diff --git a/hadoop-hdds/container-service/src/main/java/org/apache/hadoop/ozone/container/common/DatanodeLayoutStorage.java b/hadoop-hdds/container-service/src/main/java/org/apache/hadoop/ozone/container/common/DatanodeLayoutStorage.java
index d0009aa66652..d933a04e0ff1 100644
--- a/hadoop-hdds/container-service/src/main/java/org/apache/hadoop/ozone/container/common/DatanodeLayoutStorage.java
+++ b/hadoop-hdds/container-service/src/main/java/org/apache/hadoop/ozone/container/common/DatanodeLayoutStorage.java
@@ -27,6 +27,8 @@
 import org.apache.hadoop.hdds.conf.OzoneConfiguration;
 import org.apache.hadoop.hdds.protocol.proto.HddsProtos.NodeType;
 import org.apache.hadoop.hdds.server.ServerUtils;
+import org.apache.hadoop.hdds.upgrade.HDDSLayoutFeature;
+import org.apache.hadoop.hdds.utils.HddsServerUtil;
 import org.apache.hadoop.ozone.common.Storage;
 
 /**
@@ -34,7 +36,6 @@
  * StorageDirectories used by the DataNode.
  */
 public class DatanodeLayoutStorage extends Storage {
-
   /**
    * Construct DataNodeStorageConfig.
    * @throws IOException if any directories are inaccessible.
@@ -42,7 +43,7 @@ public class DatanodeLayoutStorage extends Storage {
   public DatanodeLayoutStorage(OzoneConfiguration conf, String dataNodeId)
       throws IOException {
     super(NodeType.DATANODE, ServerUtils.getOzoneMetaDirPath(conf),
-        DATANODE_LAYOUT_VERSION_DIR, dataNodeId, maxLayoutVersion());
+        DATANODE_LAYOUT_VERSION_DIR, dataNodeId, getDefaultLayoutVersion(conf));
   }
 
   public DatanodeLayoutStorage(OzoneConfiguration conf, String dataNodeId,
@@ -61,4 +62,36 @@ public File getCurrentDir() {
   protected Properties getNodeProperties() {
     return new Properties();
   }
+
+  /**
+   * Older versions of the code did not write a VERSION file to disk for the
+   * datanode. Therefore, When a datanode starts up and does not find a metadata
+   * layout version written to disk, it must figure out whether
+   * it is being installed on a new system, or as part of an upgrade to an
+   * existing system. To do this, it will use the presence of the datanode.id
+   * file to indicate that it is being started as part of an upgrade and
+   * should start with the initial layout version. Otherwise, it will use the
+   * latest layout version.
+   *
+   * This is only an issue when upgrading from software layout version
+   * {@link HDDSLayoutFeature#INITIAL_VERSION} to
+   * {@link HDDSLayoutFeature#DATANODE_SCHEMA_V2}. After this, the upgrade
+   * framework will write a VERSION file for the datanode and future software
+   * versions will always know the MLV to use. The result of this method will
+   * not be used in this case.
+   *
+   * @return The layout version that should be used for the datanode if no
+   * layout version is found on disk.
+   */
+  private static int getDefaultLayoutVersion(OzoneConfiguration conf) {
+    int defaultLayoutVersion = maxLayoutVersion();
+
+    File dnIdFile = new File(HddsServerUtil.getDatanodeIdFilePath(conf));
+    if (dnIdFile.exists()) {
+      defaultLayoutVersion =
+          HDDSLayoutFeature.INITIAL_VERSION.layoutVersion();
+    }
+
+    return defaultLayoutVersion;
+  }
 }