diff --git a/src/lib/binding/useObserve/store.ts b/src/lib/binding/useObserve/store.ts
index 057e237..7cdd7c3 100644
--- a/src/lib/binding/useObserve/store.ts
+++ b/src/lib/binding/useObserve/store.ts
@@ -3,7 +3,7 @@ import {
   distinctUntilChanged,
   NEVER,
   type Observable,
-  type Subscription,
+  Subscription,
   share,
   tap,
 } from "rxjs"
@@ -30,7 +30,7 @@ export class ObservableStore<T, DefaultValue, Error = unknown> {
     defaultValue,
     compareFn,
   }: {
-    source$: Observable<T> | (() => Observable<T> | undefined)
+    source$: Observable<T> | undefined | (() => Observable<T> | undefined)
   } & ObservableStoreOptions<T, DefaultValue>) {
     const source$ =
       typeof miscSource$ === "function" ? miscSource$() : miscSource$
@@ -44,7 +44,20 @@ export class ObservableStore<T, DefaultValue, Error = unknown> {
       error: undefined,
     }
 
-    this.source$ = (source$ ?? NEVER).pipe(
+    /**
+     * There is nothing to observe without a source. The state above is already
+     * final (`complete`), which makes `subscribe` a no-op and therefore makes
+     * `source$` unreachable. We skip building the pipe chain and opening a
+     * subscription for a stream that can never emit.
+     */
+    if (hasNoDefinedSource) {
+      this.source$ = NEVER
+      this.sub = Subscription.EMPTY
+
+      return
+    }
+
+    this.source$ = source$.pipe(
       distinctUntilChanged(compareFn),
       tap({
         complete: () => {
diff --git a/src/lib/binding/useObserve/useObserve.test.tsx b/src/lib/binding/useObserve/useObserve.test.tsx
index f4394a8..1eaf234 100644
--- a/src/lib/binding/useObserve/useObserve.test.tsx
+++ b/src/lib/binding/useObserve/useObserve.test.tsx
@@ -315,4 +315,125 @@ describe("useObserve", () => {
       ])
     })
   })
+
+  describe("Given a source that may or may not be an observable", () => {
+    it("should type return correctly", async () => {
+      renderHook(() => {
+        const value = useObserve(of(1) as Observable<number> | undefined)
+
+        expectTypeOf(value.data).toEqualTypeOf<number | undefined>()
+
+        const withDefaultValue = useObserve(
+          of(1) as Observable<number> | undefined,
+          { defaultValue: null },
+        )
+
+        expectTypeOf(withDefaultValue.data).toEqualTypeOf<number | null>()
+
+        const subject = useObserve(
+          new BehaviorSubject(1) as BehaviorSubject<number> | undefined,
+        )
+
+        expectTypeOf(subject.data).toEqualTypeOf<number | undefined>()
+      }, {})
+
+      expect(true).toBe(true)
+    })
+  })
+
+  describe("Given an undefined source", () => {
+    it("should type return correctly", async () => {
+      renderHook(() => {
+        const value = useObserve(undefined)
+
+        expectTypeOf(value.data).toEqualTypeOf<undefined>()
+
+        const withDefaultValue = useObserve(undefined, { defaultValue: null })
+
+        expectTypeOf(withDefaultValue.data).toEqualTypeOf<null>()
+      }, {})
+
+      expect(true).toBe(true)
+    })
+
+    it("should return the default value", async () => {
+      const { result } = renderHook(() => useObserve(undefined), {})
+
+      expect(result.current).toEqual({
+        data: undefined,
+        status: "success",
+        observableState: "complete",
+        error: undefined,
+      })
+    })
+
+    it("should not subscribe to anything nor trigger an extra render", async () => {
+      let numberOfRenders = 0
+
+      renderHook(() => {
+        numberOfRenders++
+
+        useObserve(undefined)
+      }, {})
+
+      await act(async () => {
+        await waitForTimeout(10)
+      })
+
+      expect(numberOfRenders).toBe(1)
+    })
+
+    it("should return custom default value", async () => {
+      const { result } = renderHook(
+        () => useObserve(undefined, { defaultValue: null }),
+        {},
+      )
+
+      expect(result.current).toEqual({
+        data: null,
+        status: "success",
+        observableState: "complete",
+        error: undefined,
+      })
+    })
+
+    it("should return undefined and then the correct value once the source is defined", async () => {
+      // biome-ignore lint/suspicious/noExplicitAny: TODO
+      const values: any = []
+
+      renderHook(() => {
+        const [source$, setSource] = useState<
+          BehaviorSubject<number> | undefined
+        >(undefined)
+
+        values.push(useObserve(source$))
+
+        useEffect(() => {
+          setTimeout(() => {
+            setSource(new BehaviorSubject(1))
+          }, 1)
+        }, [])
+      }, {})
+
+      await act(async () => {
+        await waitForTimeout(10)
+      })
+
+      expect(values).toEqual([
+        {
+          data: undefined,
+          status: "success",
+          observableState: "complete",
+          error: undefined,
+        },
+        // still live because not completed
+        {
+          data: 1,
+          status: "pending",
+          observableState: "live",
+          error: undefined,
+        },
+      ])
+    })
+  })
 })
diff --git a/src/lib/binding/useObserve/useObserve.ts b/src/lib/binding/useObserve/useObserve.ts
index 2a8b69f..8922c6d 100644
--- a/src/lib/binding/useObserve/useObserve.ts
+++ b/src/lib/binding/useObserve/useObserve.ts
@@ -10,6 +10,22 @@ interface Option<T, R = undefined> {
   compareFn?: (a: T, b: T) => boolean
 }
 
+/**
+ * The source can be `undefined` (directly or returned from a factory). This is
+ * useful when the observable is not available yet (lazily created, coming from
+ * a state, a prop, etc). In that case the hook returns the default value with a
+ * `complete` observable state and will start observing as soon as an actual
+ * source is given.
+ */
+export function useObserve(
+  source: undefined,
+): UseObserveResult<never, undefined>
+
+export function useObserve<DefaultValue>(
+  source: undefined,
+  options: Option<unknown, DefaultValue>,
+): UseObserveResult<never, DefaultValue>
+
 export function useObserve<T>(
   source: BehaviorSubject<T>,
 ): UseObserveResult<T, T>
@@ -20,7 +36,7 @@ export function useObserve<T>(
 ): UseObserveResult<T, T>
 
 export function useObserve<T>(
-  source: Observable<T>,
+  source: Observable<T> | undefined,
 ): UseObserveResult<T, undefined>
 
 export function useObserve<T>(
@@ -34,19 +50,30 @@ export function useObserve<T>(
 ): UseObserveResult<T, undefined>
 
 export function useObserve<T, DefaultValue>(
-  source: Observable<T>,
+  source: Observable<T> | undefined,
   options: Option<T, DefaultValue>,
 ): UseObserveResult<T, DefaultValue>
 
+export function useObserve<T>(
+  source: Observable<T> | undefined,
+  options: Omit<Option<T>, "defaultValue">,
+): UseObserveResult<T, undefined>
+
 export function useObserve<T, DefaultValue>(
   source: () => Observable<T>,
   options: Option<T, DefaultValue>,
   deps: DependencyList,
 ): UseObserveResult<T, DefaultValue>
 
+export function useObserve<T, DefaultValue>(
+  source: () => Observable<T> | undefined,
+  options: Option<T, DefaultValue>,
+  deps: DependencyList,
+): UseObserveResult<T, DefaultValue>
+
 export function useObserve<T, DefaultValue = T>(
-  source$: Observable<T> | (() => Observable<T> | undefined),
-  optionsOrDeps?: Partial<Option<DefaultValue>> | DependencyList,
+  source$: Observable<T> | undefined | (() => Observable<T> | undefined),
+  optionsOrDeps?: Partial<Option<T, DefaultValue>> | DependencyList,
   maybeDeps?: DependencyList,
 ): UseObserveResult<T, DefaultValue | undefined> {
   const options =
diff --git a/src/lib/binding/useObserve/useStore.ts b/src/lib/binding/useObserve/useStore.ts
index d3f06d8..35c450e 100644
--- a/src/lib/binding/useObserve/useStore.ts
+++ b/src/lib/binding/useObserve/useStore.ts
@@ -22,7 +22,7 @@ type StoreReference<T, DefaultValue> = {
  * However this is "okay" since it is to be used inside a useSyncExternalStore and not directly in a render.
  */
 export const useStore = <T, DefaultValue>(
-  source$: Observable<T> | (() => Observable<T> | undefined),
+  source$: Observable<T> | undefined | (() => Observable<T> | undefined),
   options: UseObserveOptions<T, DefaultValue>,
   deps: DependencyList,
 ): ObservableStore<T, DefaultValue | undefined> => {