diff --git a/packages/cli/src/config/settings.test.ts b/packages/cli/src/config/settings.test.ts
index 809b8f48ff..eb7e991e6b 100644
--- a/packages/cli/src/config/settings.test.ts
+++ b/packages/cli/src/config/settings.test.ts
@@ -3294,6 +3294,32 @@ MALICIOUS_VAR=allowed-because-trusted
         expect(process.env['GOOGLE_CLOUD_PROJECT']).toBe('my-vertex-project');
       });
 
+      it('should respect .env override for GOOGLE_CLOUD_PROJECT in Cloud Shell when auth type is vertex-ai', () => {
+        vi.stubEnv('CLOUD_SHELL', 'true');
+        vi.stubEnv('GOOGLE_CLOUD_PROJECT', 'my-vertex-project');
+        process.argv = ['node', 'gemini', '-s', 'prompt'];
+        vi.mocked(isWorkspaceTrusted).mockReturnValue({
+          isTrusted: true,
+          source: 'file',
+        });
+
+        // Mock .env file to override the shell project
+        vi.mocked(fs.existsSync).mockReturnValue(true);
+        vi.mocked(fs.readFileSync).mockReturnValue(
+          'GOOGLE_CLOUD_PROJECT=env-vertex-project',
+        );
+
+        loadEnvironment(
+          createMockSettings({
+            tools: { sandbox: false },
+            security: { auth: { selectedType: AuthType.USE_VERTEX_AI } },
+          }).merged,
+          MOCK_WORKSPACE_DIR,
+        );
+
+        expect(process.env['GOOGLE_CLOUD_PROJECT']).toBe('env-vertex-project');
+      });
+
       it('should clear cloudshell-gca when switching to Vertex AI without an original project', () => {
         process.env['CLOUD_SHELL'] = 'true';
         process.argv = ['node', 'gemini', '-s', 'prompt'];
diff --git a/packages/cli/src/config/settings.ts b/packages/cli/src/config/settings.ts
index 2d94e719b2..5a52e5af3c 100644
--- a/packages/cli/src/config/settings.ts
+++ b/packages/cli/src/config/settings.ts
@@ -553,15 +553,6 @@ export function setUpCloudShellEnvironment(
   // However, if the user has explicitly selected Vertex AI auth, they intend
   // to use their own GCP project, so we restore the original value and skip
   // the Cloud Shell override to respect their .env settings.
-  if (selectedAuthType === AuthType.USE_VERTEX_AI) {
-    const saved = process.env[USER_GCP_PROJECT];
-    if (saved !== undefined) {
-      process.env['GOOGLE_CLOUD_PROJECT'] = saved;
-    } else if (process.env['GOOGLE_CLOUD_PROJECT'] === 'cloudshell-gca') {
-      delete process.env['GOOGLE_CLOUD_PROJECT'];
-    }
-    return;
-  }
 
   // Save the user's original value before overwriting, so it can be restored
   // if the user later switches to Vertex AI (even after a process restart).
@@ -572,7 +563,11 @@ export function setUpCloudShellEnvironment(
     }
   }
 
-  let value = 'cloudshell-gca';
+  let value: string | undefined = 'cloudshell-gca';
+
+  if (selectedAuthType === AuthType.USE_VERTEX_AI) {
+    value = process.env[USER_GCP_PROJECT];
+  }
 
   if (envFilePath && fs.existsSync(envFilePath)) {
     const envFileContent = fs.readFileSync(envFilePath);
@@ -585,7 +580,12 @@ export function setUpCloudShellEnvironment(
       }
     }
   }
-  process.env['GOOGLE_CLOUD_PROJECT'] = value;
+
+  if (value !== undefined) {
+    process.env['GOOGLE_CLOUD_PROJECT'] = value;
+  } else if (process.env['GOOGLE_CLOUD_PROJECT'] === 'cloudshell-gca') {
+    delete process.env['GOOGLE_CLOUD_PROJECT'];
+  }
 }
 
 export function loadEnvironment(