diff --git a/cmd/labs/project/command_test.go b/cmd/labs/project/command_test.go
index 453329e1d1..ec6476c4aa 100644
--- a/cmd/labs/project/command_test.go
+++ b/cmd/labs/project/command_test.go
@@ -2,12 +2,14 @@ package project_test
 
 import (
 	"context"
+	"os"
 	"path/filepath"
 	"testing"
 	"time"
 
 	"github.com/databricks/cli/internal/testcli"
 	"github.com/databricks/cli/libs/env"
+	"github.com/databricks/cli/libs/log"
 	"github.com/databricks/cli/libs/python"
 	"github.com/databricks/databricks-sdk-go"
 	"github.com/stretchr/testify/assert"
@@ -67,3 +69,100 @@ func TestRenderingTable(t *testing.T) {
 	Third  Fourth
 	`)
 }
+
+func TestLogLevelHandoff(t *testing.T) {
+	if _, ok := os.LookupEnv("DATABRICKS_LOG_LEVEL"); ok {
+		t.Fatal("DATABRICKS_LOG_LEVEL must not be set when running this test")
+	}
+
+	testCases := []struct {
+		name          string
+		envVar        string
+		args          []string
+		expectedLevel string
+	}{
+		{
+			// Historical handoff value when the user does not set an explicit log level.
+			name:          "not set by default",
+			expectedLevel: "disabled",
+		},
+		{
+			name:          "set explicitly with --log-level",
+			args:          []string{"--log-level", "iNFo"},
+			expectedLevel: "info",
+		},
+		{
+			name:          "set by --debug flag",
+			args:          []string{"--debug"},
+			expectedLevel: "debug",
+		},
+		{
+			name:          "set by env var",
+			envVar:        "tRaCe",
+			expectedLevel: "trace",
+		},
+		{
+			name:          "set to default",
+			envVar:        "warn",
+			expectedLevel: "warn",
+		},
+		{
+			name:          "invalid env var ignored",
+			envVar:        "invalid-level",
+			expectedLevel: "disabled",
+		},
+		{
+			name:          "conflict: --debug trumps --log-level and env var",
+			envVar:        "error",
+			args:          []string{"--debug", "--log-level", "trace"},
+			expectedLevel: "debug",
+		},
+		{
+			name:          "conflict: --log-level trumps env var",
+			envVar:        "error",
+			args:          []string{"--log-level", "info"},
+			expectedLevel: "info",
+		},
+	}
+
+	for _, tc := range testCases {
+		t.Run(tc.name, func(t *testing.T) {
+			ctx := devEnvContext(t)
+			if tc.envVar != "" {
+				ctx = env.Set(ctx, "DATABRICKS_LOG_LEVEL", tc.envVar)
+			}
+			args := append([]string{"labs", "blueprint", "echo"}, tc.args...)
+			r := testcli.NewRunner(t, ctx, args...)
+			var out echoOut
+			r.RunAndParseJSON(&out)
+			usedLevel := out.Flags["log_level"]
+			assert.Equal(t, tc.expectedLevel, usedLevel)
+
+			// Verify that our expectation matches what the logger has actually been configured to use.
+			// This should catch drift between the logic in cmd/root/logger.go and cmd/labs/project/proxy.go.
+			if tc.expectedLevel != "disabled" {
+				actualLoggerLevel := getLoggerLevel(ctx)
+				assert.Equal(t, tc.expectedLevel, actualLoggerLevel)
+			}
+		})
+	}
+}
+
+func getLoggerLevel(ctx context.Context) string {
+	logger := log.GetLogger(ctx)
+	var level string
+	if logger.Enabled(ctx, log.LevelTrace) {
+		level = "trace"
+	} else if logger.Enabled(ctx, log.LevelDebug) {
+		level = "debug"
+	} else if logger.Enabled(ctx, log.LevelInfo) {
+		level = "info"
+	} else if logger.Enabled(ctx, log.LevelWarn) {
+		level = "warn"
+	} else if logger.Enabled(ctx, log.LevelError) {
+		level = "error"
+	} else {
+		level = "disabled"
+	}
+	return level
+}
diff --git a/cmd/labs/project/proxy.go b/cmd/labs/project/proxy.go
index 82c7fb90ca..54da6de5a0 100644
--- a/cmd/labs/project/proxy.go
+++ b/cmd/labs/project/proxy.go
@@ -10,12 +10,15 @@ import (
 	"strings"
 
 	"github.com/databricks/cli/libs/cmdio"
+	"github.com/databricks/cli/libs/env"
 	"github.com/databricks/cli/libs/log"
 	"github.com/databricks/cli/libs/process"
 	"github.com/spf13/cobra"
 	"github.com/spf13/pflag"
 )
 
+const envLogLevel = "DATABRICKS_LOG_LEVEL"
+
 type proxy struct {
 	Entrypoint    `yaml:",inline"`
 	Name          string `yaml:"name"`
@@ -107,12 +110,33 @@ func (cp *proxy) commandInput(cmd *cobra.Command) ([]string, error) {
 		}
 		commandInput.Flags[f.Name] = v
 	}
+	ctx := cmd.Context()
+	/*
+	 * Although we _could_ get the log-level from the logger in context, that would not tell us
+	 * whether the user explicitly set it or whether it's just the default. So instead here we
+	 * check the same places that the root command does when initializing logging:
+	 *   DATABRICKS_LOG_LEVEL (env), --log-level and --debug.
+	 * Note: we rely on tests to catch any drift between here and the root log-level.
+	 */
 	logLevelFlag := flags.Lookup("log-level")
 	if logLevelFlag != nil {
-		commandInput.Flags["log_level"] = logLevelFlag.Value.String()
+		debugFlag := flags.Lookup("debug")
+		envValue, hasEnvLogLevel := env.Lookup(ctx, envLogLevel)
+		logLevelInUse := logLevelFlag.Value.String()
+		// Quirk: env var is ignored if invalid, so only treat as user-supplied if it matches
+		// the value in use.
+		userSupplied := logLevelFlag.Changed || (debugFlag != nil && debugFlag.Changed) ||
+			hasEnvLogLevel && strings.EqualFold(envValue, logLevelInUse)
+		var logLevel string
+		if userSupplied {
+			logLevel = logLevelInUse
+		} else {
+			// Historical value to indicate "not set by user".
+			logLevel = "disabled"
+		}
+		commandInput.Flags["log_level"] = logLevel
 	}
 	var args []string
-	ctx := cmd.Context()
 	if cp.IsPythonProject() {
 		args = append(args, cp.virtualEnvPython(ctx))
 		libDir := cp.EffectiveLibDir()