diff --git a/src/main/java/io/openliberty/tools/common/plugins/config/ServerConfigDocument.java b/src/main/java/io/openliberty/tools/common/plugins/config/ServerConfigDocument.java
index 2ae4372f3..df3a36bd3 100644
--- a/src/main/java/io/openliberty/tools/common/plugins/config/ServerConfigDocument.java
+++ b/src/main/java/io/openliberty/tools/common/plugins/config/ServerConfigDocument.java
@@ -202,7 +202,7 @@ public ServerConfigDocument(CommonLoggerI log, File originalServerXMLFile, Map<S
         this.originalServerXMLFile = originalServerXMLFile;
     }
 
-    private DocumentBuilder getDocumentBuilder() {
+    private static DocumentBuilder getDocumentBuilder() {
         DocumentBuilder docBuilder;
 
         DocumentBuilderFactory docBuilderFactory = DocumentBuilderFactory.newInstance();
@@ -1005,4 +1005,32 @@ public void setSpringBootAppNodeLocation(Optional<String> springBootAppNodeLocat
         this.springBootAppNodeLocation = springBootAppNodeLocation;
     }
 
+    /**
+     * Parses a loose application XML file and returns a list of all sourceOnDisk
+     * attribute values found on {@code <file>} and {@code <dir>} elements.
+     *
+     * @param looseAppFile - the loose application XML file to parse
+     * @return a List of sourceOnDisk path strings; empty if none are found or the file cannot be parsed
+     * @throws FileNotFoundException if the file does not exist
+     * @throws IOException if the file cannot be read
+     */
+    public static Set<String> getSourceOnDiskPaths(File looseAppFile) throws FileNotFoundException, IOException {
+        Set<String> result = new HashSet<String>();
+        Document doc;
+        try (FileInputStream is = new FileInputStream(looseAppFile)) {
+            doc = getDocumentBuilder().parse(is);
+        } catch (SAXException e) {
+            return result; // not valid XML
+        }
+        for (String tag : new String[]{"file", "dir"}) {
+            NodeList nodes = doc.getElementsByTagName(tag);
+            for (int i = 0; i < nodes.getLength(); i++) {
+                org.w3c.dom.Node attr = nodes.item(i).getAttributes().getNamedItem("sourceOnDisk");
+                if (attr != null && !attr.getNodeValue().isEmpty()) {
+                    result.add(attr.getNodeValue());
+                }
+            }
+        }
+        return result;
+    }
 }
\ No newline at end of file
diff --git a/src/main/java/io/openliberty/tools/common/plugins/util/DevUtil.java b/src/main/java/io/openliberty/tools/common/plugins/util/DevUtil.java
index a9e8b2b6c..96860eb91 100644
--- a/src/main/java/io/openliberty/tools/common/plugins/util/DevUtil.java
+++ b/src/main/java/io/openliberty/tools/common/plugins/util/DevUtil.java
@@ -5878,7 +5878,7 @@ protected void triggerMainModuleCompile(boolean testsOnly) throws IOException {
 
     /**
      * Trigger a compile of the entire specified module. This is only used in a
-     * multi-module scenario. Adds all Java files to the to be compiled list so that
+     * multi-module scenario. Adds all Java files to the to-be-compiled list so that
      * they will be compiled on next watch loop.
      * 
      * @param project   ProjectModule, the module to be compiled
diff --git a/src/main/java/io/openliberty/tools/common/plugins/util/FeatureGeneratorUtil.java b/src/main/java/io/openliberty/tools/common/plugins/util/FeatureGeneratorUtil.java
index c6d031ec2..98f17568d 100644
--- a/src/main/java/io/openliberty/tools/common/plugins/util/FeatureGeneratorUtil.java
+++ b/src/main/java/io/openliberty/tools/common/plugins/util/FeatureGeneratorUtil.java
@@ -16,6 +16,7 @@
 package io.openliberty.tools.common.plugins.util;
 
 import java.io.File;
+import java.io.IOException;
 import java.lang.reflect.InvocationTargetException;
 import java.lang.reflect.Method;
 import java.net.MalformedURLException;
@@ -26,6 +27,8 @@
 import java.util.Map;
 import java.util.Set;
 
+import io.openliberty.tools.common.plugins.config.ServerConfigDocument;
+
 public abstract class FeatureGeneratorUtil {
 
     public static final String FEATURE_GEN_MAVEN_GROUP_ID = "com.ibm.websphere.appmod.tools";
@@ -135,6 +138,7 @@ public FeatureGeneratorUtil(File featureGen) {
      * @param currentFeatureSet - the features already specified in the server configuration
      * @param classFiles - a set of class files for the generator to handle. Should be a subset of allClassesDirectories
      * @param allClassesDirectories - the directories containing all the class files of the application
+     * @param looseConfigFilePath - the absolute path to the xml config of the loose application
      * @param logLocation - directory name relative to project or absolute path passed to feature generator
      * @param targetJavaEE - generate features valid for the indicated version of EE
      * @param targetMicroProfile - generate features valid for the indicated version of MicroProfile
@@ -155,7 +159,7 @@ public FeatureGeneratorUtil(File featureGen) {
      *                                       generator when used in combination with each other. E.g. EE 7 and MP 2.1
      */
     public Set<String> runFeatureGenerator(Set<String> currentFeatureSet, List<String> classFiles, Set<String> allClassesDirectories,
-            String logLocation, String targetJavaEE, String targetMicroProfile, Map featureListFileMap, boolean optimize)
+            String looseConfigFilePath, String logLocation, String targetJavaEE, String targetMicroProfile, Map featureListFileMap, boolean optimize)
             throws PluginExecutionException, NoRecommendationException, RecommendationSetException, FeatureModifiedException,
             FeatureUnavailableException, IllegalTargetException, IllegalTargetComboException, VersionlessFeatureDetectedException {
         Set<String> generatedFeatureList = null;
@@ -167,7 +171,8 @@ public Set<String> runFeatureGenerator(Set<String> currentFeatureSet, List<Strin
             try {
                 Method generateFeatureSetMethod = getGeneratorMethod();
                 // names: binaryInputs, targetJavaEE, targetMicroProfile, currentFeatures, logLocation, logLevel, locale
-                Set<String> binaryInputs = getBinaryInputs(classFiles, allClassesDirectories, optimize);
+                Set<String> binaryInputs = getBinaryInputs(classFiles, allClassesDirectories, looseConfigFilePath, optimize);
+
                 String logLevel;
                 if (isDebugEnabled()) {
                     logLevel = "*=FINE";  // generate messages for debugging by support team
@@ -384,9 +389,24 @@ private Method getGeneratorMethod() throws MalformedURLException, ClassNotFoundE
         return featureGenMethod;
     }
 
-    private static Set<String> getBinaryInputs(List<String> classFiles, Set<String> classDirectories, boolean optimize) throws PluginExecutionException {
+    private Set<String> getBinaryInputs(List<String> classFiles, Set<String> classDirectories, String looseConfigFilePath, boolean optimize) throws PluginExecutionException {
         Set<String> resultSet;
         if (optimize) {
+            // Use either the loose app config or the class directories
+            if (looseConfigFilePath != null) {
+                try {
+                    File looseAppFile = new File(looseConfigFilePath);
+                    if (looseAppFile.exists()) {
+                        resultSet = ServerConfigDocument.getSourceOnDiskPaths(looseAppFile);
+                        if (!resultSet.isEmpty()) {
+                            return resultSet;
+                        }
+                    }
+                } catch (IOException e) {
+                    // if the app config is invalid try the class directories instead
+                }
+                warn("Application descriptor file not found while generating features, using class files instead: " + looseConfigFilePath);
+            }
             if (classDirectories == null || classDirectories.isEmpty()) {
                 return new HashSet<String>();
             }