diff --git a/src/cli/operations/dev/__tests__/otel-collector.test.ts b/src/cli/operations/dev/__tests__/otel-collector.test.ts
new file mode 100644
index 000000000..d934306ab
--- /dev/null
+++ b/src/cli/operations/dev/__tests__/otel-collector.test.ts
@@ -0,0 +1,32 @@
+import { startOtelCollector } from '../otel';
+import { tmpdir } from 'os';
+import { join } from 'path';
+import { afterEach, describe, expect, it } from 'vitest';
+
+describe('startOtelCollector', () => {
+  const savedEnv = { ...process.env };
+
+  afterEach(() => {
+    process.env = { ...savedEnv };
+  });
+
+  it('uses built-in collector endpoint when no external endpoint is set', async () => {
+    delete process.env.OTEL_EXPORTER_OTLP_ENDPOINT;
+    const { collector, otelEnvVars } = await startOtelCollector(join(tmpdir(), 'otel-test'));
+    try {
+      expect(otelEnvVars.OTEL_EXPORTER_OTLP_ENDPOINT).toMatch(/^http:\/\/127\.0\.0\.1:\d+$/);
+    } finally {
+      collector.stop();
+    }
+  });
+
+  it('uses external endpoint when OTEL_EXPORTER_OTLP_ENDPOINT is set', async () => {
+    process.env.OTEL_EXPORTER_OTLP_ENDPOINT = 'http://my-collector:4318';
+    const { collector, otelEnvVars } = await startOtelCollector(join(tmpdir(), 'otel-test'));
+    try {
+      expect(otelEnvVars.OTEL_EXPORTER_OTLP_ENDPOINT).toBe('http://my-collector:4318');
+    } finally {
+      collector.stop();
+    }
+  });
+});
diff --git a/src/cli/operations/dev/otel/collector.ts b/src/cli/operations/dev/otel/collector.ts
index ee3ad7838..350abd434 100644
--- a/src/cli/operations/dev/otel/collector.ts
+++ b/src/cli/operations/dev/otel/collector.ts
@@ -297,12 +297,14 @@ export async function startOtelCollector(persistTracesDir: string): Promise<{
   const collectorPort = await collector.start();
 
   const otelEnvVars: Record<string, string> = {
-    OTEL_EXPORTER_OTLP_ENDPOINT: `http://127.0.0.1:${collectorPort}`,
-    OTEL_EXPORTER_OTLP_PROTOCOL: 'http/protobuf',
-    OTEL_METRICS_EXPORTER: 'none',
-    AGENT_OBSERVABILITY_ENABLED: 'true',
-    OTEL_INSTRUMENTATION_GENAI_CAPTURE_MESSAGE_CONTENT: 'true',
-    OTEL_PYTHON_LOGGING_AUTO_INSTRUMENTATION_ENABLED: 'true',
+    OTEL_EXPORTER_OTLP_ENDPOINT: process.env.OTEL_EXPORTER_OTLP_ENDPOINT ?? `http://127.0.0.1:${collectorPort}`,
+    OTEL_EXPORTER_OTLP_PROTOCOL: process.env.OTEL_EXPORTER_OTLP_PROTOCOL ?? 'http/protobuf',
+    OTEL_METRICS_EXPORTER: process.env.OTEL_METRICS_EXPORTER ?? 'none',
+    AGENT_OBSERVABILITY_ENABLED: process.env.AGENT_OBSERVABILITY_ENABLED ?? 'true',
+    OTEL_INSTRUMENTATION_GENAI_CAPTURE_MESSAGE_CONTENT:
+      process.env.OTEL_INSTRUMENTATION_GENAI_CAPTURE_MESSAGE_CONTENT ?? 'true',
+    OTEL_PYTHON_LOGGING_AUTO_INSTRUMENTATION_ENABLED:
+      process.env.OTEL_PYTHON_LOGGING_AUTO_INSTRUMENTATION_ENABLED ?? 'true',
   };
 
   return { collector, otelEnvVars };