--- a/net/minecraft/world/item/NameTagItem.java
+++ b/net/minecraft/world/item/NameTagItem.java
@@ -15,9 +15,14 @@
     public InteractionResult interactLivingEntity(ItemStack stack, Player user, LivingEntity entity, InteractionHand hand) {
         if (stack.hasCustomHoverName() && !(entity instanceof Player)) {
             if (!user.level().isClientSide && entity.isAlive()) {
-                entity.setCustomName(stack.getHoverName());
-                if (entity instanceof Mob) {
-                    ((Mob)entity).setPersistenceRequired();
+                // Paper start
+                io.papermc.paper.event.player.PlayerNameEntityEvent event = new io.papermc.paper.event.player.PlayerNameEntityEvent(((net.minecraft.server.level.ServerPlayer) user).getBukkitEntity(), entity.getBukkitLivingEntity(), io.papermc.paper.adventure.PaperAdventure.asAdventure(stack.getHoverName()), true);
+                if (!event.callEvent()) return InteractionResult.PASS;
+                LivingEntity newEntityLiving = ((org.bukkit.craftbukkit.v1_20_R2.entity.CraftLivingEntity) event.getEntity()).getHandle();
+                newEntityLiving.setCustomName(event.getName() != null ? io.papermc.paper.adventure.PaperAdventure.asVanilla(event.getName()) : null);
+                if (event.isPersistent() && newEntityLiving instanceof Mob) {
+                    ((Mob) newEntityLiving).setPersistenceRequired();
+                    // Paper end
                 }
 
                 stack.shrink(1);
