diff --git a/example-project/component-library-react/src/components.server.ts b/example-project/component-library-react/src/components.server.ts
index d50c86b4..fb95bca4 100644
--- a/example-project/component-library-react/src/components.server.ts
+++ b/example-project/component-library-react/src/components.server.ts
@@ -1,5 +1,3 @@
-'use client';
-
 /**
  * This file was automatically generated by the Stencil React Output Target.
  * Changes to this file may cause incorrect behavior and will be lost if the code is regenerated.
diff --git a/packages/react/src/create-stencil-react-components.test.ts b/packages/react/src/create-stencil-react-components.test.ts
index fec67fb5..653984ae 100644
--- a/packages/react/src/create-stencil-react-components.test.ts
+++ b/packages/react/src/create-stencil-react-components.test.ts
@@ -252,7 +252,7 @@ describe('createStencilReactComponents', () => {
       clientModule: './client',
     });
 
-    expect(result).toContain(`'use client';`);
+    expect(result).not.toContain(`'use client';`);
     expect(result).toContain(`// @ts-ignore - ignore potential type issues as the project is importing itself`);
     expect(result).toContain(`import * as clientComponents from "./client";`);
     expect(result).toContain(`from '@stencil/react-output-target/ssr'`);
diff --git a/packages/react/src/create-stencil-react-components.ts b/packages/react/src/create-stencil-react-components.ts
index ef1594ae..2cfb27e1 100644
--- a/packages/react/src/create-stencil-react-components.ts
+++ b/packages/react/src/create-stencil-react-components.ts
@@ -32,7 +32,7 @@ export const createStencilReactComponents = ({
    * automatically attach the `use client` directive if we are not generating
    * server side rendering components.
    */
-  const useClientDirective = `'use client';\n\n`;
+  const useClientDirective = hydrateModule ? '' : `'use client';\n\n`;
   const autogeneratedComment = `/**
  * This file was automatically generated by the Stencil React Output Target.
  * Changes to this file may cause incorrect behavior and will be lost if the code is regenerated.