diff --git a/.buildkite/scripts/hardware_ci/run-tpu-v1-test-part2.sh b/.buildkite/scripts/hardware_ci/run-tpu-v1-test-part2.sh
index 734a817fd1a06..10d2e236498ea 100755
--- a/.buildkite/scripts/hardware_ci/run-tpu-v1-test-part2.sh
+++ b/.buildkite/scripts/hardware_ci/run-tpu-v1-test-part2.sh
@@ -139,6 +139,8 @@ run_and_track_test 5 "test_spmd_model_weight_loading.py" \
     "python3 -m pytest -s -v /workspace/vllm/tests/v1/tpu/test_spmd_model_weight_loading.py"
 run_and_track_test 6 "test_kv_cache_update_kernel.py" \
     "python3 -m pytest -s -v /workspace/vllm/tests/v1/tpu/test_kv_cache_update_kernel.py"
+run_and_track_test 7 "test_tpu_int8.py" \
+    "python3 -m pytest -s -v /workspace/vllm/tests/v1/tpu/test_tpu_int8.py"
 
 # After all tests have been attempted, exit with the overall status.
 if [ "$overall_script_exit_code" -ne 0 ]; then
diff --git a/tests/v1/tpu/test_tpu_int8.py b/tests/v1/tpu/test_tpu_int8.py
new file mode 100644
index 0000000000000..991070dc9239d
--- /dev/null
+++ b/tests/v1/tpu/test_tpu_int8.py
@@ -0,0 +1,73 @@
+# SPDX-License-Identifier: Apache-2.0
+# SPDX-FileCopyrightText: Copyright contributors to the vLLM project
+"""Tests whether TPU Int8 computation is enabled correctly.
+
+Run `pytest tests/quantization/test_tpu_int8.py`.
+"""
+import pytest
+
+from vllm.model_executor.layers.linear import LinearBase
+from vllm.model_executor.layers.quantization.tpu_int8 import (
+    TPUInt8LinearMethod)
+from vllm.platforms import current_platform
+
+from ...models.registry import HF_EXAMPLE_MODELS
+
+MODELS = ["Qwen/Qwen2.5-0.5B-Instruct"]
+
+
+@pytest.mark.skipif(not current_platform.is_tpu(),
+                    reason="TPU Int8 is only enabled for TPUs.")
+@pytest.mark.parametrize("model", MODELS)
+@pytest.mark.parametrize("dtype", ["bfloat16"])
+@pytest.mark.parametrize("max_tokens", [10])
+@pytest.mark.parametrize(
+    "hf_overrides",
+    [
+        # w8a8 dynamic activation
+        {
+            'quantization_config': {
+                'quant_method': 'tpu_int8',
+                'activation_scheme': 'dynamic'
+            }
+        }
+    ])
+def test_model_tpu_int8(vllm_runner, model: str, dtype: str, max_tokens: int,
+                        hf_overrides: dict, monkeypatch) -> None:
+    model_info = HF_EXAMPLE_MODELS.find_hf_info(model)
+    model_info.check_transformers_version(on_fail="skip")
+
+    activation_scheme = hf_overrides.get('quantization_config',
+                                         {}).get('activation_scheme')
+    quantize_activation = activation_scheme == 'dynamic'
+
+    # Allows using apply_model
+    monkeypatch.setenv("VLLM_ENABLE_V1_MULTIPROCESSING", "0")
+    # Prevent error from re-initializing cache
+    monkeypatch.setenv("VLLM_XLA_CACHE_PATH", "")
+
+    prompts = [
+        "A robot may not injure a human being",
+        "It is only with the heart that one can see rightly;",
+        "The greatest glory in living lies not in never falling,",
+    ]
+    answers = [
+        "or, being injured, not kill, except in",
+        "without the heart, one can only see wrongly.",
+        "but in rising every time we fall. - Nelson"
+    ]
+
+    with vllm_runner(model, dtype=dtype, hf_overrides=hf_overrides) as vllm:
+
+        def check_model(model):
+            for name, module in model.named_modules():
+                if not isinstance(module, LinearBase):
+                    continue
+                quant_method = module.quant_method
+                assert isinstance(quant_method, TPUInt8LinearMethod)
+                assert quant_method.quantize_activation == quantize_activation
+
+        vllm.apply_model(check_model)
+        outputs = vllm.generate_greedy(prompts, max_tokens)
+        for (_, output), answer in zip(outputs, answers):
+            assert answer in output
diff --git a/vllm/model_executor/layers/quantization/tpu_int8.py b/vllm/model_executor/layers/quantization/tpu_int8.py
index 83c8a98eac913..38de4b54fb191 100644
--- a/vllm/model_executor/layers/quantization/tpu_int8.py
+++ b/vllm/model_executor/layers/quantization/tpu_int8.py
@@ -13,7 +13,7 @@ from vllm.model_executor.layers.quantization.base_config import (
     QuantizationConfig)
 from vllm.model_executor.parameter import ModelWeightParameter
 
-ACTIVATION_SCHEMES = ["none"]
+ACTIVATION_SCHEMES = ["none", "dynamic"]
 
 
 class Int8TpuConfig(QuantizationConfig):
@@ -61,6 +61,9 @@ class TPUInt8LinearMethod(LinearMethodBase):
 
     def __init__(self, quant_config: Int8TpuConfig):
         self.quant_config = quant_config
+        self.quantize_activation = False
+        if self.quant_config.activation_scheme == 'dynamic':
+            self.quantize_activation = True
 
     def create_weights(self, layer: Module, input_size_per_partition: int,
                        output_partition_sizes: list[int], input_size: int,
@@ -107,7 +110,7 @@ class TPUInt8LinearMethod(LinearMethodBase):
               x: torch.Tensor,
               bias: Optional[torch.Tensor] = None) -> torch.Tensor:
         try:
-            import torch_xla.experimental.xla_quantized_matmul  # noqa: F401
+            import torch_xla.experimental.custom_kernel  # noqa: F401
         except ImportError as err:
             raise ImportError(
                 "Please install torch_xla by following the instructions at "
@@ -115,7 +118,8 @@ class TPUInt8LinearMethod(LinearMethodBase):
                 "to run vLLM on TPU.") from err
         weight = layer.weight
         scale = layer.scale
-        out = torch.ops.xla.quantized_matmul(x, weight, scale)
+        out = torch.ops.xla.quantized_matmul_int8(
+            x, weight, scale, quantize_activation=self.quantize_activation)
         if bias is not None:
             out = out + bias
         return out