diff --git a/packages/cli/src/config/extension-manager.ts b/packages/cli/src/config/extension-manager.ts
index 179959d83e..365bc7da44 100644
--- a/packages/cli/src/config/extension-manager.ts
+++ b/packages/cli/src/config/extension-manager.ts
@@ -530,6 +530,7 @@ Would you like to attempt to install via "git clone" instead?`,
       return this.loadedExtensions;
     }
     for (const subdir of fs.readdirSync(extensionsDir)) {
+      if (subdir === '.env') continue;
       const extensionDir = path.join(extensionsDir, subdir);
       await this.loadExtension(extensionDir);
     }
diff --git a/packages/cli/src/config/extension.test.ts b/packages/cli/src/config/extension.test.ts
index 0148fc7729..02a000b4c9 100644
--- a/packages/cli/src/config/extension.test.ts
+++ b/packages/cli/src/config/extension.test.ts
@@ -280,6 +280,17 @@ describe('extension tests', () => {
       ]);
     });
 
+    it('should ignore .env directory in extensions folder', async () => {
+      // Create a .env directory
+      const envDir = path.join(userExtensionsDir, '.env');
+      fs.mkdirSync(envDir);
+
+      const extensions = await extensionManager.loadExtensions();
+      expect(extensions).toEqual([]);
+      const { debugLogger } = await import('@google/gemini-cli-core');
+      expect(debugLogger.error).not.toHaveBeenCalled();
+    });
+
     it('should annotate disabled extensions', async () => {
       createExtension({
         extensionsDir: userExtensionsDir,
diff --git a/packages/cli/src/config/extensions/extensionSettings.test.ts b/packages/cli/src/config/extensions/extensionSettings.test.ts
index ef066977a1..d37ab291db 100644
--- a/packages/cli/src/config/extensions/extensionSettings.test.ts
+++ b/packages/cli/src/config/extensions/extensionSettings.test.ts
@@ -468,6 +468,32 @@ describe('extensionSettings', () => {
       expect(mockIsAvailable).toHaveBeenCalled();
       expect(mockListSecrets).not.toHaveBeenCalled();
     });
+
+    it('should throw error if .env is a directory when prompting for settings', async () => {
+      const config: ExtensionConfig = {
+        name: 'test-ext',
+        version: '1.0.0',
+        settings: [{ name: 's1', description: 'd1', envVar: 'VAR1' }],
+      };
+      const envFilePath = path.join(extensionDir, '.env');
+      if (fs.existsSync(envFilePath)) {
+        fs.unlinkSync(envFilePath);
+      }
+      fs.mkdirSync(envFilePath);
+      mockRequestSetting.mockResolvedValue('new-value');
+
+      await expect(
+        maybePromptForSettings(
+          config,
+          '12345',
+          mockRequestSetting,
+          undefined,
+          undefined,
+        ),
+      ).rejects.toThrow(
+        `Cannot update user-scoped settings because "${envFilePath}" is a directory.`,
+      );
+    });
   });
 
   describe('promptForSetting', () => {
@@ -590,6 +616,23 @@ describe('extensionSettings', () => {
         SENSITIVE_VAR: 'workspace-secret',
       });
     });
+
+    it('should ignore .env if it is a directory', async () => {
+      const userEnvPath = path.join(extensionDir, EXTENSION_SETTINGS_FILENAME);
+      if (fs.existsSync(userEnvPath)) {
+        fs.unlinkSync(userEnvPath);
+      }
+      fs.mkdirSync(userEnvPath);
+
+      const contents = await getScopedEnvContents(
+        config,
+        extensionId,
+        ExtensionSettingScope.USER,
+        tempWorkspaceDir,
+      );
+
+      expect(contents).toEqual({});
+    });
   });
 
   describe('getEnvContents (merged)', () => {
@@ -890,5 +933,27 @@ describe('extensionSettings', () => {
       const actualContent = await fsPromises.readFile(expectedEnvPath, 'utf-8');
       expect(actualContent).toContain('VAR1="value with \\"quotes\\""');
     });
+
+    it('should throw error if .env is a directory when updating a non-sensitive setting', async () => {
+      const envFilePath = path.join(extensionDir, '.env');
+      if (fs.existsSync(envFilePath)) {
+        fs.unlinkSync(envFilePath);
+      }
+      fs.mkdirSync(envFilePath);
+      mockRequestSetting.mockResolvedValue('new-value');
+
+      await expect(
+        updateSetting(
+          config,
+          '12345',
+          'VAR1',
+          mockRequestSetting,
+          ExtensionSettingScope.USER,
+          tempWorkspaceDir,
+        ),
+      ).rejects.toThrow(
+        `Cannot update user-scoped settings because "${envFilePath}" is a directory.`,
+      );
+    });
   });
 });
diff --git a/packages/cli/src/config/extensions/extensionSettings.ts b/packages/cli/src/config/extensions/extensionSettings.ts
index 06e4f49db4..c1c9ad33bc 100644
--- a/packages/cli/src/config/extensions/extensionSettings.ts
+++ b/packages/cli/src/config/extensions/extensionSettings.ts
@@ -124,6 +124,15 @@ export async function maybePromptForSettings(
 
   const envContent = formatEnvContent(nonSensitiveSettings);
 
+  if (
+    fsSync.existsSync(envFilePath) &&
+    fsSync.statSync(envFilePath).isDirectory()
+  ) {
+    throw new Error(
+      `Cannot update ${scope}-scoped settings because "${envFilePath}" is a directory.`,
+    );
+  }
+
   await fs.writeFile(envFilePath, envContent);
 }
 
@@ -172,7 +181,7 @@ export async function getScopedEnvContents(
   );
   const envFilePath = getEnvFilePath(extensionName, scope, workspaceDir);
   let customEnv: Record<string, string> = {};
-  if (fsSync.existsSync(envFilePath)) {
+  if (fsSync.existsSync(envFilePath) && fsSync.statSync(envFilePath).isFile()) {
     const envFile = fsSync.readFileSync(envFilePath, 'utf-8');
     customEnv = dotenv.parse(envFile);
   }
@@ -258,6 +267,16 @@ export async function updateSetting(
   // For non-sensitive settings, we need to read the existing .env file,
   // update the value, and write it back, preserving any other values.
   const envFilePath = getEnvFilePath(extensionName, scope, workspaceDir);
+
+  if (
+    fsSync.existsSync(envFilePath) &&
+    fsSync.statSync(envFilePath).isDirectory()
+  ) {
+    throw new Error(
+      `Cannot update ${scope}-scoped settings because "${envFilePath}" is a directory.`,
+    );
+  }
+
   let envContent = '';
   if (fsSync.existsSync(envFilePath)) {
     envContent = await fs.readFile(envFilePath, 'utf-8');
@@ -323,7 +342,7 @@ async function clearSettings(
   envFilePath: string,
   keychain: KeychainTokenStorage,
 ) {
-  if (fsSync.existsSync(envFilePath)) {
+  if (fsSync.existsSync(envFilePath) && fsSync.statSync(envFilePath).isFile()) {
     await fs.writeFile(envFilePath, '');
   }
   if (!(await keychain.isAvailable())) {