diff --git a/src/dev/build/tasks/transpile_typescript_task.js b/src/dev/build/tasks/transpile_typescript_task.js
index 43d554dc98ed4..b9f08cc21032d 100644
--- a/src/dev/build/tasks/transpile_typescript_task.js
+++ b/src/dev/build/tasks/transpile_typescript_task.js
@@ -17,18 +17,36 @@
  * under the License.
  */
 
-import { exec } from '../lib';
+import { exec, write } from '../lib';
+import { Project } from '../../typescript';
 
 export const TranspileTypescriptTask = {
   description: 'Transpiling sources with typescript compiler',
 
   async run(config, log, build) {
-    const tsConfigPaths = [
-      build.resolvePath('tsconfig.json'),
-      build.resolvePath('tsconfig.browser.json')
-    ];
+    const defaultProject = new Project(build.resolvePath('tsconfig.json'));
+    const browserProject = new Project(build.resolvePath('tsconfig.browser.json'));
 
-    for (const tsConfigPath of tsConfigPaths) {
+    // update the default config to exclude **/public/**/* files
+    await write(defaultProject.tsConfigPath, JSON.stringify({
+      ...defaultProject.config,
+      exclude: [
+        ...defaultProject.config.exclude,
+        'src/**/public/**/*'
+      ]
+    }));
+
+    // update the browser config file to include **/public/**/* files
+    await write(browserProject.tsConfigPath, JSON.stringify({
+      ...browserProject.config,
+      include: [
+        ...browserProject.config.exclude,
+        'src/**/public/**/*'
+      ]
+    }));
+
+    // compile each typescript config file
+    for (const tsConfigPath of [defaultProject.tsConfigPath, browserProject.tsConfigPath]) {
       log.info(`Compiling`, tsConfigPath, 'project');
       await exec(
         log,
diff --git a/src/dev/typescript/project.ts b/src/dev/typescript/project.ts
index 7f7d12fe246f0..e0d882985bd7c 100644
--- a/src/dev/typescript/project.ts
+++ b/src/dev/typescript/project.ts
@@ -41,10 +41,7 @@ function parseTsConfig(path: string) {
     throw error;
   }
 
-  const files: string[] | undefined = config.files;
-  const include: string[] | undefined = config.include;
-  const exclude: string[] | undefined = config.exclude;
-  return { files, include, exclude };
+  return config;
 }
 
 function testMatchers(matchers: IMinimatch[], path: string) {
@@ -54,11 +51,19 @@ function testMatchers(matchers: IMinimatch[], path: string) {
 export class Project {
   public directory: string;
   public name: string;
-  private include: IMinimatch[];
-  private exclude: IMinimatch[];
+  public config: any;
+
+  private readonly include: IMinimatch[];
+  private readonly exclude: IMinimatch[];
 
   constructor(public tsConfigPath: string, name?: string) {
-    const { files, include, exclude = [] } = parseTsConfig(tsConfigPath);
+    this.config = parseTsConfig(tsConfigPath);
+
+    const { files, include, exclude = [] } = this.config as {
+      files?: string[];
+      include?: string[];
+      exclude?: string[];
+    };
 
     if (files || !include) {
       throw new Error(
diff --git a/src/optimize/base_optimizer.js b/src/optimize/base_optimizer.js
index 825a1be60403c..ff8cae3fd2bc1 100644
--- a/src/optimize/base_optimizer.js
+++ b/src/optimize/base_optimizer.js
@@ -295,42 +295,49 @@ export default class BaseOptimizer {
     };
 
     // when running from source transpile TypeScript automatically
-    const isSourceConfig = {
-      module: {
-        rules: [
-          {
-            resource: createSourceFileResourceSelector(/\.tsx?$/),
-            use: maybeAddCacheLoader('typescript', [
-              {
-                loader: 'ts-loader',
-                options: {
-                  transpileOnly: true,
-                  experimentalWatchApi: true,
-                  onlyCompileBundledFiles: true,
-                  configFile: fromRoot('tsconfig.browser.json'),
-                  compilerOptions: {
-                    sourceMap: Boolean(this.sourceMaps),
+    const getSourceConfig = () => {
+      // dev/typescript is deleted from the distributable, so only require it if we actually need the source config
+      const { Project } = require('../dev/typescript');
+      const browserProject = new Project(fromRoot('tsconfig.browser.json'));
+
+      return {
+        module: {
+          rules: [
+            {
+              resource: createSourceFileResourceSelector(/\.tsx?$/),
+              use: maybeAddCacheLoader('typescript', [
+                {
+                  loader: 'ts-loader',
+                  options: {
+                    transpileOnly: true,
+                    experimentalWatchApi: true,
+                    onlyCompileBundledFiles: true,
+                    configFile: fromRoot('tsconfig.json'),
+                    compilerOptions: {
+                      ...browserProject.config.compilerOptions,
+                      sourceMap: Boolean(this.sourceMaps),
+                    }
                   }
                 }
-              }
-            ]),
-          }
-        ]
-      },
+              ]),
+            }
+          ]
+        },
 
-      stats: {
-        // when typescript doesn't do a full type check, as we have the ts-loader
-        // configured here, it does not have enough information to determine
-        // whether an imported name is a type or not, so when the name is then
-        // exported, typescript has no choice but to emit the export. Fortunately,
-        // the extraneous export should not be harmful, so we just suppress these warnings
-        // https://github.com/TypeStrong/ts-loader#transpileonly-boolean-defaultfalse
-        warningsFilter: /export .* was not found in/
-      },
+        stats: {
+          // when typescript doesn't do a full type check, as we have the ts-loader
+          // configured here, it does not have enough information to determine
+          // whether an imported name is a type or not, so when the name is then
+          // exported, typescript has no choice but to emit the export. Fortunately,
+          // the extraneous export should not be harmful, so we just suppress these warnings
+          // https://github.com/TypeStrong/ts-loader#transpileonly-boolean-defaultfalse
+          warningsFilter: /export .* was not found in/
+        },
 
-      resolve: {
-        extensions: ['.ts', '.tsx'],
-      },
+        resolve: {
+          extensions: ['.ts', '.tsx'],
+        },
+      };
     };
 
     // We need to add react-addons (and a few other bits) for enzyme to work.
@@ -407,7 +414,7 @@ export default class BaseOptimizer {
       commonConfig,
       IS_KIBANA_DISTRIBUTABLE
         ? isDistributableConfig
-        : isSourceConfig,
+        : getSourceConfig(),
       this.uiBundles.isDevMode()
         ? webpackMerge(watchingConfig, supportEnzymeConfig)
         : productionConfig
diff --git a/tsconfig.browser.json b/tsconfig.browser.json
index d5cf1d99df90c..fdfc868157e0d 100644
--- a/tsconfig.browser.json
+++ b/tsconfig.browser.json
@@ -5,7 +5,10 @@
     "module": "esnext",
   },
   "include": [
-    "src/**/public/**/*"
+    // in the build we populate this to include **/public/**/* but
+    // if we did that when running from source IDEs won't properly map
+    // public files to this config file and instead just use the defaults, ie. "strict": false,
+    // **/public/**/*
   ],
   "exclude": [
     "src/**/__fixtures__/**/*"
diff --git a/tsconfig.json b/tsconfig.json
index 892b22e13dddf..5a804d5bb96be 100644
--- a/tsconfig.json
+++ b/tsconfig.json
@@ -49,6 +49,10 @@
   ],
   "exclude": [
     "src/**/__fixtures__/**/*",
-    "src/**/public/**/*"
+    // In the build we actually exclude **/public/**/* from this config so that
+    // we can run the TSC on both this and the .browser version of this config
+    // file, but if we did it during development IDEs would not be able to find
+    // the tsconfig.json file for public files correctly.
+    // "src/**/public/**/*"
   ]
 }