diff --git a/cli/azd/internal/repository/app_init.go b/cli/azd/internal/repository/app_init.go
index 7837a40c1c1..b145ebb9a44 100644
--- a/cli/azd/internal/repository/app_init.go
+++ b/cli/azd/internal/repository/app_init.go
@@ -345,7 +345,7 @@ func prjConfigFromDetect(
 	root string,
 	detect detectConfirm) (project.ProjectConfig, error) {
 	config := project.ProjectConfig{
-		Name: filepath.Base(root),
+		Name: LabelName(filepath.Base(root)),
 		Metadata: &project.ProjectMetadata{
 			Template: fmt.Sprintf("%s@%s", InitGenTemplateId, internal.VersionInfo().Version),
 		},
@@ -410,6 +410,7 @@ func prjConfigFromDetect(
 		if name == "." {
 			name = config.Name
 		}
+		name = LabelName(name)
 		config.Services[name] = &svc
 	}
 
diff --git a/cli/azd/internal/repository/infra_confirm.go b/cli/azd/internal/repository/infra_confirm.go
index 57488b077dc..2f4a98b7408 100644
--- a/cli/azd/internal/repository/infra_confirm.go
+++ b/cli/azd/internal/repository/infra_confirm.go
@@ -94,7 +94,7 @@ func (i *Initializer) infraSpecFromDetect(
 	}
 
 	for _, svc := range detect.Services {
-		name := filepath.Base(svc.Path)
+		name := LabelName(filepath.Base(svc.Path))
 		serviceSpec := scaffold.ServiceSpec{
 			Name: name,
 			Port: -1,
diff --git a/cli/azd/internal/repository/util.go b/cli/azd/internal/repository/util.go
new file mode 100644
index 00000000000..3e5f563646a
--- /dev/null
+++ b/cli/azd/internal/repository/util.go
@@ -0,0 +1,106 @@
+package repository
+
+import "strings"
+
+//cspell:disable
+
+// LabelName cleans up a string to be used as a RFC 1123 Label name.
+// It does not enforce the 63 character limit.
+//
+// RFC 1123 Label name:
+//   - contain only lowercase alphanumeric characters or '-'
+//   - start with an alphanumeric character
+//   - end with an alphanumeric character
+//
+// Examples:
+//   - myproject, MYPROJECT -> myproject
+//   - myProject, myProjecT, MyProject, MyProjecT -> my-project
+//   - my.project, My.Project, my-project, My-Project -> my-project
+func LabelName(name string) string {
+	hasSeparator, n := cleanAlphaNumeric(name)
+	if hasSeparator {
+		return labelNameFromSeparators(n)
+	}
+
+	return labelNameFromCasing(name)
+}
+
+//cspell:enable
+
+// cleanAlphaNumeric removes non-alphanumeric characters from the name.
+//
+// It also returns whether the name uses word separators.
+func cleanAlphaNumeric(name string) (hasSeparator bool, cleaned string) {
+	sb := strings.Builder{}
+	hasSeparator = false
+	for _, c := range name {
+		if isAsciiAlphaNumeric(c) {
+			sb.WriteRune(c)
+		} else if isSeparator(c) {
+			hasSeparator = true
+			sb.WriteRune(c)
+		}
+	}
+
+	return hasSeparator, sb.String()
+}
+
+func isAsciiAlphaNumeric(r rune) bool {
+	return ('0' <= r && r <= '9') || ('A' <= r && r <= 'Z') || ('a' <= r && r <= 'z')
+}
+
+func isSeparator(r rune) bool {
+	return r == '-' || r == '_' || r == '.'
+}
+
+func lowerCase(r rune) rune {
+	if 'A' <= r && r <= 'Z' {
+		r += 'a' - 'A'
+	}
+	return r
+}
+
+// Converts camel-cased or Pascal-cased names into lower-cased dash-separated names.
+// Example: MyProject, myProject -> my-project
+func labelNameFromCasing(name string) string {
+	result := strings.Builder{}
+	// previously seen upper-case character
+	prevUpperCase := -2 // -2 to avoid matching the first character
+
+	for i, c := range name {
+		if 'A' <= c && c <= 'Z' {
+			if prevUpperCase == i-1 { // handle runs of upper-case word
+				prevUpperCase = i
+				result.WriteRune(lowerCase(c))
+				continue
+			}
+
+			if i > 0 && i != len(name)-1 {
+				result.WriteRune('-')
+			}
+
+			prevUpperCase = i
+		}
+
+		if isAsciiAlphaNumeric(c) {
+			result.WriteRune(lowerCase(c))
+		}
+	}
+
+	return result.String()
+}
+
+// Converts all word-separated names into lower-cased dash-separated names.
+// Examples: my.project, my_project, My-Project -> my-project
+func labelNameFromSeparators(name string) string {
+	result := strings.Builder{}
+	for i, c := range name {
+		if isAsciiAlphaNumeric(c) {
+			result.WriteRune(lowerCase(c))
+		} else if i > 0 && i != len(name)-1 && isSeparator(c) {
+			result.WriteRune('-')
+		}
+	}
+
+	return result.String()
+}
diff --git a/cli/azd/internal/repository/util_test.go b/cli/azd/internal/repository/util_test.go
new file mode 100644
index 00000000000..56a2c467756
--- /dev/null
+++ b/cli/azd/internal/repository/util_test.go
@@ -0,0 +1,67 @@
+package repository
+
+import (
+	"testing"
+)
+
+//cspell:disable
+
+func TestLabelName(t *testing.T) {
+	tests := []struct {
+		name     string
+		input    string
+		expected string
+	}{
+		{"Lowercase", "myproject", "myproject"},
+		{"Uppercase", "MYPROJECT", "myproject"},
+		{"MixedCase", "myProject", "my-project"},
+		{"MixedCaseEnd", "myProjecT", "my-project"},
+		{"TitleCase", "MyProject", "my-project"},
+		{"TitleCaseEnd", "MyProjecT", "my-project"},
+		{"WithDot", "my.project", "my-project"},
+		{"WithDotTitleCase", "My.Project", "my-project"},
+		{"WithHyphen", "my-project", "my-project"},
+		{"WithHyphenTitleCase", "My-Project", "my-project"},
+		{"StartWithNumber", "1myproject", "1myproject"},
+		{"EndWithNumber", "myproject2", "myproject2"},
+		{"MixedWithNumbers", "my2Project3", "my2-project3"},
+		{"SpecialCharacters", "my_project!@#", "my-project"},
+		{"EmptyString", "", ""},
+		{"OnlySpecialCharacters", "@#$%^&*", ""},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			result := LabelName(tt.input)
+			if result != tt.expected {
+				t.Errorf("LabelName(%q) = %q, want %q", tt.input, result, tt.expected)
+			}
+		})
+	}
+}
+
+func TestLabelNameEdgeCases(t *testing.T) {
+	tests := []struct {
+		name     string
+		input    string
+		expected string
+	}{
+		{"SingleCharacter", "A", "a"},
+		{"TwoCharacters", "Ab", "ab"},
+		{"StartEndHyphens", "-abc-", "abc"},
+		{"LongString",
+			"ThisIsOneVeryLongStringThatExceedsTheSixtyThreeCharacterLimitForRFC1123LabelNames",
+			"this-is-one-very-long-string-that-exceeds-the-sixty-three-character-limit-for-rfc1123-label-names"},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			result := LabelName(tt.input)
+			if result != tt.expected {
+				t.Errorf("LabelName(%q) = %q, want %q", tt.input, result, tt.expected)
+			}
+		})
+	}
+}
+
+//cspell:enable