diff --git a/src/browser/Terminal.ts b/src/browser/Terminal.ts
index f8b8b3e47f..06ac57f31c 100644
--- a/src/browser/Terminal.ts
+++ b/src/browser/Terminal.ts
@@ -39,7 +39,7 @@ import { MouseZoneManager } from 'browser/MouseZoneManager';
 import { AccessibilityManager } from './AccessibilityManager';
 import { ITheme, IMarker, IDisposable, ISelectionPosition, ILinkProvider } from 'xterm';
 import { DomRenderer } from 'browser/renderer/dom/DomRenderer';
-import { IKeyboardEvent, KeyboardResultType, CoreMouseEventType, CoreMouseButton, CoreMouseAction, ITerminalOptions } from 'common/Types';
+import { IKeyboardEvent, KeyboardResultType, CoreMouseEventType, CoreMouseButton, CoreMouseAction, ITerminalOptions, IAnsiColorChangeEvent } from 'common/Types';
 import { evaluateKeyboardEvent } from 'common/input/Keyboard';
 import { EventEmitter, IEvent, forwardEvent } from 'common/EventEmitter';
 import { DEFAULT_ATTR_DATA } from 'common/buffer/BufferLine';
@@ -53,6 +53,7 @@ import { Linkifier2 } from 'browser/Linkifier2';
 import { CoreBrowserService } from 'browser/services/CoreBrowserService';
 import { CoreTerminal } from 'common/CoreTerminal';
 import { ITerminalOptions as IInitializedTerminalOptions } from 'common/services/Services';
+import { rgba } from 'browser/Color';
 
 // Let it work inside Node.js for automated testing purposes.
 const document: Document = (typeof window !== 'undefined') ? window.document : null as any;
@@ -148,6 +149,7 @@ export class Terminal extends CoreTerminal implements ITerminal {
     this.register(this._inputHandler.onRequestReset(() => this.reset()));
     this.register(this._inputHandler.onRequestScroll((eraseAttr, isWrapped) => this.scroll(eraseAttr, isWrapped || undefined)));
     this.register(this._inputHandler.onRequestWindowsOptionsReport(type => this._reportWindowsOptions(type)));
+    this.register(this._inputHandler.onAnsiColorChange((event) => this._changeAnsiColor(event)));
     this.register(forwardEvent(this._inputHandler.onCursorMove, this._onCursorMove));
     this.register(forwardEvent(this._inputHandler.onTitleChange, this._onTitleChange));
     this.register(forwardEvent(this._inputHandler.onA11yChar, this._onA11yCharEmitter));
@@ -157,6 +159,19 @@ export class Terminal extends CoreTerminal implements ITerminal {
     this.register(this._bufferService.onResize(e => this._afterResize(e.cols, e.rows)));
   }
 
+  private _changeAnsiColor(event: IAnsiColorChangeEvent): void {
+    if (!this._colorManager) { return; }
+
+    event.colors.forEach(ansiColor => {
+      const color = rgba.toColor(ansiColor.red, ansiColor.green, ansiColor.blue);
+
+      this._colorManager!.colors.ansi[ansiColor.colorIndex] = color;
+    });
+
+    this._renderService?.setColors(this._colorManager!.colors);
+    this.viewport?.onThemeChange(this._colorManager!.colors);
+  }
+
   public dispose(): void {
     if (this._isDisposed) {
       return;
diff --git a/src/browser/renderer/atlas/CharAtlasUtils.ts b/src/browser/renderer/atlas/CharAtlasUtils.ts
index 346b35f8e9..20695d3c40 100644
--- a/src/browser/renderer/atlas/CharAtlasUtils.ts
+++ b/src/browser/renderer/atlas/CharAtlasUtils.ts
@@ -16,9 +16,7 @@ export function generateConfig(scaledCharWidth: number, scaledCharHeight: number
     cursor: undefined,
     cursorAccent: undefined,
     selection: undefined,
-    // For the static char atlas, we only use the first 16 colors, but we need all 256 for the
-    // dynamic character atlas.
-    ansi: colors.ansi.slice(0, 16)
+    ansi: colors.ansi
   };
   return {
     devicePixelRatio: window.devicePixelRatio,
diff --git a/src/common/InputHandler.test.ts b/src/common/InputHandler.test.ts
index 46f8eaccc7..4c0d8559fc 100644
--- a/src/common/InputHandler.test.ts
+++ b/src/common/InputHandler.test.ts
@@ -5,7 +5,7 @@
 
 import { assert, expect } from 'chai';
 import { InputHandler } from 'common/InputHandler';
-import { IBufferLine, IAttributeData } from 'common/Types';
+import { IBufferLine, IAttributeData, IAnsiColorChangeEvent } from 'common/Types';
 import { DEFAULT_ATTR_DATA } from 'common/buffer/BufferLine';
 import { CellData } from 'common/buffer/CellData';
 import { Attributes, UnderlineStyle } from 'common/buffer/Constants';
@@ -40,6 +40,7 @@ class TestInputHandler extends InputHandler {
   public get curAttrData(): IAttributeData { return (this as any)._curAttrData; }
   public get windowTitleStack(): string[] { return this._windowTitleStack; }
   public get iconNameStack(): string[] { return this._iconNameStack; }
+  public parseAnsiColorChange(data: string): IAnsiColorChangeEvent | null { return this._parseAnsiColorChange(data); }
 }
 
 describe('InputHandler', () => {
@@ -1692,4 +1693,55 @@ describe('InputHandler', () => {
       assert.equal(coreService.decPrivateModes.origin, false);
     });
   });
+  describe('OSC', () => {
+    it('4: should parse correct Ansi color change data', () => {
+      // this is testing a private method
+      const event = inputHandler.parseAnsiColorChange('19;rgb:a1/b2/c3');
+
+      assert.isNotNull(event);
+      assert.deepEqual(event!.colors[0], { colorIndex: 19, red: 0xa1, green: 0xb2, blue: 0xc3 });
+    }),
+    it('4: should ignore incorrect Ansi color change data', () => {
+      // this is testing a private method
+      assert.isNull(inputHandler.parseAnsiColorChange('17;rgb:a/b/c'));
+      assert.isNull(inputHandler.parseAnsiColorChange('17;rgb:#aabbcc'));
+      assert.isNull(inputHandler.parseAnsiColorChange('17;rgba:aa/bb/cc'));
+      assert.isNull(inputHandler.parseAnsiColorChange('rgb:aa/bb/cc'));
+    });
+    it('4: should parse a list of Ansi color changes', () => {
+      // this is testing a private method
+      const event = inputHandler.parseAnsiColorChange('19;rgb:a1/b2/c3;17;rgb:00/11/22;255;rgb:01/ef/2d');
+
+      assert.isNotNull(event);
+      assert.equal(event!.colors.length, 3);
+      assert.deepEqual(event!.colors[0], { colorIndex: 19, red: 0xa1, green: 0xb2, blue: 0xc3 });
+      assert.deepEqual(event!.colors[1], { colorIndex: 17, red: 0x00, green: 0x11, blue: 0x22 });
+      assert.deepEqual(event!.colors[2], { colorIndex: 255, red: 0x01, green: 0xef, blue: 0x2d });
+    });
+    it('4: should ignore incorrect colors in a list of Ansi color changes', () => {
+      // this is testing a private method
+      const event = inputHandler.parseAnsiColorChange('19;rgb:a1/b2/c3;17;rgb:WR/ON/G;255;rgb:01/ef/2d');
+
+      assert.equal(event!.colors.length, 2);
+      assert.deepEqual(event!.colors[0], { colorIndex: 19, red: 0xa1, green: 0xb2, blue: 0xc3 });
+      assert.deepEqual(event!.colors[1], { colorIndex: 255, red: 0x01, green: 0xef, blue: 0x2d });
+    });
+    it('4: should be case insensitive when parsing Ansi color changes', () => {
+      // this is testing a private method
+      const event = inputHandler.parseAnsiColorChange('19;rGb:A1/b2/C3');
+
+      assert.equal(event!.colors.length, 1);
+      assert.deepEqual(event!.colors[0], { colorIndex: 19, red: 0xa1, green: 0xb2, blue: 0xc3 });
+    });
+    it('4: should fire event on Ansi color change', (done) => {
+      inputHandler.onAnsiColorChange(e => {
+        assert.isNotNull(e);
+        assert.isNotNull(e!.colors);
+        assert.deepEqual(e!.colors[0], { colorIndex: 17, red: 0x1a, green: 0x2b, blue: 0x3c });
+        assert.deepEqual(e!.colors[1], { colorIndex: 12, red: 0x11, green: 0x22, blue: 0x33 });
+        done();
+      });
+      inputHandler.parse('\x1b]4;17;rgb:1a/2b/3c;12;rgb:11/22/33\x1b\\');
+    });
+  });
 });
diff --git a/src/common/InputHandler.ts b/src/common/InputHandler.ts
index dbf695e607..626e1fe2a0 100644
--- a/src/common/InputHandler.ts
+++ b/src/common/InputHandler.ts
@@ -4,7 +4,7 @@
  * @license MIT
  */
 
-import { IInputHandler, IAttributeData, IDisposable, IWindowOptions } from 'common/Types';
+import { IInputHandler, IAttributeData, IDisposable, IWindowOptions, IAnsiColorChangeEvent } from 'common/Types';
 import { C0, C1 } from 'common/data/EscapeSequences';
 import { CHARSETS, DEFAULT_CHARSET } from 'common/data/Charsets';
 import { EscapeSequenceParser } from 'common/parser/EscapeSequenceParser';
@@ -250,6 +250,8 @@ export class InputHandler extends Disposable implements IInputHandler {
   public get onScroll(): IEvent<number> { return this._onScroll.event; }
   private _onTitleChange = new EventEmitter<string>();
   public get onTitleChange(): IEvent<string> { return this._onTitleChange.event; }
+  private _onAnsiColorChange = new EventEmitter<IAnsiColorChangeEvent>();
+  public get onAnsiColorChange(): IEvent<IAnsiColorChangeEvent> { return this._onAnsiColorChange.event; }
 
   constructor(
     private readonly _bufferService: IBufferService,
@@ -372,6 +374,7 @@ export class InputHandler extends Disposable implements IInputHandler {
     this._parser.setOscHandler(2, new OscHandler((data: string) => this.setTitle(data)));
     //   3 - set property X in the form "prop=value"
     //   4 - Change Color Number
+    this._parser.setOscHandler(4, new OscHandler((data: string) => this.setAnsiColor(data)));
     //   5 - Change Special Color Number
     //   6 - Enable/disable Special Color Number c
     //   7 - current directory? (not in xterm spec, see https://gitlab.com/gnachman/iterm2/issues/3939)
@@ -2711,6 +2714,45 @@ export class InputHandler extends Disposable implements IInputHandler {
     this._iconName = data;
   }
 
+  protected _parseAnsiColorChange(data: string): IAnsiColorChangeEvent | null {
+    const result: IAnsiColorChangeEvent = { colors: [] };
+    // example data: 5;rgb:aa/bb/cc
+    const regex = /(\d+);rgb:([0-9a-f]{2})\/([0-9a-f]{2})\/([0-9a-f]{2})/gi;
+    let match;
+
+    while ((match = regex.exec(data)) !== null) {
+      result.colors.push({
+        colorIndex: parseInt(match[1]),
+        red: parseInt(match[2], 16),
+        green: parseInt(match[3], 16),
+        blue: parseInt(match[4], 16)
+      });
+    }
+
+    if (result.colors.length === 0) {
+      return null;
+    }
+
+    return result;
+  }
+
+  /**
+   * OSC 4; <num> ; <text> ST (set ANSI color <num> to <text>)
+   *
+   * @vt: #Y    OSC    4    "Set ANSI color"   "OSC 4 ; c ; spec BEL" "Change color number `c` to the color specified by `spec`."
+   * `c` is the color index between 0 and 255. `spec` color format is 'rgb:hh/hh/hh' where `h` are hexadecimal digits.
+   * There may be multipe c ; spec elements present in the same instruction, e.g. 1;rgb:10/20/30;2;rgb:a0/b0/c0.
+   */
+  public setAnsiColor(data: string): void {
+    const event = this._parseAnsiColorChange(data);
+    if (event) {
+      this._onAnsiColorChange.fire(event);
+    }
+    else {
+      this._logService.warn(`Expected format <num>;rgb:<rr>/<gg>/<bb> but got data: ${data}`);
+    }
+  }
+
   /**
    * ESC E
    * C1.NEL
diff --git a/src/common/Types.d.ts b/src/common/Types.d.ts
index bd0d11c606..1ea26c2a70 100644
--- a/src/common/Types.d.ts
+++ b/src/common/Types.d.ts
@@ -328,6 +328,20 @@ export interface IWindowOptions {
   setWinLines?: boolean;
 }
 
+export interface IAnsiColorChangeEventColor {
+  colorIndex: number;
+  red: number;
+  green: number;
+  blue: number;
+}
+
+/**
+ * Event fired for OSC 4 command - to change ANSI color based on its index.
+ */
+export interface IAnsiColorChangeEvent {
+  colors: IAnsiColorChangeEventColor[];
+}
+
 /**
  * Calls the parser and handles actions generated by the parser.
  */
@@ -389,6 +403,7 @@ export interface IInputHandler {
   /** CSI ' ~ */ deleteColumns(params: IParams): void;
   /** OSC 0
       OSC 2 */ setTitle(data: string): void;
+  /** OSC 4 */ setAnsiColor(data: string): void;
   /** ESC E */ nextLine(): void;
   /** ESC = */ keypadApplicationMode(): void;
   /** ESC > */ keypadNumericMode(): void;