diff --git a/changelog.d/14890.bugfix b/changelog.d/14890.bugfix
new file mode 100644
index 0000000000..fe21277a9e
--- /dev/null
+++ b/changelog.d/14890.bugfix
@@ -0,0 +1 @@
+Thumbnail WebP images as WebP instead of JPEG, preserving transparency.
diff --git a/docs/setup/installation.md b/docs/setup/installation.md
index 1f13864a8f..02aaa196b2 100644
--- a/docs/setup/installation.md
+++ b/docs/setup/installation.md
@@ -286,7 +286,8 @@ Installing prerequisites on Ubuntu or Debian:
 ```sh
 sudo apt install build-essential python3-dev libffi-dev \
                      python3-pip python3-setuptools sqlite3 \
-                     libssl-dev virtualenv libjpeg-dev libxslt1-dev libicu-dev
+                     libssl-dev virtualenv libjpeg-dev libxslt1-dev libicu-dev \
+                     libwebp-dev
 ```
 
 ##### ArchLinux
@@ -295,7 +296,7 @@ Installing prerequisites on ArchLinux:
 
 ```sh
 sudo pacman -S base-devel python python-pip \
-               python-setuptools python-virtualenv sqlite3 icu
+               python-setuptools python-virtualenv sqlite3 icu libwebp
 ```
 
 ##### CentOS/Fedora
@@ -306,7 +307,7 @@ Installing prerequisites on CentOS or Fedora Linux:
 sudo dnf install libtiff-devel libjpeg-devel libzip-devel freetype-devel \
                  libwebp-devel libxml2-devel libxslt-devel libpq-devel \
                  python3-virtualenv libffi-devel openssl-devel python3-devel \
-                 libicu-devel
+                 libicu-devel libwebp-devel
 sudo dnf groupinstall "Development Tools"
 ```
 
@@ -326,7 +327,7 @@ Please follow [the official instructions of PyICU](https://pypi.org/project/PyIC
 
 On ARM-based Macs you may also need to install libjpeg and libpq:
 ```sh
- brew install jpeg libpq
+ brew install jpeg libpq webp
  ```
 
 On macOS Catalina (10.15) you may need to explicitly install OpenSSL
@@ -346,7 +347,7 @@ Installing prerequisites on openSUSE:
 sudo zypper in -t pattern devel_basis
 sudo zypper in python-pip python-setuptools sqlite3 python-virtualenv \
                python-devel libffi-devel libopenssl-devel libjpeg62-devel \
-               libicu-devel
+               libicu-devel libwebp-devel
 ```
 
 ##### OpenBSD
diff --git a/synapse/config/repository.py b/synapse/config/repository.py
index 839c026d70..ed53735c01 100644
--- a/synapse/config/repository.py
+++ b/synapse/config/repository.py
@@ -47,7 +47,7 @@ THUMBNAIL_SIZE_YAML = """\
 THUMBNAIL_SUPPORTED_MEDIA_FORMAT_MAP = {
     "image/jpeg": "jpeg",
     "image/jpg": "jpeg",
-    "image/webp": "jpeg",
+    "image/webp": "webp",
     # Thumbnails can only be jpeg or png. We choose png thumbnails for gif
     # because it can have transparency.
     "image/gif": "png",
@@ -102,6 +102,10 @@ def parse_thumbnail_requirements(
                 requirement.append(
                     ThumbnailRequirement(width, height, method, "image/png")
                 )
+            elif thumbnail_format == "webp":
+                requirement.append(
+                    ThumbnailRequirement(width, height, method, "image/webp")
+                )
             else:
                 raise Exception(
                     "Unknown thumbnail mapping from %s to %s. This is a Synapse problem, please report!"
diff --git a/synapse/media/thumbnailer.py b/synapse/media/thumbnailer.py
index d8979813b3..e5d6477a7f 100644
--- a/synapse/media/thumbnailer.py
+++ b/synapse/media/thumbnailer.py
@@ -1,5 +1,5 @@
-# Copyright 2014-2016 OpenMarket Ltd
-# Copyright 2020-2021 The Matrix.org Foundation C.I.C.
+# Copyright 2014-2016,2023 OpenMarket Ltd
+# Copyright 2020-2021,2023 The Matrix.org Foundation C.I.C.
 #
 # Licensed under the Apache License, Version 2.0 (the "License");
 # you may not use this file except in compliance with the License.
@@ -40,7 +40,7 @@ class ThumbnailError(Exception):
 
 
 class Thumbnailer:
-    FORMATS = {"image/jpeg": "JPEG", "image/png": "PNG"}
+    FORMATS = {"image/jpeg": "JPEG", "image/png": "PNG", "image/webp": "WEBP"}
 
     @staticmethod
     def set_limits(max_image_pixels: int) -> None:
diff --git a/synapse/rest/media/v1/__init__.py b/synapse/rest/media/v1/__init__.py
index d5b74cddf1..60a8de291f 100644
--- a/synapse/rest/media/v1/__init__.py
+++ b/synapse/rest/media/v1/__init__.py
@@ -1,4 +1,5 @@
 # Copyright 2014-2016 OpenMarket Ltd
+# Copyright 2023 The Matrix.org Foundation C.I.C
 #
 # Licensed under the Apache License, Version 2.0 (the "License");
 # you may not use this file except in compliance with the License.
@@ -12,7 +13,7 @@
 # See the License for the specific language governing permissions and
 # limitations under the License.
 
-from PIL.features import check_codec
+from PIL.features import check_codec, check_module
 
 # check for JPEG support.
 if not check_codec("jpg"):
@@ -27,6 +28,15 @@ if not check_codec("jpg"):
 if not check_codec("zlib"):
     raise Exception(
         "FATAL: zip codec not supported. Install pillow correctly! "
-        " 'sudo apt-get install libjpeg-dev' then 'pip uninstall pillow &&"
+        " 'sudo apt-get install zlib1g-dev' then 'pip uninstall pillow &&"
+        " pip install pillow --user'"
+    )
+
+
+# check for WebP support.
+if not check_module("webp"):
+    raise Exception(
+        "FATAL: webp module not supported. Install pillow correctly! "
+        " 'sudo apt-get install libwebp-dev' then 'pip uninstall pillow &&"
         " pip install pillow --user'"
     )