diff --git a/python_modules/dagster/dagster/_core/definitions/asset_spec.py b/python_modules/dagster/dagster/_core/definitions/asset_spec.py
index 1b8e1cf85a26f..f7e36ffffb489 100644
--- a/python_modules/dagster/dagster/_core/definitions/asset_spec.py
+++ b/python_modules/dagster/dagster/_core/definitions/asset_spec.py
@@ -26,12 +26,16 @@
 
 
 class AssetExecutionType(Enum):
+    OBSERVATION = "OBSERVATION"
     UNEXECUTABLE = "UNEXECUTABLE"
     MATERIALIZATION = "MATERIALIZATION"
 
     @staticmethod
     def is_executable(varietal_str: Optional[str]) -> bool:
-        return AssetExecutionType.str_to_enum(varietal_str) in {AssetExecutionType.MATERIALIZATION}
+        return AssetExecutionType.str_to_enum(varietal_str) in {
+            AssetExecutionType.MATERIALIZATION,
+            AssetExecutionType.OBSERVATION,
+        }
 
     @staticmethod
     def str_to_enum(varietal_str: Optional[str]) -> "AssetExecutionType":
diff --git a/python_modules/dagster/dagster/_core/definitions/assets.py b/python_modules/dagster/dagster/_core/definitions/assets.py
index 7d61a5fede293..40a507f544bd2 100644
--- a/python_modules/dagster/dagster/_core/definitions/assets.py
+++ b/python_modules/dagster/dagster/_core/definitions/assets.py
@@ -21,6 +21,7 @@
 from dagster._annotations import experimental_param, public
 from dagster._core.definitions.asset_check_spec import AssetCheckKey, AssetCheckSpec
 from dagster._core.definitions.asset_layer import get_dep_node_handles_of_graph_backed_asset
+from dagster._core.definitions.asset_spec import AssetExecutionType
 from dagster._core.definitions.auto_materialize_policy import AutoMaterializePolicy
 from dagster._core.definitions.backfill_policy import BackfillPolicy, BackfillPolicyType
 from dagster._core.definitions.freshness_policy import FreshnessPolicy
@@ -905,6 +906,16 @@ def is_asset_executable(self, asset_key: AssetKey) -> bool:
             self._metadata_by_key.get(asset_key, {}).get(SYSTEM_METADATA_KEY_ASSET_EXECUTION_TYPE)
         )
 
+    def asset_execution_type_for_asset(self, asset_key: AssetKey) -> AssetExecutionType:
+        from dagster._core.definitions.asset_spec import (
+            SYSTEM_METADATA_KEY_ASSET_EXECUTION_TYPE,
+            AssetExecutionType,
+        )
+
+        return AssetExecutionType.str_to_enum(
+            self._metadata_by_key.get(asset_key, {}).get(SYSTEM_METADATA_KEY_ASSET_EXECUTION_TYPE)
+        )
+
     def get_partition_mapping_for_input(self, input_name: str) -> Optional[PartitionMapping]:
         return self._partition_mappings.get(self._keys_by_input_name[input_name])
 
diff --git a/python_modules/dagster/dagster/_core/definitions/external_asset.py b/python_modules/dagster/dagster/_core/definitions/external_asset.py
index 1f813fb63a1a4..e02718212df7a 100644
--- a/python_modules/dagster/dagster/_core/definitions/external_asset.py
+++ b/python_modules/dagster/dagster/_core/definitions/external_asset.py
@@ -135,7 +135,7 @@ def create_external_asset_from_source_asset(source_asset: SourceAsset) -> Assets
     injected_metadata = (
         {SYSTEM_METADATA_KEY_ASSET_EXECUTION_TYPE: AssetExecutionType.UNEXECUTABLE.value}
         if source_asset.observe_fn is None
-        else {}
+        else {SYSTEM_METADATA_KEY_ASSET_EXECUTION_TYPE: AssetExecutionType.OBSERVATION.value}
     )
 
     kwargs = {
diff --git a/python_modules/dagster/dagster/_core/execution/plan/execute_step.py b/python_modules/dagster/dagster/_core/execution/plan/execute_step.py
index 26cfc3a7dba7f..b42de69bfa2fc 100644
--- a/python_modules/dagster/dagster/_core/execution/plan/execute_step.py
+++ b/python_modules/dagster/dagster/_core/execution/plan/execute_step.py
@@ -25,6 +25,7 @@
     TypeCheck,
 )
 from dagster._core.definitions.asset_check_result import AssetCheckResult
+from dagster._core.definitions.asset_spec import AssetExecutionType
 from dagster._core.definitions.data_version import (
     CODE_VERSION_TAG,
     DATA_VERSION_IS_USER_PROVIDED_TAG,
@@ -779,15 +780,38 @@ def _gen_fn():
 
     asset_key, partitions = _asset_key_and_partitions_for_output(output_context)
     if asset_key:
-        for materialization in _get_output_asset_materializations(
-            asset_key,
-            partitions,
-            output,
-            output_def,
-            manager_metadata,
-            step_context,
-        ):
-            yield DagsterEvent.asset_materialization(step_context, materialization)
+        asset_layer = step_context.job_def.asset_layer
+        execution_type = (
+            asset_layer.assets_def_for_asset(asset_key).asset_execution_type_for_asset(asset_key)
+            if asset_layer.has_assets_def_for_asset(asset_key)
+            else AssetExecutionType.MATERIALIZATION
+        )
+
+        check.invariant(
+            execution_type != AssetExecutionType.UNEXECUTABLE,
+            "There should never be unexecutable assets here",
+        )
+
+        check.invariant(
+            execution_type in {AssetExecutionType.MATERIALIZATION, AssetExecutionType.OBSERVATION},
+            f"Unexpected asset execution type {execution_type}",
+        )
+
+        yield from (
+            (
+                DagsterEvent.asset_materialization(step_context, materialization)
+                for materialization in _get_output_asset_materializations(
+                    asset_key,
+                    partitions,
+                    output,
+                    output_def,
+                    manager_metadata,
+                    step_context,
+                )
+            )
+            if execution_type == AssetExecutionType.MATERIALIZATION
+            else ()
+        )
 
     yield DagsterEvent.handled_output(
         step_context,
diff --git a/python_modules/dagster/dagster_tests/definitions_tests/test_external_assets.py b/python_modules/dagster/dagster_tests/definitions_tests/test_external_assets.py
index 3a8470691c5d9..9bcb95e5f381c 100644
--- a/python_modules/dagster/dagster_tests/definitions_tests/test_external_assets.py
+++ b/python_modules/dagster/dagster_tests/definitions_tests/test_external_assets.py
@@ -211,7 +211,9 @@ def test_observable_source_asset_decorator() -> None:
     def an_observable_source_asset() -> DataVersion:
         return DataVersion("foo")
 
-    defs = Definitions(assets=[create_external_asset_from_source_asset(an_observable_source_asset)])
+    assets_def = create_external_asset_from_source_asset(an_observable_source_asset)
+    assert assets_def.is_asset_executable(an_observable_source_asset.key)
+    defs = Definitions(assets=[assets_def])
 
     instance = DagsterInstance.ephemeral()
     result = defs.get_implicit_global_asset_job_def().execute_in_process(instance=instance)
@@ -225,6 +227,4 @@ def an_observable_source_asset() -> DataVersion:
     assert observation_event.asset_observation_data.asset_observation.data_version == "foo"
 
     all_materializations = result.get_asset_materialization_events()
-    # Note this does not make sense. We need to make framework changes to allow for the omission of
-    # a materialzation event
-    assert len(all_materializations) == 1
+    assert len(all_materializations) == 0