diff --git a/packages/data-designer-engine/src/data_designer/engine/models/telemetry.py b/packages/data-designer-engine/src/data_designer/engine/models/telemetry.py
index b2b01384b..b2cf04a45 100644
--- a/packages/data-designer-engine/src/data_designer/engine/models/telemetry.py
+++ b/packages/data-designer-engine/src/data_designer/engine/models/telemetry.py
@@ -55,14 +55,21 @@ class DeploymentTypeEnum(str, Enum):
     UNDEFINED = "undefined"
 
 
-_deployment_type_raw = os.getenv("NEMO_DEPLOYMENT_TYPE", "library").lower()
-try:
-    DEPLOYMENT_TYPE = DeploymentTypeEnum(_deployment_type_raw)
-except ValueError:
-    valid_values = [e.value for e in DeploymentTypeEnum]
-    raise ValueError(
-        f"Invalid NEMO_DEPLOYMENT_TYPE: {_deployment_type_raw!r}. Must be one of: {valid_values}"
-    ) from None
+def _normalize_deployment_type(value: str | None) -> DeploymentTypeEnum:
+    if value is None:
+        return DeploymentTypeEnum.LIBRARY
+
+    try:
+        return DeploymentTypeEnum(value.lower())
+    except ValueError:
+        return DeploymentTypeEnum.UNDEFINED
+
+
+def get_nemo_deployment_type() -> DeploymentTypeEnum:
+    return _normalize_deployment_type(os.getenv("NEMO_DEPLOYMENT_TYPE"))
+
+
+DEPLOYMENT_TYPE = get_nemo_deployment_type()
 
 
 class TaskStatusEnum(str, Enum):
diff --git a/packages/data-designer-engine/tests/engine/models/test_telemetry.py b/packages/data-designer-engine/tests/engine/models/test_telemetry.py
index f78739097..dc9b52070 100644
--- a/packages/data-designer-engine/tests/engine/models/test_telemetry.py
+++ b/packages/data-designer-engine/tests/engine/models/test_telemetry.py
@@ -5,6 +5,8 @@
 
 from datetime import datetime, timezone
 
+import pytest
+
 from data_designer.engine.models.telemetry import (
     DeploymentTypeEnum,
     InferenceEvent,
@@ -12,6 +14,7 @@
     QueuedEvent,
     TaskStatusEnum,
     build_payload,
+    get_nemo_deployment_type,
 )
 
 
@@ -30,3 +33,9 @@ def test_nvidia_internal_deployment_type_uses_schema_version_1_9() -> None:
 
     assert payload["eventSchemaVer"] == "1.9"
     assert payload["events"][0]["parameters"]["deploymentType"] == "nvidia-internal"
+
+
+def test_unrecognized_env_deployment_type_defaults_to_undefined(monkeypatch: pytest.MonkeyPatch) -> None:
+    monkeypatch.setenv("NEMO_DEPLOYMENT_TYPE", "unrecognized")
+
+    assert get_nemo_deployment_type() == DeploymentTypeEnum.UNDEFINED