diff --git a/docs/webpack-dev-server.md b/docs/webpack-dev-server.md
index 0bac0f287..7d8db6507 100644
--- a/docs/webpack-dev-server.md
+++ b/docs/webpack-dev-server.md
@@ -17,7 +17,20 @@ Now if you refresh your Rails view everything should work as expected.
 ## HOT module replacement
 
 Webpacker out-of-the-box supports HMR with `webpack-dev-server` and
-you can toggle it by setting `dev_server/hmr` option inside `webpacker.yml`.
+you can toggle it by setting options in `config/webpacker.yml`:
+
+```yaml
+development:
+  # ...
+  extract_css: false
+  # ...
+  dev_server:
+    # ...
+    hmr: true
+    inline: true
+    # ...
+```
+`dev_server/hmr` option inside `webpacker.yml`.
 
 Checkout this guide for more information:
 
diff --git a/lib/install/config/webpacker.yml b/lib/install/config/webpacker.yml
index a6b146566..efe7ded9f 100644
--- a/lib/install/config/webpacker.yml
+++ b/lib/install/config/webpacker.yml
@@ -16,7 +16,7 @@ default: &default
   cache_manifest: false
 
   # Extract and emit a css file
-  extract_css: false
+  extract_css: true
 
   static_assets_extensions:
     - .jpg
@@ -51,6 +51,9 @@ development:
   <<: *default
   compile: true
 
+  # Set to false if using HMR for CSS
+  extract_css: true
+
   # Reference: https://webpack.js.org/configuration/dev-server/
   dev_server:
     https: false
@@ -85,8 +88,5 @@ production:
   # Production depends on precompilation of packs prior to booting for performance.
   compile: false
 
-  # Extract and emit a css file
-  extract_css: true
-
   # Cache manifest.json for performance
   cache_manifest: true
diff --git a/lib/install/javascript/packs/application.css b/lib/install/javascript/packs/application.css
new file mode 100644
index 000000000..6f47c31e6
--- /dev/null
+++ b/lib/install/javascript/packs/application.css
@@ -0,0 +1,6 @@
+/* 
+Any CSS added to this file or imported from this file, e.g. `@import '../stylesheets/my-css.css'`,
+will be included in the "application" pack. Any CSS imported from application.js or as part of the 
+application.js dependency graph, e.g. `import '../stylesheets/my-css.css'` will also be included 
+in the "application" pack. 
+*/