration for tests we recommend executing the
 }
 ```
 
+If you also want to enable source maps when debugging tests, you can do so by setting the `ENABLE_SOURCE_MAPS` environment variable. For example, a complete launch configuration for VS Code debugging may look like this:
+
+```json
+{
+  "type": "node",
+  "name": "vscode-jest-tests",
+  "request": "launch",
+  "console": "integratedTerminal",
+  "internalConsoleOptions": "neverOpen",
+  "disableOptimisticBPs": true,
+  "program": "${workspaceFolder}/node_modules/.bin/jest",
+  "cwd": "${workspaceFolder}",
+  "env": {
+    "ENABLE_SOURCE_MAPS": "true"
+  },
+  "args": [
+    "--config",
+    "node_modules/@backstage/cli/config/jest.js",
+    "--runInBand",
+    "--watchAll=false"
+  ]
+}
+```
+
 ## Publishing
 
 Package publishing is an optional part of the Backstage build system and not
diff --git a/packages/cli/config/jest.js b/packages/cli/config/jest.js
index 978c598584..91cdd3c41b 100644
--- a/packages/cli/config/jest.js
+++ b/packages/cli/config/jest.js
@@ -102,9 +102,10 @@ async function getProjectConfig(targetPath, displayName) {
     },
 
     transform: {
-      '\\.(js|jsx|ts|tsx|mjs|cjs)$': require.resolve(
-        './jestSucraseTransform.js',
-      ),
+      '\\.(js|jsx|ts|tsx|mjs|cjs)$': [
+        require.resolve('./jestSucraseTransform.js'),
+        { enableSourceMaps: Boolean(process.env.ENABLE_SOURCE_MAPS) },
+      ],
       '\\.(bmp|gif|jpg|jpeg|png|frag|xml|svg|eot|woff|woff2|ttf)$':
         require.resolve('./jestFileTransform.js'),
       '\\.(yaml)$': require.resolve('jest-transform-yaml'),
diff --git a/packages/cli/config/jestSucraseTransform.js b/packages/cli/config/jestSucraseTransform.js
index 65c71d7daf..d0400f4f3b 100644
--- a/packages/cli/config/jestSucraseTransform.js
+++ b/packages/cli/config/jestSucraseTransform.js
@@ -21,58 +21,71 @@ const sucrasePluginPkg = require('@sucrase/jest-plugin/package.json');
 
 const ESM_REGEX = /\b(?:import|export)\b/;
 
-function process(source, filePath) {
-  let transforms;
+function createTransformer(config) {
+  const process = (source, filePath) => {
+    let transforms;
 
-  if (filePath.endsWith('.esm.js')) {
-    transforms = ['imports'];
-  } else if (filePath.endsWith('.js')) {
-    // This is a very rough filter to avoid transforming things that we quickly
-    // can be sure are definitely not ESM modules.
-    if (ESM_REGEX.test(source)) {
-      transforms = ['imports', 'jsx']; // JSX within .js is currently allowed
+    if (filePath.endsWith('.esm.js')) {
+      transforms = ['imports'];
+    } else if (filePath.endsWith('.js')) {
+      // This is a very rough filter to avoid transforming things that we quickly
+      // can be sure are definitely not ESM modules.
+      if (ESM_REGEX.test(source)) {
+        transforms = ['imports', 'jsx']; // JSX within .js is currently allowed
+      }
+    } else if (filePath.endsWith('.jsx')) {
+      transforms = ['jsx', 'imports'];
+    } else if (filePath.endsWith('.ts')) {
+      transforms = ['typescript', 'imports'];
+    } else if (filePath.endsWith('.tsx')) {
+      transforms = ['typescript', 'jsx', 'imports'];
     }
-  } else if (filePath.endsWith('.jsx')) {
-    transforms = ['jsx', 'imports'];
-  } else if (filePath.endsWith('.ts')) {
-    transforms = ['typescript', 'imports'];
-  } else if (filePath.endsWith('.tsx')) {
-    transforms = ['typescript', 'jsx', 'imports'];
-  }
 
-  // Only apply the jest transform to the test files themselves
-  if (transforms && filePath.includes('.test.')) {
-    transforms.push('jest');
-  }
+    // Only apply the jest transform to the test files themselves
+    if (transforms && filePath.includes('.test.')) {
+      transforms.push('jest');
+    }
 
-  if (transforms) {
-    const { code, sourceMap: map } = transform(source, {
-      transforms,
-      filePath,
-      disableESTransforms: true,
-      sourceMapOptions: {
-        compiledFilename: filePath,
-      },
-    });
-    const b64 = Buffer.from(JSON.stringify(map), 'utf8').toString('base64');
-    const suffix = `//# sourceMappingURL=data:application/json;charset=utf-8;base64,${b64}`;
-    return `${code}\n${suffix}`;
-  }
+    if (transforms) {
+      const { code, sourceMap: map } = transform(source, {
+        transforms,
+        filePath,
+        disableESTransforms: true,
+        sourceMapOptions: {
+          compiledFilename: filePath,
+        },
+      });
+      if (config.enableSourceMaps) {
+        const b64 = Buffer.from(JSON.stringify(map), 'utf8').toString('base64');
+        const suffix = `//# sourceMappingURL=data:application/json;charset=utf-8;base64,${b64}`;
+        // Include both inline and object source maps, as inline source maps are
+        // needed for support of some editor integrations.
+        return { code: `${code}\n${suffix}`, map };
+      }
+      // We only return the `map` result if source maps are enabled, as they
+      // have a negative impact on the coverage accuracy.
+      return code;
+    }
 
-  return source;
+    return source;
+  };
+
+  // TODO: contribute something like this to @sucrase/jest-plugin
+  const getCacheKey = sourceText => {
+    return createHash('md5')
+      .update(sourceText)
+      .update(Buffer.alloc(1))
+      .update(sucrasePkg.version)
+      .update(Buffer.alloc(1))
+      .update(sucrasePluginPkg.version)
+      .update(Buffer.alloc(1))
+      .update(JSON.stringify(config))
+      .update(Buffer.alloc(1))
+      .update('1') // increment whenever the transform logic in this file changes
+      .digest('hex');
+  };
+
+  return { process, getCacheKey };
 }
 
-// TODO: contribute something like this to @sucrase/jest-plugin
-function getCacheKey(sourceText) {
-  return createHash('md5')
-    .update(sourceText)
-    .update(Buffer.alloc(1))
-    .update(sucrasePkg.version)
-    .update(Buffer.alloc(1))
-    .update(sucrasePluginPkg.version)
-    .update(Buffer.alloc(1))
-    .update('1') // increment whenever the transform logic in this file changes
-    .digest('hex');
-}
-
-module.exports = { process, getCacheKey };
+module.exports = { createTransformer };