diff --git a/src/sap_cloud_sdk/core/telemetry/tracer.py b/src/sap_cloud_sdk/core/telemetry/tracer.py
index 5cca857..9f211c3 100644
--- a/src/sap_cloud_sdk/core/telemetry/tracer.py
+++ b/src/sap_cloud_sdk/core/telemetry/tracer.py
@@ -9,7 +9,7 @@
 from contextlib import contextmanager, nullcontext
 from typing import Optional, Dict, Any
 
-from opentelemetry import trace
+from opentelemetry import trace, baggage
 from opentelemetry.trace import Status, StatusCode, Span
 
 from sap_cloud_sdk.core.telemetry.genai_operation import GenAIOperation
@@ -34,6 +34,28 @@
 _ATTR_SERVER_ADDRESS = "server.address"
 
 
+def _resolve_conversation_id(conversation_id: Optional[str]) -> Optional[str]:
+    """
+    Resolve conversation ID with priority: explicit param > baggage > None.
+
+    Priority order:
+    1. Explicit conversation_id parameter (highest priority)
+    2. W3C baggage header value (gen_ai.conversation.id)
+    3. None (no conversation ID)
+
+    This ensures consistent conversation ID across all spans in a trace,
+    even when traceloop or other instrumentation sets a different value.
+    """
+    if conversation_id is not None:
+        return conversation_id
+
+    baggage_conversation_id = baggage.get_baggage(_ATTR_GEN_AI_CONVERSATION_ID)
+    if baggage_conversation_id:
+        return baggage_conversation_id
+
+    return None
+
+
 @contextmanager
 def _propagate_attributes(attrs: Dict[str, Any]):
     """Push attrs onto the propagation stack for the duration of the context."""
@@ -149,8 +171,9 @@ def chat_span(
         _ATTR_GEN_AI_PROVIDER_NAME: provider,
         _ATTR_GEN_AI_REQUEST_MODEL: model,
     }
-    if conversation_id is not None:
-        base_attrs[_ATTR_GEN_AI_CONVERSATION_ID] = conversation_id
+    resolved_conversation_id = _resolve_conversation_id(conversation_id)
+    if resolved_conversation_id is not None:
+        base_attrs[_ATTR_GEN_AI_CONVERSATION_ID] = resolved_conversation_id
     if server_address is not None:
         base_attrs[_ATTR_SERVER_ADDRESS] = server_address
     # Add tenant_id if set
@@ -312,8 +335,9 @@ def invoke_agent_span(
         base_attrs[_ATTR_GEN_AI_AGENT_ID] = agent_id
     if agent_description is not None:
         base_attrs[_ATTR_GEN_AI_AGENT_DESCRIPTION] = agent_description
-    if conversation_id is not None:
-        base_attrs[_ATTR_GEN_AI_CONVERSATION_ID] = conversation_id
+    resolved_conversation_id = _resolve_conversation_id(conversation_id)
+    if resolved_conversation_id is not None:
+        base_attrs[_ATTR_GEN_AI_CONVERSATION_ID] = resolved_conversation_id
     if server_address is not None:
         base_attrs[_ATTR_SERVER_ADDRESS] = server_address
     # Add tenant_id if set
diff --git a/tests/core/unit/telemetry/test_tracer.py b/tests/core/unit/telemetry/test_tracer.py
index e3fa2fe..6d8bf06 100644
--- a/tests/core/unit/telemetry/test_tracer.py
+++ b/tests/core/unit/telemetry/test_tracer.py
@@ -981,3 +981,39 @@ def test_propagate_default_is_false(self):
 
         child_attrs = captures[1]["attributes"]
         assert "custom" not in child_attrs
+
+
+class TestResolveConversationId:
+    """Test suite for _resolve_conversation_id function."""
+
+    def test_resolve_conversation_id_explicit_param(self):
+        """Test that explicit conversation_id parameter takes highest priority."""
+        from sap_cloud_sdk.core.telemetry.tracer import _resolve_conversation_id
+
+        with patch('opentelemetry.baggage.get_baggage', return_value='baggage_id'):
+            result = _resolve_conversation_id('explicit_id')
+            assert result == 'explicit_id'
+
+    def test_resolve_conversation_id_from_baggage(self):
+        """Test that baggage value is used when no explicit param provided."""
+        from sap_cloud_sdk.core.telemetry.tracer import _resolve_conversation_id
+
+        with patch('opentelemetry.baggage.get_baggage', return_value='baggage_id'):
+            result = _resolve_conversation_id(None)
+            assert result == 'baggage_id'
+
+    def test_resolve_conversation_id_no_baggage(self):
+        """Test that None is returned when no explicit param and no baggage."""
+        from sap_cloud_sdk.core.telemetry.tracer import _resolve_conversation_id
+
+        with patch('opentelemetry.baggage.get_baggage', return_value=None):
+            result = _resolve_conversation_id(None)
+            assert result is None
+
+    def test_resolve_conversation_id_empty_baggage(self):
+        """Test that empty baggage string is treated as no value."""
+        from sap_cloud_sdk.core.telemetry.tracer import _resolve_conversation_id
+
+        with patch('opentelemetry.baggage.get_baggage', return_value=''):
+            result = _resolve_conversation_id(None)
+            assert result is None