diff --git a/core/config/schema/core.entity.schema.yml b/core/config/schema/core.entity.schema.yml
index 174925d..e846ca4 100644
--- a/core/config/schema/core.entity.schema.yml
+++ b/core/config/schema/core.entity.schema.yml
@@ -374,7 +374,7 @@ field.formatter.settings.entity_reference_inline_settings:
       type: string
     settings:
       label: 'Formatter settings'
-      type: field.formatter.settings.[%parent.type]
+      type: field.formatter.settings.[type]
     label:
       label: 'Target field label visibility setting'
       type: string
diff --git a/core/modules/field/tests/src/Kernel/EntityReference/EntityReferenceFormatterTest.php b/core/modules/field/tests/src/Kernel/EntityReference/EntityReferenceFormatterTest.php
index 1473375..1938781 100644
--- a/core/modules/field/tests/src/Kernel/EntityReference/EntityReferenceFormatterTest.php
+++ b/core/modules/field/tests/src/Kernel/EntityReference/EntityReferenceFormatterTest.php
@@ -4,8 +4,10 @@
 
 use Drupal\Core\Cache\Cache;
 use Drupal\Core\Cache\CacheableMetadata;
+use Drupal\Core\Entity\Entity\EntityViewDisplay;
 use Drupal\Core\Field\FieldStorageDefinitionInterface;
 use Drupal\Core\Field\Plugin\Field\FieldFormatter\EntityReferenceEntityFormatter;
+use Drupal\entity_test\Entity\EntityTest;
 use Drupal\field\Entity\FieldConfig;
 use Drupal\field\Entity\FieldStorageConfig;
 use Drupal\field\Tests\EntityReference\EntityReferenceTestTrait;
@@ -60,6 +62,9 @@ class EntityReferenceFormatterTest extends EntityKernelTestBase {
    */
   protected $unsavedReferencedEntity;
 
+  /**
+   * {@inheritdoc}
+   */
   protected function setUp() {
     parent::setUp();
 
@@ -402,6 +407,129 @@ public function testLabelFormatter() {
   }
 
   /**
+   * Tests entity_reference_inline_settings formatter output.
+   *
+   * @param string|null $label_option
+   *   The value for the "label" formatter option.
+   * @param string $expected_output
+   *   The expected output.
+   *
+   * @dataProvider providerTestRenderInlineSettingsFormatter
+   */
+  public function testRenderInlineSettingsFormatter($label_option, $expected_output) {
+
+    $field_storage = FieldStorageConfig::create([
+      'field_name' => 'test_er_field',
+      'entity_type' => 'entity_test',
+      'type' => 'entity_reference',
+      'settings' => [
+        'target_type' => 'entity_test',
+      ],
+    ]);
+    $field_storage->save();
+
+    $field_config = FieldConfig::create([
+      'field_name' => 'test_er_field',
+      'entity_type' => 'entity_test',
+      'bundle' => 'entity_test',
+    ]);
+    $field_config->save();
+
+    $parent_entity_view_display = EntityViewDisplay::load('entity_test.entity_test.default');
+    $parent_entity_view_display->setComponent('test_er_field', [
+      'type' => 'entity_reference_inline_settings',
+      'settings' => [
+        'field_name' => 'name',
+        'type' => 'string',
+        'settings' => [],
+        'label' => $label_option,
+        'show_basefields' => FALSE,
+      ],
+    ])->save();
+
+    $child_entity = EntityTest::create([
+      'name' => ['child name'],
+    ]);
+    $child_entity->save();
+
+    $entity = EntityTest::create([
+      'test_er_field' => [[
+        'target_id' => $child_entity->id(),
+      ],
+      ],
+    ]);
+    $entity->save();
+
+    $build = $parent_entity_view_display->build($entity);
+
+    $this->container->get('renderer')->renderRoot($build);
+
+    $this->assertEquals($expected_output, $build['test_er_field']['#markup']);
+  }
+
+  /**
+   * Data provider for ::testRenderInlineSettingsFormatter().
+   */
+  public function providerTestRenderInlineSettingsFormatter() {
+    $output_with_label = <<<EXPECTED
+
+  <div class="field field--name-test-er-field field--type-entity-reference field--label-above">
+    <div class="field__label">test_er_field</div>
+              <div class="field__item">
+  <div class="field field--name-name field--type-string field--label-above">
+    <div class="field__label">Name</div>
+              <div class="field__item">child name</div>
+          </div>
+</div>
+          </div>
+
+EXPECTED;
+    $output_with_label_inline = <<<EXPECTED
+
+  <div class="field field--name-test-er-field field--type-entity-reference field--label-above">
+    <div class="field__label">test_er_field</div>
+              <div class="field__item">
+  <div class="field field--name-name field--type-string field--label-inline">
+    <div class="field__label">Name</div>
+              <div class="field__item">child name</div>
+          </div>
+</div>
+          </div>
+
+EXPECTED;
+    $output_label_hidden = <<<EXPECTED
+
+  <div class="field field--name-test-er-field field--type-entity-reference field--label-above">
+    <div class="field__label">test_er_field</div>
+              <div class="field__item">
+            <div class="field field--name-name field--type-string field--label-hidden field__item">child name</div>
+      </div>
+          </div>
+
+EXPECTED;
+    $output_label_visually_hidden = <<<EXPECTED
+
+  <div class="field field--name-test-er-field field--type-entity-reference field--label-above">
+    <div class="field__label">test_er_field</div>
+              <div class="field__item">
+  <div class="field field--name-name field--type-string field--label-visually_hidden">
+    <div class="field__label visually-hidden">Name</div>
+              <div class="field__item">child name</div>
+          </div>
+</div>
+          </div>
+
+EXPECTED;
+
+    return [
+      ['above', $output_with_label],
+      ['inline', $output_with_label_inline],
+      ['hidden', $output_label_hidden],
+      ['visually_hidden', $output_label_visually_hidden],
+    ];
+  }
+
+  /**
    * Sets field values and returns a render array as built by
    * \Drupal\Core\Field\FieldItemListInterface::view().
    *