diff --git a/CHANGELOG.md b/CHANGELOG.md
index c58d2d9a88b..69fc5b1f53b 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -18,6 +18,7 @@ This project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0.htm
 
 - Fix missing `request.GetBody` in `go.opentelemetry.io/otel/exporters/otlp/otlpmetric/otlpmetrichttp` to correctly handle HTTP2 GOAWAY frame. (#7931)
 - Fix semconv v1.39.0 generated metric helpers skipping required attributes when extra attributes were empty. (#7964)
+- Preserve W3C TraceFlags bitmask (including the random Trace ID flag) during trace context extraction and injection in `go.opentelemetry.io/otel/propagation`. (#7834)
 
 ### Removed
 
diff --git a/propagation/trace_context.go b/propagation/trace_context.go
index 271ab71f1ae..11f404deb73 100644
--- a/propagation/trace_context.go
+++ b/propagation/trace_context.go
@@ -46,8 +46,8 @@ func (TraceContext) Inject(ctx context.Context, carrier TextMapCarrier) {
 		carrier.Set(tracestateHeader, ts)
 	}
 
-	// Clear all flags other than the trace-context supported sampling bit.
-	flags := sc.TraceFlags() & trace.FlagsSampled
+	// Preserve only the spec-defined flags: sampled (0x01) and random (0x02).
+	flags := sc.TraceFlags() & (trace.FlagsSampled | trace.FlagsRandom)
 
 	var sb strings.Builder
 	sb.Grow(2 + 32 + 16 + 2 + 3)
@@ -104,14 +104,13 @@ func (TraceContext) extract(carrier TextMapCarrier) trace.SpanContext {
 	if !extractPart(opts[:], &h, 2) {
 		return trace.SpanContext{}
 	}
-	if version == 0 && (h != "" || opts[0] > 2) {
-		// version 0 not allow extra
-		// version 0 not allow other flag
+	if version == 0 && (h != "" || opts[0] > 3) {
+		// version 0 does not allow extra fields or reserved flag bits.
 		return trace.SpanContext{}
 	}
 
-	// Clear all flags other than the trace-context supported sampling bit.
-	scc.TraceFlags = trace.TraceFlags(opts[0]) & trace.FlagsSampled // nolint:gosec // slice size already checked.
+	scc.TraceFlags = trace.TraceFlags(opts[0]) & //nolint:gosec // slice size already checked.
+		(trace.FlagsSampled | trace.FlagsRandom)
 
 	// Ignore the error returned here. Failure to parse tracestate MUST NOT
 	// affect the parsing of traceparent according to the W3C tracecontext
diff --git a/propagation/trace_context_test.go b/propagation/trace_context_test.go
index c9c9ac8607c..41557348cb3 100644
--- a/propagation/trace_context_test.go
+++ b/propagation/trace_context_test.go
@@ -56,6 +56,30 @@ func TestExtractValidTraceContext(t *testing.T) {
 				Remote:     true,
 			}),
 		},
+		{
+			name: "random",
+			header: http.Header{
+				traceparent: []string{"00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-02"},
+			},
+			sc: trace.NewSpanContext(trace.SpanContextConfig{
+				TraceID:    traceID,
+				SpanID:     spanID,
+				TraceFlags: trace.TraceFlags(0x02),
+				Remote:     true,
+			}),
+		},
+		{
+			name: "sampled and random",
+			header: http.Header{
+				traceparent: []string{"00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-03"},
+			},
+			sc: trace.NewSpanContext(trace.SpanContextConfig{
+				TraceID:    traceID,
+				SpanID:     spanID,
+				TraceFlags: trace.TraceFlags(0x03),
+				Remote:     true,
+			}),
+		},
 		{
 			name: "valid tracestate",
 			header: http.Header{
@@ -105,7 +129,7 @@ func TestExtractValidTraceContext(t *testing.T) {
 			}),
 		},
 		{
-			name: "future version sample bit set",
+			name: "future version sample bit set reserved bits zeroed",
 			header: http.Header{
 				traceparent: []string{"02-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-09"},
 			},
@@ -117,7 +141,7 @@ func TestExtractValidTraceContext(t *testing.T) {
 			}),
 		},
 		{
-			name: "future version sample bit not set",
+			name: "future version reserved bits zeroed",
 			header: http.Header{
 				traceparent: []string{"02-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-08"},
 			},
@@ -228,10 +252,6 @@ func TestExtractInvalidTraceContextFromHTTPReq(t *testing.T) {
 			name:   "zero trace ID and span ID",
 			header: "00-00000000000000000000000000000000-0000000000000000-01",
 		},
-		{
-			name:   "trace-flag unused bits set",
-			header: "00-ab000000000000000000000000000000-cd00000000000000-09",
-		},
 		{
 			name:   "missing options",
 			header: "00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7",
@@ -240,6 +260,14 @@ func TestExtractInvalidTraceContextFromHTTPReq(t *testing.T) {
 			name:   "empty options",
 			header: "00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-",
 		},
+		{
+			name:   "version 0 reserved trace flag bits set",
+			header: "00-ab000000000000000000000000000000-cd00000000000000-09",
+		},
+		{
+			name:   "version 0 with extra content",
+			header: "00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-01-extra",
+		},
 	}
 
 	empty := trace.SpanContext{}
@@ -287,14 +315,38 @@ func TestInjectValidTraceContext(t *testing.T) {
 			}),
 		},
 		{
-			name: "unsupported trace flag bits dropped",
+			name: "reserved trace flag bits dropped on inject",
 			header: http.Header{
-				traceparent: []string{"00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-01"},
+				traceparent: []string{"00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-03"},
+			},
+			sc: trace.NewSpanContext(trace.SpanContextConfig{
+				TraceID:    traceID,
+				SpanID:     spanID,
+				TraceFlags: trace.TraceFlags(0xff),
+				Remote:     true,
+			}),
+		},
+		{
+			name: "random",
+			header: http.Header{
+				traceparent: []string{"00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-02"},
+			},
+			sc: trace.NewSpanContext(trace.SpanContextConfig{
+				TraceID:    traceID,
+				SpanID:     spanID,
+				TraceFlags: trace.TraceFlags(0x02),
+				Remote:     true,
+			}),
+		},
+		{
+			name: "sampled and random",
+			header: http.Header{
+				traceparent: []string{"00-4bf92f3577b34da6a3ce929d0e0e4736-00f067aa0ba902b7-03"},
 			},
 			sc: trace.NewSpanContext(trace.SpanContextConfig{
 				TraceID:    traceID,
 				SpanID:     spanID,
-				TraceFlags: 0xff,
+				TraceFlags: trace.TraceFlags(0x03),
 				Remote:     true,
 			}),
 		},
diff --git a/trace/trace.go b/trace/trace.go
index ee6f4bcb2aa..96c06ec321b 100644
--- a/trace/trace.go
+++ b/trace/trace.go
@@ -12,6 +12,11 @@ const (
 	// with the sampling bit set means the span is sampled.
 	FlagsSampled = TraceFlags(0x01)
 
+	// FlagsRandom is a bitmask with the random trace ID flag set. When
+	// set, it signals that the trace ID was generated randomly with at
+	// least 56 bits of randomness (W3C Trace Context Level 2).
+	FlagsRandom = TraceFlags(0x02)
+
 	errInvalidHexID errorConst = "trace-id and span-id can only contain [0-9a-f] characters, all lowercase"
 
 	errInvalidTraceIDLength errorConst = "hex encoded trace-id must have length equals to 32"