diff --git a/examples/experimental/dagster-components/dagster_components/cli/generate.py b/examples/experimental/dagster-components/dagster_components/cli/generate.py
index 466fe4061f54b..60aece54431a6 100644
--- a/examples/experimental/dagster-components/dagster_components/cli/generate.py
+++ b/examples/experimental/dagster-components/dagster_components/cli/generate.py
@@ -1,8 +1,10 @@
 import os
 import sys
 from pathlib import Path
+from typing import Optional
 
 import click
+from pydantic import TypeAdapter
 
 from dagster_components import ComponentRegistry, __component_registry__
 from dagster_components.core.deployment import (
@@ -82,7 +84,8 @@ def generate_component_type_command(name: str) -> None:
 @generate_cli.command(name="component")
 @click.argument("component-type", type=str)
 @click.argument("name", type=str)
-def generate_component_command(component_type: str, name: str) -> None:
+@click.option("--params", type=str, default=None)
+def generate_component_command(component_type: str, name: str, params: Optional[str]) -> None:
     """Generate a Dagster component instance."""
     if not is_inside_code_location_project(Path(".")):
         click.echo(
@@ -105,4 +108,11 @@ def generate_component_command(component_type: str, name: str) -> None:
         sys.exit(1)
 
     component_type_cls = context.get_component_type(component_type)
-    generate_component_instance(context.component_instances_root_path, name, component_type_cls)
+    generate_params = (
+        TypeAdapter(component_type_cls.generate_params_schema).validate_json(params)
+        if params
+        else None
+    )
+    generate_component_instance(
+        context.component_instances_root_path, name, component_type_cls, generate_params
+    )
diff --git a/examples/experimental/dagster-components/dagster_components/core/component.py b/examples/experimental/dagster-components/dagster_components/core/component.py
index 85e04307385d5..e0bf155204054 100644
--- a/examples/experimental/dagster-components/dagster_components/core/component.py
+++ b/examples/experimental/dagster-components/dagster_components/core/component.py
@@ -1,7 +1,7 @@
 import copy
 from abc import ABC, abstractmethod
 from types import ModuleType
-from typing import TYPE_CHECKING, ClassVar, Dict, Iterable, Mapping, Optional, Type
+from typing import TYPE_CHECKING, Any, ClassVar, Dict, Iterable, Mapping, Optional, Type
 
 from dagster._core.errors import DagsterError
 from dagster._utils import snakecase
@@ -16,14 +16,15 @@ class ComponentDeclNode: ...
 
 class Component(ABC):
     name: ClassVar[Optional[str]] = None
+    defs_params_schema: ClassVar[Type] = Type[None]
+    generate_params_schema: ClassVar[Type] = Type[None]
 
     @classmethod
     def registered_name(cls) -> str:
         return cls.name or snakecase(cls.__name__)
 
     @classmethod
-    def generate_files(cls) -> None:
-        raise NotImplementedError()
+    def generate_files(cls, params: Any) -> Optional[Mapping[str, Any]]: ...
 
     @abstractmethod
     def build_defs(self, context: "ComponentLoadContext") -> "Definitions": ...
diff --git a/examples/experimental/dagster-components/dagster_components/generate.py b/examples/experimental/dagster-components/dagster_components/generate.py
index b731e6f0dfd01..2734ee9320af1 100644
--- a/examples/experimental/dagster-components/dagster_components/generate.py
+++ b/examples/experimental/dagster-components/dagster_components/generate.py
@@ -1,13 +1,22 @@
 import os
-from typing import Type
+from typing import Any, Type
 
 import click
+import yaml
 from dagster._generate.generate import generate_project
 from dagster._utils import camelcase, pushd
 
 from dagster_components.core.component import Component
 
 
+class DefsDumper(yaml.Dumper):
+    def write_line_break(self) -> None:
+        # add an extra line break between top-level keys
+        if self.indent == 0:
+            super().write_line_break()
+        super().write_line_break()
+
+
 def generate_deployment(path: str) -> None:
     click.echo(f"Creating a Dagster deployment at {path}.")
 
@@ -44,7 +53,9 @@ def generate_component_type(root_path: str, name: str) -> None:
     )
 
 
-def generate_component_instance(root_path: str, name: str, component_type: Type[Component]) -> None:
+def generate_component_instance(
+    root_path: str, name: str, component_type: Type[Component], generate_params: Any
+) -> None:
     click.echo(f"Creating a Dagster component instance at {root_path}/{name}.py.")
 
     component_instance_root_path = os.path.join(root_path, name)
@@ -58,4 +69,13 @@ def generate_component_instance(root_path: str, name: str, component_type: Type[
         component_type=component_type.registered_name(),
     )
     with pushd(component_instance_root_path):
-        component_type.generate_files()
+        defs_data: dict = {"component_type": component_type.registered_name()}
+        component_params = (
+            component_type.generate_files(generate_params)
+            if generate_params
+            else component_type.generate_files()  # type: ignore
+        )
+        if component_params:
+            defs_data["component_params"] = component_params
+        with open("defs.yml", "w") as f:
+            yaml.dump(defs_data, f, Dumper=DefsDumper, sort_keys=False, default_flow_style=False)
diff --git a/examples/experimental/dagster-components/dagster_components/impls/dbt_project.py b/examples/experimental/dagster-components/dagster_components/impls/dbt_project.py
index 008dd6e5c1cbc..be3ec4814d8e5 100644
--- a/examples/experimental/dagster-components/dagster_components/impls/dbt_project.py
+++ b/examples/experimental/dagster-components/dagster_components/impls/dbt_project.py
@@ -1,7 +1,13 @@
+import os
+from pathlib import Path
+from typing import Any, Mapping, Optional
+
+import dagster._check as check
 from dagster._core.definitions.definitions_class import Definitions
 from dagster._utils import pushd
 from dagster_dbt import DbtCliResource, DbtProject, dbt_assets
 from dagster_embedded_elt.sling.resources import AssetExecutionContext
+from dbt.cli.main import dbtRunner
 from pydantic import BaseModel, TypeAdapter
 from typing_extensions import Self
 
@@ -13,8 +19,14 @@ class DbtProjectParams(BaseModel):
     dbt: DbtCliResource
 
 
+class DbtGenerateParams(BaseModel):
+    init: bool = False
+    project_path: Optional[str] = None
+
+
 class DbtProjectComponent(Component):
     params_schema = DbtProjectParams
+    generate_params_schema = DbtGenerateParams
 
     def __init__(self, dbt_resource: DbtCliResource):
         self.dbt_resource = dbt_resource
@@ -43,3 +55,18 @@ def _fn(context: AssetExecutionContext, dbt: DbtCliResource):
             yield from dbt.cli(["build"], context=context).stream()
 
         return Definitions(assets=[_fn], resources={"dbt": self.dbt_resource})
+
+    @classmethod
+    def generate_files(cls, params: DbtGenerateParams) -> Mapping[str, Any]:
+        if params.project_path:
+            relative_path = os.path.relpath(params.project_path, start=os.getcwd())
+        elif params.init:
+            dbtRunner().invoke(["init"])
+            subpaths = list(Path(os.getcwd()).iterdir())
+            check.invariant(len(subpaths) == 1, "Expected exactly one subpath to be created.")
+            # this path should be relative to this directory
+            relative_path = subpaths[0].name
+        else:
+            relative_path = None
+
+        return {"dbt": {"project_dir": relative_path}}
diff --git a/examples/experimental/dagster-components/dagster_components/templates/COMPONENT_INSTANCE_NAME_PLACEHOLDER/defs.yml.jinja b/examples/experimental/dagster-components/dagster_components/templates/COMPONENT_INSTANCE_NAME_PLACEHOLDER/defs.yml.jinja
deleted file mode 100644
index 494e390a62aa1..0000000000000
--- a/examples/experimental/dagster-components/dagster_components/templates/COMPONENT_INSTANCE_NAME_PLACEHOLDER/defs.yml.jinja
+++ /dev/null
@@ -1 +0,0 @@
-component_type: {{ component_type }}
\ No newline at end of file
diff --git a/examples/experimental/dagster-components/setup.py b/examples/experimental/dagster-components/setup.py
index d614b2d5904b2..a0aa10e3a9f4b 100644
--- a/examples/experimental/dagster-components/setup.py
+++ b/examples/experimental/dagster-components/setup.py
@@ -47,5 +47,6 @@ def get_version() -> str:
     extras_require={
         "sling": ["dagster-embedded-elt"],
         "dbt": ["dagster-dbt"],
+        "test": ["dbt-duckdb"],
     },
 )
diff --git a/examples/experimental/dagster-components/tox.ini b/examples/experimental/dagster-components/tox.ini
index f3d40eea7d3ac..cdc2601080dce 100644
--- a/examples/experimental/dagster-components/tox.ini
+++ b/examples/experimental/dagster-components/tox.ini
@@ -14,7 +14,7 @@ deps =
   -e ../../../python_modules/dagster-pipes
   -e ../../../python_modules/libraries/dagster-embedded-elt
   -e ../../../python_modules/libraries/dagster-dbt
-  -e .
+  -e .[test]
 allowlist_externals =
   /bin/bash
   uv