diff --git a/controllers/ztunnel/ztunnel_controller.go b/controllers/ztunnel/ztunnel_controller.go
index 284ad4b07..85d82644d 100644
--- a/controllers/ztunnel/ztunnel_controller.go
+++ b/controllers/ztunnel/ztunnel_controller.go
@@ -157,6 +157,12 @@ func (r *Reconciler) installHelmChart(ctx context.Context, ztunnel *v1.ZTunnel)
 		return fmt.Errorf("failed to apply profile: %w", err)
 	}
 
+	// apply FipsValues on top of mergedHelmValues from profile
+	mergedHelmValues, err = istiovalues.ApplyZTunnelFipsValues(mergedHelmValues)
+	if err != nil {
+		return fmt.Errorf("failed to apply FIPS values: %w", err)
+	}
+
 	// Apply any user Overrides configured as part of values.ztunnel
 	// This step was not required for the IstioCNI resource because the Helm templates[*] automatically override values.cni
 	// [*]https://github.com/istio/istio/blob/0200fd0d4c3963a72f36987c2e8c2887df172abf/manifests/charts/istio-cni/templates/zzy_descope_legacy.yaml#L3
diff --git a/pkg/istiovalues/fips.go b/pkg/istiovalues/fips.go
index f8a10f5e4..846a0d26d 100644
--- a/pkg/istiovalues/fips.go
+++ b/pkg/istiovalues/fips.go
@@ -53,3 +53,13 @@ func ApplyFipsValues(values helm.Values) (helm.Values, error) {
 	}
 	return values, nil
 }
+
+// ApplyZTunnelFipsValues sets value ztunnel.env.TLS12_ENABLED if FIPS mode is enabled in the system.
+func ApplyZTunnelFipsValues(values helm.Values) (helm.Values, error) {
+	if FipsEnabled {
+		if err := values.SetIfAbsent("ztunnel.env.TLS12_ENABLED", "true"); err != nil {
+			return nil, fmt.Errorf("failed to set ztunnel.env.TLS12_ENABLED: %w", err)
+		}
+	}
+	return values, nil
+}
diff --git a/pkg/istiovalues/fips_test.go b/pkg/istiovalues/fips_test.go
index 4cbf5803e..0ef3e5965 100644
--- a/pkg/istiovalues/fips_test.go
+++ b/pkg/istiovalues/fips_test.go
@@ -87,6 +87,8 @@ func TestApplyFipsValues(t *testing.T) {
 	values := helm.Values{}
 	for _, tt := range tests {
 		t.Run(tt.name, func(t *testing.T) {
+			originalFipsEnabled := FipsEnabled
+			t.Cleanup(func() { FipsEnabled = originalFipsEnabled })
 			FipsEnabled = tt.fipsEnabled
 			actual, err := ApplyFipsValues(values)
 			if (err != nil) != tt.expectErr {
@@ -101,3 +103,46 @@ func TestApplyFipsValues(t *testing.T) {
 		})
 	}
 }
+
+func TestApplyZTunnelFipsValues(t *testing.T) {
+	tests := []struct {
+		name         string
+		fipsEnabled  bool
+		expectValues helm.Values
+		expectErr    bool
+	}{
+		{
+			name:         "FIPS not enabled",
+			fipsEnabled:  false,
+			expectValues: helm.Values{},
+		},
+		{
+			name:        "FIPS enabled",
+			fipsEnabled: true,
+			expectValues: helm.Values{
+				"ztunnel": map[string]any{
+					"env": map[string]any{"TLS12_ENABLED": string("true")},
+				},
+			},
+		},
+	}
+
+	values := helm.Values{}
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			originalFipsEnabled := FipsEnabled
+			t.Cleanup(func() { FipsEnabled = originalFipsEnabled })
+			FipsEnabled = tt.fipsEnabled
+			actual, err := ApplyZTunnelFipsValues(values)
+			if (err != nil) != tt.expectErr {
+				t.Errorf("applyFipsValues() error = %v, expectErr %v", err, tt.expectErr)
+			}
+
+			if err == nil {
+				if diff := cmp.Diff(tt.expectValues, actual); diff != "" {
+					t.Errorf("TLS12_ENABLED env wasn't applied properly; diff (-expected, +actual):\n%v", diff)
+				}
+			}
+		})
+	}
+}
diff --git a/pkg/revision/values_test.go b/pkg/revision/values_test.go
index 0c6b175dd..1bdb34f0c 100644
--- a/pkg/revision/values_test.go
+++ b/pkg/revision/values_test.go
@@ -107,6 +107,8 @@ apiVersion: sailoperator.io/v1
 kind: IstioRevision
 spec:`)), 0o644))
 
+	originalFipsEnabled := istiovalues.FipsEnabled
+	t.Cleanup(func() { istiovalues.FipsEnabled = originalFipsEnabled })
 	istiovalues.FipsEnabled = true
 	values := &v1.Values{}
 	result, err := ComputeValues(values, namespace, version, config.PlatformOpenShift, "default", "",