diff --git a/internal/container/start.go b/internal/container/start.go
index 9c044176..71237f91 100644
--- a/internal/container/start.go
+++ b/internal/container/start.go
@@ -81,7 +81,14 @@ func Start(ctx context.Context, rt runtime.Runtime, sink output.Sink, opts Start
 
 	tel := opts.Telemetry
 
-	hostEnv := filterHostEnv(os.Environ())
+	hostEnv, droppedEnv := filterHostEnv(os.Environ())
+	for _, d := range droppedEnv {
+		text := fmt.Sprintf("Not forwarding %s to the emulator: it would override %s inside the emulator", d.name, d.overrides)
+		if d.overrides == "" {
+			text = fmt.Sprintf("Not forwarding %s to the emulator: its value contains line breaks", d.name)
+		}
+		sink.Emit(output.MessageEvent{Severity: output.SeverityWarning, Text: text})
+	}
 	agentEnvVars := agentEnv(caller.New().Classify())
 
 	containers := make([]runtime.ContainerConfig, len(opts.Containers))
@@ -863,19 +870,64 @@ func awaitStartup(ctx context.Context, rt runtime.Runtime, sink output.Sink, con
 	}
 }
 
+// droppedHostEnv is a host variable filterHostEnv refused to forward, so the
+// caller can warn the user. overrides names the critical variable the
+// entrypoint-stripped name would clobber inside the emulator; it is empty when
+// the entry was dropped for carrying a multi-line value instead.
+type droppedHostEnv struct {
+	name      string
+	overrides string
+}
+
 // filterHostEnv returns the subset of host environment entries that should be
 // forwarded to the emulator container. It keeps CI and LOCALSTACK_* variables
-// but explicitly drops LOCALSTACK_AUTH_TOKEN so the host value cannot overwrite
-// the token resolved by lstk (which may come from the keyring).
-func filterHostEnv(envList []string) []string {
-	var out []string
+// but drops entries that would corrupt the emulator environment:
+//   - LOCALSTACK_AUTH_TOKEN, so the host value cannot overwrite the token
+//     resolved by lstk (which may come from the keyring); this drop is silent
+//     because lstk forwards its own resolved token instead;
+//   - values containing a newline or carriage return: the entrypoint re-exports
+//     variables through a line-oriented `env | sed` pipeline, so an embedded
+//     line like "LOCALSTACK_PATH=" would inject a rogue export that blanks PATH;
+//   - variables whose prefix-stripped name would clobber a critical variable
+//     inside the emulator (see criticalContainerVar).
+//
+// The latter two are returned in dropped so callers can warn the user.
+func filterHostEnv(envList []string) (out []string, dropped []droppedHostEnv) {
 	for _, e := range envList {
-		if strings.HasPrefix(e, "CI=") ||
-			(strings.HasPrefix(e, "LOCALSTACK_") && !strings.HasPrefix(e, "LOCALSTACK_AUTH_TOKEN=")) {
-			out = append(out, e)
+		key, value, ok := strings.Cut(e, "=")
+		if !ok || (key != "CI" && !strings.HasPrefix(key, "LOCALSTACK_")) {
+			continue
+		}
+		if key == "LOCALSTACK_AUTH_TOKEN" {
+			continue
 		}
+		if strings.ContainsAny(value, "\n\r") {
+			dropped = append(dropped, droppedHostEnv{name: key})
+			continue
+		}
+		if name := strings.TrimPrefix(key, "LOCALSTACK_"); name != key && criticalContainerVar(name) {
+			dropped = append(dropped, droppedHostEnv{name: key, overrides: name})
+			continue
+		}
+		out = append(out, e)
 	}
-	return out
+	return out, dropped
+}
+
+// criticalContainerVar reports whether a LOCALSTACK_* variable stripped to name
+// would break the emulator: the image's docker-entrypoint.sh strips the
+// LOCALSTACK_ prefix and re-exports the remainder (only LOCALSTACK_HOST and
+// LOCALSTACK_HOSTNAME are excluded), so e.g. a host LOCALSTACK_PATH becomes
+// PATH inside the emulator and startup dies with "mkdir: command not found"
+// (DEVX-984). IFS is included because the entrypoint sources the stripped
+// exports mid-script, corrupting its own word splitting.
+func criticalContainerVar(name string) bool {
+	switch name {
+	case "PATH", "HOME", "SHELL", "IFS", "ENV", "BASH_ENV",
+		"LD_PRELOAD", "LD_LIBRARY_PATH", "PYTHONPATH", "PYTHONHOME":
+		return true
+	}
+	return false
 }
 
 func envHasKey(env []string, key string) bool {
diff --git a/internal/container/start_test.go b/internal/container/start_test.go
index c862014d..315768c3 100644
--- a/internal/container/start_test.go
+++ b/internal/container/start_test.go
@@ -390,12 +390,20 @@ func TestFilterHostEnv(t *testing.T) {
 		"LOCALSTACK_API_ENDPOINT=https://example.test",
 		"LOCALSTACK_AUTH_TOKEN=host-token",
 		"LOCALSTACK_PERSISTENCE=1",
+		"LOCALSTACK_PATH=/home/user/repos/localstack",
+		"LOCALSTACK_HOME=/root",
+		"LOCALSTACK_PYTHONPATH=/opt/code",
+		"LOCALSTACK_LD_PRELOAD=/lib/evil.so",
+		"LOCALSTACK_IFS=:",
+		"LOCALSTACK_MULTILINE=a\nLOCALSTACK_PATH=",
+		"LOCALSTACK_PATHFINDER=1",
+		"LOCALSTACK_HOSTNAME=custom.host",
 		"PATH=/usr/bin",
 		"HOME=/home/user",
 		"CI_PIPELINE=foo",
 	}
 
-	got := filterHostEnv(input)
+	got, dropped := filterHostEnv(input)
 
 	assert.Contains(t, got, "CI=true")
 	assert.Contains(t, got, "LOCALSTACK_DISABLE_EVENTS=1")
@@ -406,6 +414,27 @@ func TestFilterHostEnv(t *testing.T) {
 	assert.NotContains(t, got, "PATH=/usr/bin")
 	assert.NotContains(t, got, "HOME=/home/user")
 	assert.NotContains(t, got, "CI_PIPELINE=foo", "only exact CI= must be forwarded, not CI_*")
+	assert.NotContains(t, got, "LOCALSTACK_PATH=/home/user/repos/localstack",
+		"the emulator entrypoint strips the LOCALSTACK_ prefix, so forwarding this would override PATH inside the emulator and break startup (DEVX-984)")
+	assert.NotContains(t, got, "LOCALSTACK_HOME=/root")
+	assert.NotContains(t, got, "LOCALSTACK_PYTHONPATH=/opt/code")
+	assert.NotContains(t, got, "LOCALSTACK_LD_PRELOAD=/lib/evil.so")
+	assert.NotContains(t, got, "LOCALSTACK_IFS=:",
+		"the entrypoint sources the stripped exports mid-script, so IFS would corrupt its word splitting")
+	assert.NotContains(t, got, "LOCALSTACK_MULTILINE=a\nLOCALSTACK_PATH=",
+		"a multi-line value is split by the entrypoint's line-oriented env pipeline and can inject rogue exports like a blank PATH")
+	assert.Contains(t, got, "LOCALSTACK_PATHFINDER=1", "only exact critical names are blocked after prefix stripping, not name prefixes")
+	assert.Contains(t, got, "LOCALSTACK_HOSTNAME=custom.host",
+		"the entrypoint excludes LOCALSTACK_HOSTNAME from prefix stripping, so it stays forwardable")
+	assert.Equal(t, []droppedHostEnv{
+		{name: "LOCALSTACK_PATH", overrides: "PATH"},
+		{name: "LOCALSTACK_HOME", overrides: "HOME"},
+		{name: "LOCALSTACK_PYTHONPATH", overrides: "PYTHONPATH"},
+		{name: "LOCALSTACK_LD_PRELOAD", overrides: "LD_PRELOAD"},
+		{name: "LOCALSTACK_IFS", overrides: "IFS"},
+		{name: "LOCALSTACK_MULTILINE"},
+	}, dropped,
+		"dropped variables are reported with the reason so start can warn the user; the intentional LOCALSTACK_AUTH_TOKEN drop is not warned about")
 }
 
 func TestAgentEnv(t *testing.T) {
diff --git a/test/integration/start_test.go b/test/integration/start_test.go
index 4dbaf2c7..d282b180 100644
--- a/test/integration/start_test.go
+++ b/test/integration/start_test.go
@@ -661,12 +661,19 @@ func TestStartCommandPassesCIAndLocalStackEnvVars(t *testing.T) {
 	defer mockServer.Close()
 
 	ctx := testContext(t)
-	_, stderr, err := runLstk(t, ctx, "", env.With(env.APIEndpoint, mockServer.URL).
+	// LOCALSTACK_PATH must not reach the emulator: its entrypoint strips the
+	// LOCALSTACK_ prefix and re-exports the rest, so a forwarded LOCALSTACK_PATH
+	// overrides PATH inside the emulator and startup dies with
+	// "mkdir: command not found" (DEVX-984).
+	stdout, stderr, err := runLstk(t, ctx, "", env.With(env.APIEndpoint, mockServer.URL).
 		With(env.CI, "true").
-		With(env.DisableEvents, "1"),
+		With(env.DisableEvents, "1").
+		With("LOCALSTACK_PATH", "/home/user/repos/localstack"),
 		"start")
 	require.NoError(t, err, "lstk start failed: %s", stderr)
 	requireExitCode(t, 0, err)
+	assert.Contains(t, stdout+stderr, "Not forwarding LOCALSTACK_PATH",
+		"dropping a critical-collision variable must be surfaced to the user")
 
 	inspect, err := dockerClient.ContainerInspect(ctx, containerName, client.ContainerInspectOptions{})
 	require.NoError(t, err, "failed to inspect container")
@@ -676,6 +683,7 @@ func TestStartCommandPassesCIAndLocalStackEnvVars(t *testing.T) {
 	assert.Equal(t, "true", envVars["CI"])
 	assert.Equal(t, "1", envVars["LOCALSTACK_DISABLE_EVENTS"])
 	assert.NotEmpty(t, envVars["LOCALSTACK_AUTH_TOKEN"])
+	assert.NotContains(t, envVars, "LOCALSTACK_PATH")
 }
 
 func TestStartCommandPersistFlagSetsPersistenceEnv(t *testing.T) {