diff --git a/changelogs/fragments/79763-ansible_debug_template_tb_fix.yml b/changelogs/fragments/79763-ansible_debug_template_tb_fix.yml
new file mode 100644
index 00000000000..7bb7405752d
--- /dev/null
+++ b/changelogs/fragments/79763-ansible_debug_template_tb_fix.yml
@@ -0,0 +1,2 @@
+bugfixes:
+  - Fix traceback when using the ``template`` module and running with ``ANSIBLE_DEBUG=1`` (https://github.com/ansible/ansible/issues/79763)
diff --git a/lib/ansible/plugins/action/template.py b/lib/ansible/plugins/action/template.py
index 2e3d3641bf4..d2b3df9ab7b 100644
--- a/lib/ansible/plugins/action/template.py
+++ b/lib/ansible/plugins/action/template.py
@@ -118,7 +118,11 @@ class ActionModule(ActionBase):
                 searchpath = newsearchpath
 
                 # add ansible 'template' vars
-                temp_vars = task_vars | generate_ansible_template_vars(self._task.args.get('src', None), source, dest)
+                temp_vars = task_vars.copy()
+                # NOTE in the case of ANSIBLE_DEBUG=1 task_vars is VarsWithSources(MutableMapping)
+                # so | operator cannot be used as it can be used only on dicts
+                # https://peps.python.org/pep-0584/#what-about-mapping-and-mutablemapping
+                temp_vars.update(generate_ansible_template_vars(self._task.args.get('src', None), source, dest))
 
                 # force templar to use AnsibleEnvironment to prevent issues with native types
                 # https://github.com/ansible/ansible/issues/46169
diff --git a/test/integration/targets/var_templating/ansible_debug_template.j2 b/test/integration/targets/var_templating/ansible_debug_template.j2
new file mode 100644
index 00000000000..8fe25f99b1c
--- /dev/null
+++ b/test/integration/targets/var_templating/ansible_debug_template.j2
@@ -0,0 +1 @@
+{{ hello }}
diff --git a/test/integration/targets/var_templating/runme.sh b/test/integration/targets/var_templating/runme.sh
index 9363cb3ab29..bcf09241b07 100755
--- a/test/integration/targets/var_templating/runme.sh
+++ b/test/integration/targets/var_templating/runme.sh
@@ -16,3 +16,6 @@ ansible-playbook task_vars_templating.yml -v "$@"
 
 # there should be an attempt to use 'sudo' in the connection debug output
 ANSIBLE_BECOME_ALLOW_SAME_USER=true ansible-playbook test_connection_vars.yml -vvvv "$@" | tee /dev/stderr | grep 'sudo \-H \-S'
+
+# smoke test usage of VarsWithSources that is used when ANSIBLE_DEBUG=1
+ANSIBLE_DEBUG=1 ansible-playbook test_vars_with_sources.yml -v "$@"
diff --git a/test/integration/targets/var_templating/test_vars_with_sources.yml b/test/integration/targets/var_templating/test_vars_with_sources.yml
new file mode 100644
index 00000000000..0b8c990e602
--- /dev/null
+++ b/test/integration/targets/var_templating/test_vars_with_sources.yml
@@ -0,0 +1,9 @@
+- hosts: localhost
+  gather_facts: false
+  tasks:
+    - template:
+        src: ansible_debug_template.j2
+        dest: "{{ output_dir }}/ansible_debug_templated.txt"
+      vars:
+        output_dir: "{{ lookup('env', 'OUTPUT_DIR') }}"
+        hello: hello