diff --git a/e2e/config/test_config_auto_install_disable_tools b/e2e/config/test_config_auto_install_disable_tools
new file mode 100644
index 0000000000..6670fbd554
--- /dev/null
+++ b/e2e/config/test_config_auto_install_disable_tools
@@ -0,0 +1,36 @@
+#!/usr/bin/env bash
+
+# Clean up any previous installs
+mise uninstall dummy@1.0.0 || true
+
+# Test auto_install_disable_tools via settings in mise.toml
+cat <<EOF >mise.toml
+[tools]
+dummy = '1.0.0'
+
+[settings]
+auto_install_disable_tools = ["dummy"]
+EOF
+
+# Should NOT auto-install dummy when running a command
+assert_fail "mise exec dummy@1.0.0 -- dummy --version" "couldn't exec process"
+
+# Remove auto_install_disable_tools and check auto-install works
+cat <<EOF >mise.toml
+[tools]
+dummy = '1.0.0'
+EOF
+
+assert "mise exec dummy@1.0.0 -- dummy --version"
+
+# Uninstall for env var test
+mise uninstall dummy@1.0.0 || true
+
+# Test auto_install_disable_tools via environment variable
+cat <<EOF >mise.toml
+[tools]
+dummy = '1.0.0'
+EOF
+
+MISE_AUTO_INSTALL_DISABLE_TOOLS=dummy assert_fail "mise exec dummy@1.0.0 -- dummy --version" "couldn't exec process"
+MISE_AUTO_INSTALL_DISABLE_TOOLS='' assert "mise exec dummy@1.0.0 -- dummy --version"
diff --git a/settings.toml b/settings.toml
index 20367dad9b..59d0282f22 100644
--- a/settings.toml
+++ b/settings.toml
@@ -149,6 +149,7 @@ env = "MISE_AUTO_INSTALL_DISABLE_TOOLS"
 type = "ListString"
 rust_type = "Vec<String>"
 optional = true
+parse_env = "list_by_comma"
 description = "List of tools to skip automatically installing when running `mise x`, `mise run`, or as part of the 'not found' handler."
 
 [cache_prune_age]