diff --git a/.changeset/brown-wolves-admire.md b/.changeset/brown-wolves-admire.md
new file mode 100644
index 00000000000..cbf448dcf76
--- /dev/null
+++ b/.changeset/brown-wolves-admire.md
@@ -0,0 +1,7 @@
+---
+"@hashicorp/design-system-components": minor
+---
+
+`Tag` - Truncate any text that is longer than about 20 characters, and add a tooltip with the full text when truncation occurs
+
+`Tag` - Added `@tooltipPlacement` argument
diff --git a/packages/components/src/components/hds/tag/index.hbs b/packages/components/src/components/hds/tag/index.hbs
index 40f56af3ef9..679a5cabfdc 100644
--- a/packages/components/src/components/hds/tag/index.hbs
+++ b/packages/components/src/components/hds/tag/index.hbs
@@ -2,29 +2,68 @@
   Copyright (c) HashiCorp, Inc.
   SPDX-License-Identifier: MPL-2.0
 }}
-<Hds::Text::Body class={{this.classNames}} @tag="span" @size="100" @weight="medium" @color="primary" ...attributes>
+<Hds::Text::Body
+  class={{this.classNames}}
+  @tag="span"
+  @size="100"
+  @weight="medium"
+  @color="primary"
+  {{this._setUpObserver}}
+  ...attributes
+>
   {{#if this.onDismiss}}
     <button class="hds-tag__dismiss" type="button" aria-label={{this.ariaLabel}} {{on "click" this.onDismiss}}>
       <Hds::Icon class="hds-tag__dismiss-icon" @name="x" @size="16" />
     </button>
   {{/if}}
   {{#if (or @href @route)}}
-    <Hds::Interactive
-      class="hds-tag__link"
-      @current-when={{@current-when}}
-      @models={{hds-link-to-models @model @models}}
-      @query={{hds-link-to-query @query}}
-      @replace={{@replace}}
-      @route={{@route}}
-      @isRouteExternal={{@isRouteExternal}}
-      @href={{@href}}
-      @isHrefExternal={{@isHrefExternal}}
-    >
-      {{this.text}}
-    </Hds::Interactive>
+    {{#if this._isTextOverflow}}
+      <Hds::Interactive
+        class="hds-tag__link"
+        @current-when={{@current-when}}
+        @models={{hds-link-to-models @model @models}}
+        @query={{hds-link-to-query @query}}
+        @replace={{@replace}}
+        @route={{@route}}
+        @isRouteExternal={{@isRouteExternal}}
+        @href={{@href}}
+        @isHrefExternal={{@isHrefExternal}}
+        {{hds-tooltip this.text options=(hash placement=this.tooltipPlacement)}}
+      >
+        <div class="hds-tag__text-container">
+          {{this.text}}
+        </div>
+      </Hds::Interactive>
+    {{else}}
+      <Hds::Interactive
+        class="hds-tag__link"
+        @current-when={{@current-when}}
+        @models={{hds-link-to-models @model @models}}
+        @query={{hds-link-to-query @query}}
+        @replace={{@replace}}
+        @route={{@route}}
+        @isRouteExternal={{@isRouteExternal}}
+        @href={{@href}}
+        @isHrefExternal={{@isHrefExternal}}
+      >
+        <div class="hds-tag__text-container">
+          {{this.text}}
+        </div>
+      </Hds::Interactive>
+    {{/if}}
   {{else}}
-    <span class="hds-tag__text">
-      {{this.text}}
-    </span>
+    {{#if this._isTextOverflow}}
+      <Hds::TooltipButton class="hds-tag__text" @text={{this.text}} @placement={{this.tooltipPlacement}}>
+        <div class="hds-tag__text-container">
+          {{this.text}}
+        </div>
+      </Hds::TooltipButton>
+    {{else}}
+      <span class="hds-tag__text">
+        <div class="hds-tag__text-container">
+          {{this.text}}
+        </div>
+      </span>
+    {{/if}}
   {{/if}}
 </Hds::Text::Body>
\ No newline at end of file
diff --git a/packages/components/src/components/hds/tag/index.ts b/packages/components/src/components/hds/tag/index.ts
index 0670d6a31a0..4fe0acc1353 100644
--- a/packages/components/src/components/hds/tag/index.ts
+++ b/packages/components/src/components/hds/tag/index.ts
@@ -4,20 +4,29 @@
  */
 
 import Component from '@glimmer/component';
+import { tracked } from '@glimmer/tracking';
 import { assert } from '@ember/debug';
+import { modifier } from 'ember-modifier';
 
 import { HdsTagColorValues } from './types.ts';
 import type { HdsTagColors } from './types.ts';
+import { HdsTagTooltipPlacementValues } from './types.ts';
+import type { HdsTagTooltipPlacements } from './types.ts';
 import type { HdsInteractiveSignature } from '../interactive/';
 
 export const COLORS: string[] = Object.values(HdsTagColorValues);
 export const DEFAULT_COLOR = HdsTagColorValues.Primary;
+export const TOOLTIP_PLACEMENTS: string[] = Object.values(
+  HdsTagTooltipPlacementValues
+);
+export const DEFAULT_TOOLTIP_PLACEMENT = HdsTagTooltipPlacementValues.Top;
 
 export interface HdsTagSignature {
   Args: HdsInteractiveSignature['Args'] & {
     color?: HdsTagColors;
     text: string;
     ariaLabel?: string;
+    tooltipPlacement: HdsTagTooltipPlacements;
     // eslint-disable-next-line @typescript-eslint/no-explicit-any
     onDismiss?: (event: MouseEvent, ...args: any[]) => void;
   };
@@ -25,6 +34,43 @@ export interface HdsTagSignature {
 }
 
 export default class HdsTag extends Component<HdsTagSignature> {
+  @tracked private _isTextOverflow!: boolean;
+  private _observer!: ResizeObserver;
+
+  private _setUpObserver = modifier((element: HTMLElement) => {
+    // Used to detect when text is clipped to one line, and tooltip should be added
+    this._observer = new ResizeObserver((entries) => {
+      entries.forEach((entry) => {
+        this._isTextOverflow = this._isOverflow(
+          entry.target.querySelector('.hds-tag__text-container')!
+        );
+      });
+    });
+    this._observer.observe(element);
+
+    return () => {
+      this._observer.disconnect();
+    };
+  });
+
+  /**
+   * @param tooltioPlacement
+   * @type {string}
+   * @default top
+   * @description The placement property of the tooltip attached to the tag text.
+   */
+  get tooltipPlacement(): HdsTagTooltipPlacements {
+    const { tooltipPlacement = DEFAULT_TOOLTIP_PLACEMENT } = this.args;
+
+    assert(
+      '@tooltipPlacement for "Hds::Tag" must have a valid value',
+      tooltipPlacement == undefined ||
+        TOOLTIP_PLACEMENTS.includes(tooltipPlacement)
+    );
+
+    return tooltipPlacement;
+  }
+
   /**
    * @param onDismiss
    * @type {function}
@@ -104,4 +150,8 @@ export default class HdsTag extends Component<HdsTagSignature> {
 
     return classes.join(' ');
   }
+
+  private _isOverflow(el: Element): boolean {
+    return el.scrollHeight > el.clientHeight;
+  }
 }
diff --git a/packages/components/src/components/hds/tag/types.ts b/packages/components/src/components/hds/tag/types.ts
index 5749b71ca5c..446d96f852a 100644
--- a/packages/components/src/components/hds/tag/types.ts
+++ b/packages/components/src/components/hds/tag/types.ts
@@ -8,3 +8,20 @@ export enum HdsTagColorValues {
   Secondary = 'secondary',
 }
 export type HdsTagColors = `${HdsTagColorValues}`;
+
+export enum HdsTagTooltipPlacementValues {
+  Top = 'top',
+  TopStart = 'top-start',
+  TopEnd = 'top-end',
+  Right = 'right',
+  RightStart = 'right-start',
+  RightEnd = 'right-end',
+  Bottom = 'bottom',
+  BottomStart = 'bottom-start',
+  BottomEnd = 'bottom-end',
+  Left = 'left',
+  LeftStart = 'left-start',
+  LeftEnd = 'left-end',
+}
+
+export type HdsTagTooltipPlacements = `${HdsTagTooltipPlacementValues}`;
diff --git a/packages/components/src/styles/components/tag.scss b/packages/components/src/styles/components/tag.scss
index c008848330a..c4923587091 100644
--- a/packages/components/src/styles/components/tag.scss
+++ b/packages/components/src/styles/components/tag.scss
@@ -15,6 +15,8 @@ $hds-tag-border-radius: 50px;
 .hds-tag {
   display: inline-flex;
   align-items: stretch;
+  width: fit-content;
+  max-width: 100%;
   line-height: 1rem; // 16px - override `body-100`
   vertical-align: middle;
   background-color: var(--token-color-surface-interactive);
@@ -41,12 +43,23 @@ $hds-tag-border-radius: 50px;
 .hds-tag__text,
 .hds-tag__link {
   flex: 1 0 0;
+  max-width: 166px; // account for excess horizontal padding of text in non-dismissible variant
   padding: 3px 10px 5px 10px;
   border-radius: inherit;
 }
 
+.hds-tag__text-container {
+  display: -webkit-box;
+  overflow: hidden;
+  word-break: break-all;
+  -webkit-box-orient: vertical;
+  -webkit-line-clamp: 1;
+  line-clamp: 1;
+}
+
 .hds-tag__dismiss ~ .hds-tag__text,
 .hds-tag__dismiss ~ .hds-tag__link {
+  max-width: 160px;
   padding: 3px 8px 5px 6px;
   border-top-left-radius: 0;
   border-bottom-left-radius: 0;
@@ -76,6 +89,21 @@ $hds-tag-border-radius: 50px;
   }
 }
 
+.hds-tooltip-button.hds-tag__text {
+  cursor: text;
+  user-select: text;
+
+  &:focus,
+  &.mock-focus {
+    @include hds-focus-ring-basic();
+    z-index: 1; // ensures focus is not obscured by adjacent elements
+  }
+
+  &:focus-visible::before {
+    box-shadow: none; // override default tooltip button focus styles
+  }
+}
+
 // COLORS (FOR LINK)
 
 .hds-tag--color-primary {
diff --git a/showcase/app/routes/components/tag.js b/showcase/app/routes/components/tag.js
index da64b84ff55..9a625eb363a 100644
--- a/showcase/app/routes/components/tag.js
+++ b/showcase/app/routes/components/tag.js
@@ -5,11 +5,12 @@
 
 import Route from '@ember/routing/route';
 import { COLORS } from '@hashicorp/design-system-components/components/hds/tag';
+import { TOOLTIP_PLACEMENTS } from '@hashicorp/design-system-components/components/hds/tag';
 
 export default class ComponentsTagRoute extends Route {
   model() {
     // these are used only for presentation purpose in the showcase
     const STATES = ['default', 'hover', 'active', 'focus'];
-    return { COLORS, STATES };
+    return { COLORS, TOOLTIP_PLACEMENTS, STATES };
   }
 }
diff --git a/showcase/app/templates/components/tag.hbs b/showcase/app/templates/components/tag.hbs
index 19441765a63..4e749203a05 100644
--- a/showcase/app/templates/components/tag.hbs
+++ b/showcase/app/templates/components/tag.hbs
@@ -33,12 +33,22 @@
   </Shw::Flex>
 
   <Shw::Flex @label="With long text" as |SF|>
-    <SF.Item {{style width="200px"}}>
+    <SF.Item>
       <Hds::Tag @text="This is a very long text that should go on multiple lines" @onDismiss={{this.noop}} />
     </SF.Item>
-    <SF.Item {{style width="200px"}}>
+    <SF.Item>
       <Hds::Tag @text="This is a very long text that should go on multiple lines" />
     </SF.Item>
+    <SF.Item>
+      <Hds::Tag
+        @text="This is a very long text that should go on multiple lines"
+        @onDismiss={{this.noop}}
+        @route="components.tag"
+      />
+    </SF.Item>
+    <SF.Item>
+      <Hds::Tag @text="This is a very long text that should go on multiple lines" @route="components.tag" />
+    </SF.Item>
   </Shw::Flex>
 
   <Shw::Divider @level={{2}} />
@@ -119,4 +129,19 @@
     {{/let}}
   </Shw::Grid>
 
+  <Shw::Divider @level={{2}} />
+
+  <Shw::Text::H2>Tooltip Placements</Shw::Text::H2>
+
+  <Shw::Grid @columns={{3}} as |SG|>
+    {{#each @model.TOOLTIP_PLACEMENTS as |place|}}
+      <SG.Item>
+        <Hds::Tag
+          @text="{{place}} This is a very long text that should go on multiple lines"
+          @tooltipPlacement={{place}}
+        />
+      </SG.Item>
+    {{/each}}
+  </Shw::Grid>
+
 </section>
\ No newline at end of file
diff --git a/showcase/tests/integration/components/hds/tag/index-test.js b/showcase/tests/integration/components/hds/tag/index-test.js
index 31910e8c603..c34a5a6117f 100644
--- a/showcase/tests/integration/components/hds/tag/index-test.js
+++ b/showcase/tests/integration/components/hds/tag/index-test.js
@@ -5,7 +5,12 @@
 
 import { module, test } from 'qunit';
 import { setupRenderingTest } from 'ember-qunit';
-import { render, resetOnerror, setupOnerror } from '@ember/test-helpers';
+import {
+  render,
+  resetOnerror,
+  setupOnerror,
+  waitFor,
+} from '@ember/test-helpers';
 import { hbs } from 'ember-cli-htmlbars';
 
 module('Integration | Component | hds/tag/index', function (hooks) {
@@ -25,6 +30,7 @@ module('Integration | Component | hds/tag/index', function (hooks) {
     await render(hbs`<Hds::Tag @text="My tag" />`);
     assert.dom('button.hds-tag__dismiss').doesNotExist();
   });
+
   test('it should render the "dismiss" button if a callback function is passed to the @onDismiss argument', async function (assert) {
     this.set('NOOP', () => {});
     await render(hbs`<Hds::Tag @text="My tag" @onDismiss={{this.NOOP}} />`);
@@ -44,6 +50,7 @@ module('Integration | Component | hds/tag/index', function (hooks) {
       .dom('button.hds-tag__dismiss')
       .hasAttribute('aria-label', 'Please dismiss My tag');
   });
+
   // COLOR
 
   test('it should render the primary color as the default if no @color prop is declared when the text is a link', async function (assert) {
@@ -52,12 +59,14 @@ module('Integration | Component | hds/tag/index', function (hooks) {
     );
     assert.dom('#test-link-tag').hasClass('hds-tag--color-primary');
   });
+
   test('it should render the correct CSS color class if the @color prop is declared when the text is a link', async function (assert) {
     await render(
       hbs`<Hds::Tag @text="My text tag" @href="/" @color="secondary" id="test-link-tag"/>`
     );
     assert.dom('#test-link-tag').hasClass('hds-tag--color-secondary');
   });
+
   test('it should throw an assertion if an incorrect value for @color is provided when the text is a link', async function (assert) {
     const errorMessage =
       '@color for "Hds::Tag" must be one of the following: primary, secondary; received: foo';
@@ -70,6 +79,7 @@ module('Integration | Component | hds/tag/index', function (hooks) {
       throw new Error(errorMessage);
     });
   });
+
   test('it should throw an assertion if @color is provided without @href or @route', async function (assert) {
     const errorMessage =
       '@color can only be applied to "Hds::Tag" along with either @href or @route';
@@ -82,4 +92,23 @@ module('Integration | Component | hds/tag/index', function (hooks) {
       throw new Error(errorMessage);
     });
   });
+
+  // OVERFLOW
+
+  test('it should not render a tooltip if the text does not overflow', async function (assert) {
+    await render(hbs`
+        <Hds::Tag @text="My text tag" id="test-tag"/>
+    `);
+    assert.dom('.hds-tooltip-button').doesNotExist();
+  });
+
+  test('it should render a tooltip if the text overflows', async function (assert) {
+    await render(hbs`
+      <div style="width: 50px;">
+        <Hds::Tag @text="This is a very long text that should go on multiple lines" id="test-tag"/>
+      </div>
+    `);
+    await waitFor('.hds-tooltip-button', { timeout: 1000 });
+    assert.dom('.hds-tooltip-button').exists();
+  });
 });