diff --git a/app/client/cypress/e2e/Regression/ClientSide/BugTests/Bug26126_spec.ts b/app/client/cypress/e2e/Regression/ClientSide/BugTests/Bug26126_spec.ts
new file mode 100644
index 0000000000..4b5ba6c883
--- /dev/null
+++ b/app/client/cypress/e2e/Regression/ClientSide/BugTests/Bug26126_spec.ts
@@ -0,0 +1,26 @@
+import {
+  dataSources,
+  entityExplorer,
+} from "../../../../support/Objects/ObjectsCore";
+
+describe("Bug 26126: Fix DS button disability", function () {
+  it("ensures save button is correctly updated when DS required fields change", function () {
+    dataSources.NavigateToDSCreateNew();
+    dataSources.CreatePlugIn("S3");
+    dataSources.FillS3DSForm();
+    dataSources.AssertSaveDSButtonDisability(false);
+    dataSources.ValidateNSelectDropdown(
+      "S3 service provider",
+      "Amazon S3",
+      "Upcloud",
+    );
+    dataSources.AssertSaveDSButtonDisability(true);
+    dataSources.ValidateNSelectDropdown(
+      "S3 service provider",
+      "Upcloud",
+      "Amazon S3",
+    );
+
+    dataSources.AssertSaveDSButtonDisability(false);
+  });
+});
diff --git a/app/client/cypress/support/Pages/DataSources.ts b/app/client/cypress/support/Pages/DataSources.ts
index ab3501aefb..fc486f0b48 100644
--- a/app/client/cypress/support/Pages/DataSources.ts
+++ b/app/client/cypress/support/Pages/DataSources.ts
@@ -800,11 +800,10 @@ export class DataSources {
     } else {
       this.assertHelper.AssertNetworkStatus("@updateDatasource", 200);
     }
+  }
 
-    // cy.wait("@saveDatasource")
-    //     .then((xhr) => {
-    //         cy.log(JSON.stringify(xhr.response!.body));
-    //     }).should("have.nested.property", "response.body.responseMeta.status", 200);
+  public AssertSaveDSButtonDisability(isDisabled = true) {
+    this.agHelper.AssertElementEnabledDisabled(this._saveDs, 0, isDisabled);
   }
 
   public AuthAPISaveAndAuthorize() {
diff --git a/app/client/src/pages/Editor/DataSourceEditor/index.tsx b/app/client/src/pages/Editor/DataSourceEditor/index.tsx
index 2ae1bd43a9..2e0f9efb04 100644
--- a/app/client/src/pages/Editor/DataSourceEditor/index.tsx
+++ b/app/client/src/pages/Editor/DataSourceEditor/index.tsx
@@ -79,6 +79,7 @@ import {
   getConfigInitialValues,
   getIsFormDirty,
   getTrimmedData,
+  isHidden,
   normalizeValues,
   validate,
 } from "components/formControls/utils";
@@ -92,8 +93,13 @@ import DSDataFilter from "@appsmith/components/DSDataFilter";
 import { DEFAULT_ENV_ID } from "@appsmith/api/ApiUtils";
 import { isStorageEnvironmentCreated } from "@appsmith/utils/Environments";
 import type { CalloutKind } from "design-system";
+import type { FeatureFlags } from "@appsmith/entities/FeatureFlag";
 import { FEATURE_FLAG } from "@appsmith/entities/FeatureFlag";
-import { selectFeatureFlagCheck } from "@appsmith/selectors/featureFlagsSelectors";
+
+import {
+  selectFeatureFlagCheck,
+  selectFeatureFlags,
+} from "@appsmith/selectors/featureFlagsSelectors";
 import AnalyticsUtil from "utils/AnalyticsUtil";
 import { DATASOURCES_ALLOWED_FOR_PREVIEW_MODE } from "constants/QueryEditorConstants";
 import { setCurrentEditingEnvironmentID } from "@appsmith/actions/environmentAction";
@@ -133,6 +139,7 @@ interface ReduxStateProps {
   defaultKeyValueArrayConfig: Array<string>;
   initialValue: Datasource | ApiDatasourceForm | undefined;
   showDebugger: boolean;
+  featureFlags?: FeatureFlags;
   isEnabledForDSViewModeSchema: boolean;
   isPluginAllowedToPreviewData: boolean;
 }
@@ -387,9 +394,72 @@ class DatasourceEditorRouter extends React.Component<Props, State> {
     const requiredFields = this.state.requiredFields;
     configDetails[configProperty] = controlType;
     if (isRequired) requiredFields[configProperty] = config;
-    this.setState({
-      configDetails,
-      requiredFields,
+
+    // if the required fields being rendered has been hidden, then remove them.
+    if (this.hasRequiredFieldsChanged()) {
+      // derive new states
+      const newConfigDetails = { ...configDetails };
+      const newRequiredFields = { ...requiredFields };
+
+      Object.keys(requiredFields).forEach((field) => {
+        const currentConfig = requiredFields[field];
+
+        if (
+          !!field &&
+          this.props.formData &&
+          this.props.pluginDatasourceForm !==
+            DatasourceComponentTypes.RestAPIDatasourceForm &&
+          isHidden(
+            (this.props.formData as Datasource).datasourceStorages[
+              this.getEnvironmentId()
+            ],
+            currentConfig.hidden,
+            this.props?.featureFlags,
+            false,
+          )
+        ) {
+          // delete those fields.
+          delete newConfigDetails[field];
+          delete newRequiredFields[field];
+        }
+      });
+
+      this.setState({
+        configDetails: newConfigDetails,
+        requiredFields: newRequiredFields,
+      });
+    } else {
+      this.setState({
+        configDetails,
+        requiredFields,
+      });
+    }
+  };
+
+  // this method checks if any of the current required fields has been hidden/not rendered.
+  //
+  hasRequiredFieldsChanged = () => {
+    return Object.keys(this.state.requiredFields).some((field) => {
+      const currentConfig = this.state.requiredFields[field];
+
+      if (
+        !!field &&
+        this.props.formData &&
+        this.props.pluginDatasourceForm !==
+          DatasourceComponentTypes.RestAPIDatasourceForm &&
+        isHidden(
+          (this.props.formData as Datasource).datasourceStorages[
+            this.getEnvironmentId()
+          ],
+          currentConfig.hidden,
+          this.props?.featureFlags,
+          false,
+        )
+      ) {
+        return true;
+      } else {
+        return false;
+      }
     });
   };
 
@@ -999,6 +1069,8 @@ const mapStateToProps = (state: AppState, props: any): ReduxStateProps => {
     pluginId,
   );
 
+  const featureFlags = selectFeatureFlags(state);
+
   //   A/B feature flag for datasource view mode preview data.
   const isEnabledForDSViewModeSchema = selectFeatureFlagCheck(
     state,
@@ -1016,6 +1088,7 @@ const mapStateToProps = (state: AppState, props: any): ReduxStateProps => {
     datasourceButtonConfiguration,
     datasourceId,
     pluginImage: getPluginImages(state)[pluginId],
+    featureFlags,
     formData,
     formName,
     isInsideReconnectModal: props.isInsideReconnectModal ?? false,