diff --git a/traits/stubs_tests/examples/Instance.py b/traits/stubs_tests/examples/Instance.py
index 419962a72..a7e02f41d 100644
--- a/traits/stubs_tests/examples/Instance.py
+++ b/traits/stubs_tests/examples/Instance.py
@@ -8,14 +8,16 @@
 #
 # Thanks for using Enthought open source!
 
-from traits.api import HasTraits, Instance, Str
+import typing
+
+from traits.api import HasTraits, Instance
 
 
 class Fruit:
-    info = Str("good for you")
+    info: str
 
-    def __init__(self, info="good for you", **traits):
-        super().__init__(info=info, **traits)
+    def __init__(self, info="good for you"):
+        self.info = info
 
 
 class Orange(Fruit):
@@ -32,7 +34,9 @@ def fruit_factory(info, other_stuff):
 
 class TestClass(HasTraits):
     itm = Instance(Fruit)
-
+    itm_not_none = Instance(Fruit, allow_none=False)
+    itm_allow_none = Instance(Fruit, allow_none=True)
+    itm_forward_ref = Instance("Fruit")
     itm_args_kw = Instance(Fruit, ('different info',), {'another_trait': 3})
     itm_args = Instance(Fruit, ('different info',))
     itm_kw = Instance(Fruit, {'info': 'different info'})
@@ -51,6 +55,34 @@ class TestClass(HasTraits):
     )
 
 
+def accepts_fruit(arg: Fruit) -> None:
+    pass
+
+
+def accepts_fruit_or_none(arg: typing.Optional[Fruit]) -> None:
+    pass
+
+
 obj = TestClass()
 obj.itm = Orange()
-obj.itm = Pizza()
+obj.itm = None
+obj.itm = Pizza()  # E: assignment
+obj.itm_allow_none = Orange()
+obj.itm_allow_none = None
+obj.itm_allow_none = Pizza()  # E: assignment
+obj.itm_not_none = Orange()
+obj.itm_not_none = None  # E: assignment
+obj.itm_not_none = Pizza()  # E: assignment
+obj.itm_forward_ref = Orange()
+obj.itm_forward_ref = None
+
+
+obj = TestClass()
+accepts_fruit(obj.itm)  # E: arg-type
+accepts_fruit_or_none(obj.itm)
+accepts_fruit(obj.itm_allow_none)  # E: arg-type
+accepts_fruit_or_none(obj.itm_allow_none)
+accepts_fruit(obj.itm_not_none)
+accepts_fruit_or_none(obj.itm_not_none)
+accepts_fruit(obj.itm_forward_ref)
+accepts_fruit_or_none(obj.itm_forward_ref)
diff --git a/traits/trait_types.pyi b/traits/trait_types.pyi
index 6f4d2faaa..320a758f7 100644
--- a/traits/trait_types.pyi
+++ b/traits/trait_types.pyi
@@ -15,6 +15,7 @@ from typing import (
     Callable as _CallableType,
     Dict as _DictType,
     List as _ListType,
+    Literal,
     Optional,
     Sequence as _Sequence,
     Set as _SetType,
@@ -24,6 +25,7 @@ from typing import (
     Type as _Type,
     TypeVar,
     Union as _Union,
+    overload,
 )
 from uuid import UUID as _UUID
 
@@ -494,24 +496,70 @@ class BaseClass(_BaseClass[_Type[_Any]]):
     ...
 
 
-class _BaseInstance(_BaseClass[_T]):
+class BaseInstance(_TraitType[_S, _S]):
 
-    # simplified signature
+    # simplified signatures
+
+    @overload
     def __init__(
-        self,
-        klass: _T,
+        self: BaseInstance[Optional[_T]],
+        klass: _Type[_T],
         *args: _Any,
+        allow_none: Literal[True] = ...,
         **metadata: _Any,
     ) -> None:
         ...
 
+    @overload
+    def __init__(
+        self: BaseInstance[_T],
+        klass: _Type[_T],
+        *args: _Any,
+        allow_none: Literal[False] = ...,
+        **metadata: _Any,
+    ) -> None:
+        ...
 
-class BaseInstance(_BaseInstance[_Any]):
-    ...
+    @overload
+    def __init__(
+        self: BaseInstance[_Any],
+        klass: str,
+        *args: _Any,
+        **metadata: _Any,
+    ) -> None:
+        ...
 
 
-class Instance(_BaseInstance[_Any]):
-    ...
+class Instance(BaseInstance[_S]):
+
+    @overload
+    def __init__(
+        self: Instance[Optional[_T]],
+        klass: _Type[_T],
+        *args: _Any,
+        allow_none: Literal[True] = ...,
+        **metadata: _Any,
+    ) -> None:
+        ...
+
+    @overload
+    def __init__(
+        self: Instance[_T],
+        klass: _Type[_T],
+        *args: _Any,
+        allow_none: Literal[False] = ...,
+        **metadata: _Any,
+    ) -> None:
+        ...
+
+    @overload
+    def __init__(
+        self: Instance[_Any],
+        klass: str,
+        *args: _Any,
+        **metadata: _Any,
+    ) -> None:
+        ...
 
 
 class Supports(Instance):