diff --git a/thunder/tests/distributed/test_ddp.py b/thunder/tests/distributed/test_ddp.py
index b523cf68dd..04589961f4 100644
--- a/thunder/tests/distributed/test_ddp.py
+++ b/thunder/tests/distributed/test_ddp.py
@@ -34,6 +34,7 @@
     transformer_engine_ex,
     TE_AVAILABLE,
     te_sync_fp8_meta_bwd,
+    TE_VERSION_1_8_PLUS,
 )
 
 
@@ -1596,8 +1597,7 @@ def _test_fsdp_transformer_engine(input_data):
     # and verify that the weights have converged to same value and
     # fp8 meta state is same after `n_iter`.
     init_method, world_size, rank, executor, device, _unused_dtype, kwargs = input_data
-    thunder_fsdp_strategy = kwargs["thunder_fsdp_strategy"]
-    intermediate_activation_sharding = kwargs["intermediate_activation_sharding"]
+    thunder_fsdp_strategy, intermediate_activation_sharding = kwargs["thunder_fsdp_strategy_and_intermediate_sharding"]
     devicetype = devices.device_from_string(device).devicetype
 
     # Setting LOCAL_RANK is necessary for thunder.distributed.fsdp
@@ -1667,7 +1667,7 @@ def forward(self, x):
         te_model.fc2.weight.data = fc2_weight.clone()
 
         fsdp_model = FullyShardedDataParallel(te_model, auto_wrap_policy=always_wrap_policy)
-        if thunder_fsdp_strategy == FSDPType.ZERO3 and intermediate_activation_sharding:
+        if intermediate_activation_sharding:
             transformer_engine.pytorch.distributed.prepare_te_modules_for_fsdp(fsdp_model)
         optim = torch.optim.SGD(te_model.parameters())
 
@@ -1819,18 +1819,14 @@ def test_ddp_transformer_engine_llama_sanity(executor, devices, dtype):
     decorators=(
         # NOTE: ddp_wrapper
         pytest.mark.parametrize(
-            "thunder_fsdp_strategy",
+            "thunder_fsdp_strategy_and_intermediate_sharding",
             (
-                FSDPType.ZERO2,
-                FSDPType.ZERO3,
+                (FSDPType.ZERO2, False),
+                (FSDPType.ZERO3, False),
+                # Intermediate sharding is only availabe TE v1.8 onwards
+                *(((FSDPType.ZERO3, True),) if TE_VERSION_1_8_PLUS else ()),
             ),
         ),
-        # NOTE: `intermediate_activation_sharding` only works with `FSDP.Zero3`,
-        #       and should be skipped with FSDP.Zero2.
-        pytest.mark.parametrize(
-            "intermediate_activation_sharding",
-            (False, True),
-        ),
         pytest.mark.skipif(not TE_AVAILABLE, reason="TransformerEngine is not installed."),
         pytest.mark.skipif(not is_fp8_supported, reason=fp8_support_reason),
         # See NOTE: Setting `NVTE_TORCH_COMPILE`
@@ -1840,7 +1836,7 @@ def test_ddp_transformer_engine_llama_sanity(executor, devices, dtype):
     ),
 )
 @ddp_wrapper("test_fsdp_transformer_engine", _test_fsdp_transformer_engine)
-def test_fsdp_transformer_engine(executor, devices, dtype, thunder_fsdp_strategy, intermediate_activation_sharding):
+def test_fsdp_transformer_engine(executor, devices, dtype, thunder_fsdp_strategy_and_intermediate_sharding):
     pass