diff --git a/litellm/litellm_core_utils/initialize_dynamic_callback_params.py b/litellm/litellm_core_utils/initialize_dynamic_callback_params.py
index b80907e8ec..92c97a5992 100644
--- a/litellm/litellm_core_utils/initialize_dynamic_callback_params.py
+++ b/litellm/litellm_core_utils/initialize_dynamic_callback_params.py
@@ -1,12 +1,28 @@
 from typing import Dict, Optional
 
-from litellm._logging import verbose_logger
 from litellm.types.utils import StandardCallbackDynamicParams
 
 
 def _is_env_reference(value: object) -> bool:
     return isinstance(value, str) and "os.environ/" in value
 
+
+def _raise_env_reference_error(param: str, *, source: str) -> None:
+    raise ValueError(
+        f"Callback param '{param}' (from {source}) contains an 'os.environ/' "
+        "reference. Environment references in request-supplied parameters are "
+        "no longer resolved server-side for security reasons.\n"
+        "To resolve:\n"
+        "  1. Remove the 'os.environ/' reference from your request body / "
+        "metadata.\n"
+        "  2. Either (a) configure this callback value in your proxy "
+        "config.yaml under 'litellm_settings' / 'general_settings', or "
+        "(b) pass the resolved secret value directly in the request.\n"
+        "See https://docs.litellm.ai/docs/proxy/logging for server-side "
+        "callback configuration."
+    )
+
+
 # Hardcoded list of supported callback params to avoid runtime inspection issues with TypedDict
 _supported_callback_params = [
     "langfuse_public_key",
@@ -52,13 +68,7 @@ def initialize_standard_callback_dynamic_params(
             if param in kwargs:
                 _param_value = kwargs.get(param)
                 if _is_env_reference(_param_value):
-                    verbose_logger.warning(
-                        "Dropping callback param '%s': os.environ/ references "
-                        "in request-supplied parameters are not resolved. "
-                        "Configure this value server-side instead.",
-                        param,
-                    )
-                    continue
+                    _raise_env_reference_error(param, source="request body")
                 standard_callback_dynamic_params[param] = _param_value  # type: ignore
 
         # 2. Fallback: check "metadata" or "litellm_params" -> "metadata"
@@ -72,14 +82,7 @@ def initialize_standard_callback_dynamic_params(
                 if param not in standard_callback_dynamic_params and param in metadata:
                     _param_value = metadata.get(param)
                     if _is_env_reference(_param_value):
-                        verbose_logger.warning(
-                            "Dropping callback param '%s' from metadata: "
-                            "os.environ/ references in request-supplied "
-                            "parameters are not resolved. Configure this "
-                            "value server-side instead.",
-                            param,
-                        )
-                        continue
+                        _raise_env_reference_error(param, source="metadata")
                     standard_callback_dynamic_params[param] = _param_value  # type: ignore
 
     return standard_callback_dynamic_params
diff --git a/tests/test_litellm/litellm_core_utils/test_initialize_dynamic_callback_params.py b/tests/test_litellm/litellm_core_utils/test_initialize_dynamic_callback_params.py
new file mode 100644
index 0000000000..91969a2b8e
--- /dev/null
+++ b/tests/test_litellm/litellm_core_utils/test_initialize_dynamic_callback_params.py
@@ -0,0 +1,99 @@
+import os
+import sys
+
+import pytest
+
+sys.path.insert(0, os.path.abspath("../../.."))
+
+from litellm.litellm_core_utils.initialize_dynamic_callback_params import (
+    initialize_standard_callback_dynamic_params,
+)
+
+
+def test_resolves_plain_values_at_top_level():
+    kwargs = {
+        "langfuse_public_key": "pk-test",
+        "langfuse_secret_key": "sk-test",
+    }
+
+    params = initialize_standard_callback_dynamic_params(kwargs)
+
+    assert params.get("langfuse_public_key") == "pk-test"
+    assert params.get("langfuse_secret_key") == "sk-test"
+
+
+def test_resolves_plain_values_from_metadata():
+    kwargs = {
+        "metadata": {
+            "langfuse_public_key": "pk-meta",
+            "langfuse_host": "https://test.langfuse.com",
+        }
+    }
+
+    params = initialize_standard_callback_dynamic_params(kwargs)
+
+    assert params.get("langfuse_public_key") == "pk-meta"
+    assert params.get("langfuse_host") == "https://test.langfuse.com"
+
+
+def test_env_reference_at_top_level_raises_with_guidance():
+    kwargs = {"langfuse_public_key": "os.environ/LANGFUSE_PUBLIC_KEY"}
+
+    with pytest.raises(ValueError) as exc_info:
+        initialize_standard_callback_dynamic_params(kwargs)
+
+    message = str(exc_info.value)
+    assert "langfuse_public_key" in message
+    assert "request body" in message
+    assert "os.environ/" in message
+    assert "config.yaml" in message
+
+
+def test_env_reference_in_metadata_raises_with_guidance():
+    kwargs = {
+        "metadata": {
+            "langsmith_api_key": "os.environ/LANGSMITH_API_KEY",
+        }
+    }
+
+    with pytest.raises(ValueError) as exc_info:
+        initialize_standard_callback_dynamic_params(kwargs)
+
+    message = str(exc_info.value)
+    assert "langsmith_api_key" in message
+    assert "metadata" in message
+
+
+def test_env_reference_in_litellm_params_metadata_raises():
+    kwargs = {
+        "litellm_params": {
+            "metadata": {
+                "gcs_bucket_name": "os.environ/GCS_BUCKET",
+            }
+        }
+    }
+
+    with pytest.raises(ValueError) as exc_info:
+        initialize_standard_callback_dynamic_params(kwargs)
+
+    assert "gcs_bucket_name" in str(exc_info.value)
+
+
+def test_non_string_values_are_not_flagged():
+    kwargs = {
+        "langsmith_sampling_rate": 0.5,
+        "turn_off_message_logging": True,
+    }
+
+    params = initialize_standard_callback_dynamic_params(kwargs)
+
+    assert params.get("langsmith_sampling_rate") == 0.5
+    assert params.get("turn_off_message_logging") is True
+
+
+def test_empty_kwargs_returns_empty_params():
+    params = initialize_standard_callback_dynamic_params(None)
+    assert dict(params) == {}
+
+    params = initialize_standard_callback_dynamic_params({})
+    assert dict(params) == {}