diff --git a/doc/source/whatsnew/v1.1.0.rst b/doc/source/whatsnew/v1.1.0.rst
index a3499f857d158..96cb64e1ffb0e 100644
--- a/doc/source/whatsnew/v1.1.0.rst
+++ b/doc/source/whatsnew/v1.1.0.rst
@@ -726,6 +726,7 @@ Indexing
 - Bug in :meth:`DataFrame.iloc.__setitem__` creating a new array instead of overwriting ``Categorical`` values in-place (:issue:`32831`)
 - Bug in :class:`Interval` where a :class:`Timedelta` could not be added or subtracted from a :class:`Timestamp` interval (:issue:`32023`)
 - Bug in :meth:`DataFrame.copy` _item_cache not invalidated after copy causes post-copy value updates to not be reflected (:issue:`31784`)
+- Fixed regression in :meth:`DataFrame.loc` and :meth:`Series.loc` throwing an error when a ``datetime64[ns, tz]`` value is provided (:issue:`32395`)
 - Bug in `Series.__getitem__` with an integer key and a :class:`MultiIndex` with leading integer level failing to raise ``KeyError`` if the key is not present in the first level (:issue:`33355`)
 - Bug in :meth:`DataFrame.iloc` when slicing a single column-:class:`DataFrame`` with ``ExtensionDtype`` (e.g. ``df.iloc[:, :1]``) returning an invalid result (:issue:`32957`)
 - Bug in :meth:`DatetimeIndex.insert` and :meth:`TimedeltaIndex.insert` causing index ``freq`` to be lost when setting an element into an empty :class:`Series` (:issue:33573`)
diff --git a/pandas/core/internals/blocks.py b/pandas/core/internals/blocks.py
index c052c6c9d7d1d..d880bd81bd947 100644
--- a/pandas/core/internals/blocks.py
+++ b/pandas/core/internals/blocks.py
@@ -824,8 +824,10 @@ def setitem(self, indexer, value):
         if is_extension_array_dtype(getattr(value, "dtype", None)):
             # We need to be careful not to allow through strings that
             #  can be parsed to EADtypes
+            is_ea_value = True
             arr_value = value
         else:
+            is_ea_value = False
             arr_value = np.array(value)
 
         if transpose:
@@ -853,6 +855,11 @@ def setitem(self, indexer, value):
             values[indexer] = value
             return self.make_block(Categorical(self.values, dtype=arr_value.dtype))
 
+        elif exact_match and is_ea_value:
+            # GH#32395 if we're going to replace the values entirely, just
+            #  substitute in the new array
+            return self.make_block(arr_value)
+
         # if we are an exact match (ex-broadcasting),
         # then use the resultant dtype
         elif exact_match:
diff --git a/pandas/tests/extension/base/setitem.py b/pandas/tests/extension/base/setitem.py
index dece8098c8542..eed9a584cc030 100644
--- a/pandas/tests/extension/base/setitem.py
+++ b/pandas/tests/extension/base/setitem.py
@@ -301,3 +301,31 @@ def test_setitem_preserves_views(self, data):
         data[0] = data[1]
         assert view1[0] == data[1]
         assert view2[0] == data[1]
+
+    def test_setitem_dataframe_column_with_index(self, data):
+        # https://github.com/pandas-dev/pandas/issues/32395
+        df = expected = pd.DataFrame({"data": pd.Series(data)})
+        result = pd.DataFrame(index=df.index)
+        result.loc[df.index, "data"] = df["data"]
+        self.assert_frame_equal(result, expected)
+
+    def test_setitem_dataframe_column_without_index(self, data):
+        # https://github.com/pandas-dev/pandas/issues/32395
+        df = expected = pd.DataFrame({"data": pd.Series(data)})
+        result = pd.DataFrame(index=df.index)
+        result.loc[:, "data"] = df["data"]
+        self.assert_frame_equal(result, expected)
+
+    def test_setitem_series_with_index(self, data):
+        # https://github.com/pandas-dev/pandas/issues/32395
+        ser = expected = pd.Series(data, name="data")
+        result = pd.Series(index=ser.index, dtype=np.object, name="data")
+        result.loc[ser.index] = ser
+        self.assert_series_equal(result, expected)
+
+    def test_setitem_series_without_index(self, data):
+        # https://github.com/pandas-dev/pandas/issues/32395
+        ser = expected = pd.Series(data, name="data")
+        result = pd.Series(index=ser.index, dtype=np.object, name="data")
+        result.loc[:] = ser
+        self.assert_series_equal(result, expected)