diff --git a/plugins/node/opentelemetry-instrumentation-aws-lambda/README.md b/plugins/node/opentelemetry-instrumentation-aws-lambda/README.md
index 22a6095920..d4e090b46d 100644
--- a/plugins/node/opentelemetry-instrumentation-aws-lambda/README.md
+++ b/plugins/node/opentelemetry-instrumentation-aws-lambda/README.md
@@ -50,7 +50,7 @@ In your Lambda function configuration, add or update the `NODE_OPTIONS` environm
 | --- | --- | --- |
 | `requestHook` | `RequestHook` (function) | Hook for adding custom attributes before lambda starts handling the request. Receives params: `span, { event, context }` |
 | `responseHook` | `ResponseHook` (function) | Hook for adding custom attributes before lambda returns the response. Receives params: `span, { err?, res? }` |
-| `disableAwsContextPropagation` | `boolean` | By default, this instrumentation will try to read the context from the `_X_AMZN_TRACE_ID` environment variable set by Lambda, set this to `true` to disable this behavior |
+| `disableAwsContextPropagation` | `boolean` | By default, this instrumentation will try to read the context from the `_X_AMZN_TRACE_ID` environment variable set by Lambda, set this to `true` or set the environment variable `OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION=true` to disable this behavior |
 | `eventContextExtractor` | `EventContextExtractor` (function) | Function for providing custom context extractor in order to support different event types that are handled by AWS Lambda (e.g., SQS, CloudWatch, Kinesis, API Gateway). Applied only when `disableAwsContextPropagation` is set to `true`. Receives params: `event, context` |
 
 ### Hooks Usage Example
diff --git a/plugins/node/opentelemetry-instrumentation-aws-lambda/src/instrumentation.ts b/plugins/node/opentelemetry-instrumentation-aws-lambda/src/instrumentation.ts
index 20d4717a04..75adb7e331 100644
--- a/plugins/node/opentelemetry-instrumentation-aws-lambda/src/instrumentation.ts
+++ b/plugins/node/opentelemetry-instrumentation-aws-lambda/src/instrumentation.ts
@@ -57,6 +57,7 @@ import {
 
 import { AwsLambdaInstrumentationConfig, EventContextExtractor } from './types';
 import { VERSION } from './version';
+import { env } from 'process';
 import { LambdaModule } from './internal-types';
 
 const awsPropagator = new AWSXRayPropagator();
@@ -77,6 +78,17 @@ export class AwsLambdaInstrumentation extends InstrumentationBase {
 
   constructor(protected override _config: AwsLambdaInstrumentationConfig = {}) {
     super('@opentelemetry/instrumentation-aws-lambda', VERSION, _config);
+    if (this._config.disableAwsContextPropagation == null) {
+      if (
+        typeof env['OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION'] ===
+          'string' &&
+        env[
+          'OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION'
+        ].toLocaleLowerCase() === 'true'
+      ) {
+        this._config.disableAwsContextPropagation = true;
+      }
+    }
   }
 
   override setConfig(config: AwsLambdaInstrumentationConfig = {}) {
diff --git a/plugins/node/opentelemetry-instrumentation-aws-lambda/test/integrations/lambda-handler.test.ts b/plugins/node/opentelemetry-instrumentation-aws-lambda/test/integrations/lambda-handler.test.ts
index 681922fbee..573cab8140 100644
--- a/plugins/node/opentelemetry-instrumentation-aws-lambda/test/integrations/lambda-handler.test.ts
+++ b/plugins/node/opentelemetry-instrumentation-aws-lambda/test/integrations/lambda-handler.test.ts
@@ -544,6 +544,92 @@ describe('lambda handler', () => {
       assert.strictEqual(spans.length, 0);
     });
 
+    it('ignores sampled lambda context if env OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION is set to "true"', async () => {
+      process.env['OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION'] = 'true';
+      process.env[traceContextEnvironmentKey] = sampledAwsHeader;
+      initializeHandler('lambda-test/async.handler', {});
+
+      const result = await lambdaRequire('lambda-test/async').handler(
+        'arg',
+        ctx
+      );
+      assert.strictEqual(result, 'ok');
+      const spans = memoryExporter.getFinishedSpans();
+      const [span] = spans;
+      assert.strictEqual(spans.length, 1);
+      assertSpanSuccess(span);
+      assert.notDeepStrictEqual(
+        span.spanContext().traceId,
+        sampledAwsSpanContext.traceId
+      );
+      assert.strictEqual(span.parentSpanId, undefined);
+    });
+
+    it('ignores sampled lambda context if env OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION is set to "TRUE"', async () => {
+      process.env['OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION'] = 'TRUE';
+      process.env[traceContextEnvironmentKey] = sampledAwsHeader;
+      initializeHandler('lambda-test/async.handler', {});
+
+      const result = await lambdaRequire('lambda-test/async').handler(
+        'arg',
+        ctx
+      );
+      assert.strictEqual(result, 'ok');
+      const spans = memoryExporter.getFinishedSpans();
+      const [span] = spans;
+      assert.strictEqual(spans.length, 1);
+      assertSpanSuccess(span);
+      assert.notDeepStrictEqual(
+        span.spanContext().traceId,
+        sampledAwsSpanContext.traceId
+      );
+      assert.strictEqual(span.parentSpanId, undefined);
+    });
+
+    it('ignores sampled lambda context if env OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION is set to "True"', async () => {
+      process.env['OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION'] = 'True';
+      process.env[traceContextEnvironmentKey] = sampledAwsHeader;
+      initializeHandler('lambda-test/async.handler', {});
+
+      const result = await lambdaRequire('lambda-test/async').handler(
+        'arg',
+        ctx
+      );
+      assert.strictEqual(result, 'ok');
+      const spans = memoryExporter.getFinishedSpans();
+      const [span] = spans;
+      assert.strictEqual(spans.length, 1);
+      assertSpanSuccess(span);
+      assert.notDeepStrictEqual(
+        span.spanContext().traceId,
+        sampledAwsSpanContext.traceId
+      );
+      assert.strictEqual(span.parentSpanId, undefined);
+    });
+
+    it('ignores OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION if `config.disableAwsContextPropagation` is set', async () => {
+      process.env['OTEL_LAMBDA_DISABLE_AWS_CONTEXT_PROPAGATION'] = 'true';
+      process.env[traceContextEnvironmentKey] = sampledAwsHeader;
+      initializeHandler('lambda-test/async.handler', {
+        disableAwsContextPropagation: false,
+      });
+
+      const result = await lambdaRequire('lambda-test/async').handler(
+        'arg',
+        ctx
+      );
+      assert.strictEqual(result, 'ok');
+      const spans = memoryExporter.getFinishedSpans();
+      const [span] = spans;
+      assert.strictEqual(spans.length, 1);
+      assertSpanSuccess(span);
+      assert.strictEqual(
+        span.spanContext().traceId,
+        sampledAwsSpanContext.traceId
+      );
+      assert.strictEqual(span.parentSpanId, sampledAwsSpanContext.spanId);
+    });
+
     it('ignores sampled lambda context if "disableAwsContextPropagation" config option is true', async () => {
       process.env[traceContextEnvironmentKey] = sampledAwsHeader;
       initializeHandler('lambda-test/async.handler', {