diff --git a/packages/shared/sdk-server/__tests__/data_sources/FileDataSource.test.ts b/packages/shared/sdk-server/__tests__/data_sources/FileDataSource.test.ts
index 8e8da6f03..9493abb8c 100644
--- a/packages/shared/sdk-server/__tests__/data_sources/FileDataSource.test.ts
+++ b/packages/shared/sdk-server/__tests__/data_sources/FileDataSource.test.ts
@@ -443,4 +443,92 @@ describe('given a mock filesystem and memory feature store', () => {
     expect(filesystem.readFile).toHaveBeenCalledTimes(1);
     expect(yamlParser).toHaveBeenCalledWith('the data');
   });
+
+  it('it updates the version numbers for value based flags when their values change', async () => {
+    await createFileDataSource(
+      true,
+      [
+        {
+          path: 'file1.json',
+          data: `{
+            "flagValues": 
+            {
+              "${flag2Key}": "${flag2Value}"
+            }
+          }`,
+        },
+      ],
+      false,
+      true,
+    );
+
+    expect(await asyncFeatureStore.initialized()).toBeTruthy();
+
+    const flags = await asyncFeatureStore.all(VersionedDataKinds.Features);
+    expect(Object.keys(flags).length).toEqual(1);
+
+    const segments = await asyncFeatureStore.all(VersionedDataKinds.Segments);
+    expect(Object.keys(segments).length).toEqual(0);
+
+    // Need to update the timestamp, or it will think the file has not changed.
+    filesystem.fileData['file1.json'] = {
+      timestamp: 100,
+      data: `{
+      "flagValues": 
+      {
+        "${flag2Key}": "differentValue"
+      }
+    }`,
+    };
+    filesystem.watches['file1.json'][0].cb('change', 'file1.json');
+
+    await jest.runAllTimersAsync();
+
+    const readFlag = await asyncFeatureStore.get(VersionedDataKinds.Features, flag2Key);
+    expect(readFlag?.version).toEqual(2);
+  });
+
+  it('it does not update the version when the value does not change', async () => {
+    await createFileDataSource(
+      true,
+      [
+        {
+          path: 'file1.json',
+          data: `{
+            "flagValues": 
+            {
+              "${flag2Key}": "${flag2Value}"
+            }
+          }`,
+        },
+      ],
+      false,
+      true,
+    );
+
+    expect(await asyncFeatureStore.initialized()).toBeTruthy();
+
+    const flags = await asyncFeatureStore.all(VersionedDataKinds.Features);
+    expect(Object.keys(flags).length).toEqual(1);
+
+    const segments = await asyncFeatureStore.all(VersionedDataKinds.Segments);
+    expect(Object.keys(segments).length).toEqual(0);
+
+    // Need to update the timestamp, or it will think the file has not changed.
+    filesystem.fileData['file1.json'] = {
+      timestamp: 100,
+      data: `{
+      "flagValues": 
+      {
+        "${flag2Key}": "${flag2Value}"
+      }
+    }`,
+    };
+    filesystem.watches['file1.json'][0].cb('change', 'file1.json');
+
+    await jest.runAllTimersAsync();
+
+    const readFlag = await asyncFeatureStore.get(VersionedDataKinds.Features, flag2Key);
+    expect(readFlag?.version).toEqual(1);
+  });
 });
diff --git a/packages/shared/sdk-server/src/data_sources/FileDataSource.ts b/packages/shared/sdk-server/src/data_sources/FileDataSource.ts
index 69bfc7187..87d896e71 100644
--- a/packages/shared/sdk-server/src/data_sources/FileDataSource.ts
+++ b/packages/shared/sdk-server/src/data_sources/FileDataSource.ts
@@ -6,8 +6,9 @@ import {
   VoidFunction,
 } from '@launchdarkly/js-sdk-common';
 
-import { DataKind, LDFeatureStore, LDFeatureStoreDataStorage } from '../api';
+import { DataKind, LDFeatureStoreDataStorage } from '../api';
 import { FileDataSourceOptions } from '../api/integrations';
+import { LDDataSourceUpdates } from '../api/subsystems';
 import { Flag } from '../evaluation/data/Flag';
 import { processFlag, processSegment } from '../store/serialization';
 import VersionedDataKinds from '../store/VersionedDataKinds';
@@ -15,13 +16,13 @@ import FileLoader from './FileLoader';
 
 export type FileDataSourceErrorHandler = (err: LDFileDataSourceError) => void;
 
-function makeFlagWithValue(key: string, value: any): Flag {
+function makeFlagWithValue(key: string, value: any, version: number): Flag {
   return {
     key,
     on: true,
     fallthrough: { variation: 0 },
     variations: [value],
-    version: 1,
+    version,
   };
 }
 
@@ -42,7 +43,7 @@ export default class FileDataSource implements subsystem.LDStreamProcessor {
   constructor(
     options: FileDataSourceOptions,
     filesystem: Filesystem,
-    private readonly featureStore: LDFeatureStore,
+    private readonly featureStore: LDDataSourceUpdates,
     private initSuccessHandler: VoidFunction = () => {},
     private readonly errorHandler?: FileDataSourceErrorHandler,
   ) {
@@ -102,6 +103,7 @@ export default class FileDataSource implements subsystem.LDStreamProcessor {
 
   private processFileData(fileData: { path: string; data: string }[]) {
     // Clear any existing data before re-populating it.
+    const oldData = this.allData;
     this.allData = {};
 
     // We let the parsers throw, and the caller can handle the rejection.
@@ -117,7 +119,7 @@ export default class FileDataSource implements subsystem.LDStreamProcessor {
         parsed = JSON.parse(fd.data);
       }
 
-      this.processParsedData(parsed);
+      this.processParsedData(parsed, oldData);
     });
 
     this.featureStore.init(this.allData, () => {
@@ -128,13 +130,22 @@ export default class FileDataSource implements subsystem.LDStreamProcessor {
     });
   }
 
-  private processParsedData(parsed: any) {
+  private processParsedData(parsed: any, oldData: LDFeatureStoreDataStorage) {
     Object.keys(parsed.flags || {}).forEach((key) => {
       processFlag(parsed.flags[key]);
       this.addItem(VersionedDataKinds.Features, parsed.flags[key]);
     });
     Object.keys(parsed.flagValues || {}).forEach((key) => {
-      const flag = makeFlagWithValue(key, parsed.flagValues[key]);
+      const previousInstance = oldData[VersionedDataKinds.Features.namespace]?.[key];
+      let { version } = previousInstance ?? { version: 1 };
+      // If the data is different, then we want to increment the version.
+      if (
+        previousInstance &&
+        JSON.stringify(parsed.flagValues[key]) !== JSON.stringify(previousInstance?.variations?.[0])
+      ) {
+        version += 1;
+      }
+      const flag = makeFlagWithValue(key, parsed.flagValues[key], version);
       processFlag(flag);
       this.addItem(VersionedDataKinds.Features, flag);
     });