Can Photoshop do a live grayscale-driven mask that updates as you edit it?

Yes—Photoshop can do this without a plugin, though not exactly as a separate “live mask source” layer in the way some compositing apps work.

Two practical approaches from the community:

1. Edit the mask while viewing the result live Open a second view of the same document via Window > Arrange > New Window. Work on the mask in one window and watch the composited result update in the other.

2. Use a grayscale/luminosity mask and adjust it non-destructively Create a grayscale mask (for example with Apply Image), then refine that mask using grayscale-based adjustments such as Curves or Brightness/Contrast. You can clip those adjustments so they affect only the target layer/mask behavior below, giving you a flexible, viewable masking workflow.

So the short answer is: yes, a dynamic-feeling workflow is possible in Photoshop using built-in tools, especially with a grayscale mask plus clipped adjustment layers, and a second document window for live preview.