diff --git a/doc/internals/how-to-create-custom-index.rst b/doc/internals/how-to-create-custom-index.rst
index 351694fc62d..2002915ac84 100644
--- a/doc/internals/how-to-create-custom-index.rst
+++ b/doc/internals/how-to-create-custom-index.rst
@@ -224,11 +224,9 @@ custom index to a Dataset or DataArray, e.g., using the ``RasterIndex`` above:
         dims=("y", "x"),
     )
 
-    # Xarray create default indexes for the 'x' and 'y' coordinates
-    # we first need to explicitly drop it
-    da = da.drop_indexes(["x", "y"])
-
     # Build a RasterIndex from the 'x' and 'y' coordinates
+    # Xarray creates default indexes for the 'x' and 'y' coordinates
+    # this will automatically drop those indexes
     da_raster = da.set_xindex(["x", "y"], RasterIndex)
 
     # RasterIndex now takes care of label-based selection
diff --git a/doc/whats-new.rst b/doc/whats-new.rst
index 7e3badc7143..1c463e885fc 100644
--- a/doc/whats-new.rst
+++ b/doc/whats-new.rst
@@ -14,6 +14,10 @@ v2025.12.1 (unreleased)
 New Features
 ~~~~~~~~~~~~
 
+- :py:meth:`Dataset.set_xindex` and :py:meth:`DataArray.set_xindex`
+  automatically replace any existing index being set instead of erroring
+  or needing needing to call :py:meth:`drop_indexes` first (:pull:`11008`).
+  By `Ian Hunt-Isaak <https://github.com/ianhi>`_.
 
 Breaking Changes
 ~~~~~~~~~~~~~~~~
diff --git a/xarray/core/dataarray.py b/xarray/core/dataarray.py
index 71d427d3db9..80f7cb6d011 100644
--- a/xarray/core/dataarray.py
+++ b/xarray/core/dataarray.py
@@ -2869,7 +2869,7 @@ def set_xindex(
         **options,
     ) -> Self:
         """Set a new, Xarray-compatible index from one or more existing
-        coordinate(s).
+        coordinate(s). Existing index(es) on the coord(s) will be replaced.
 
         Parameters
         ----------
diff --git a/xarray/core/dataset.py b/xarray/core/dataset.py
index bce048048da..10b7070736b 100644
--- a/xarray/core/dataset.py
+++ b/xarray/core/dataset.py
@@ -4959,7 +4959,7 @@ def set_xindex(
         **options,
     ) -> Self:
         """Set a new, Xarray-compatible index from one or more existing
-        coordinate(s).
+        coordinate(s). Existing index(es) on the coord(s) will be replaced.
 
         Parameters
         ----------
@@ -5005,15 +5005,6 @@ def set_xindex(
                 )
             raise ValueError("\n".join(msg))
 
-        # we could be more clever here (e.g., drop-in index replacement if index
-        # coordinates do not conflict), but let's not allow this for now
-        indexed_coords = set(coord_names) & set(self._indexes)
-
-        if indexed_coords:
-            raise ValueError(
-                f"those coordinates already have an index: {indexed_coords}"
-            )
-
         coord_vars = {name: self._variables[name] for name in coord_names}
 
         index = index_cls.from_variables(coord_vars, options=options)
diff --git a/xarray/tests/test_dataarray.py b/xarray/tests/test_dataarray.py
index 7ae36421e14..df9d29843ff 100644
--- a/xarray/tests/test_dataarray.py
+++ b/xarray/tests/test_dataarray.py
@@ -2418,6 +2418,11 @@ def from_variables(cls, variables, options):
         assert "foo" in indexed.xindexes
         assert indexed.xindexes["foo"].opt == 1  # type: ignore[attr-defined]
 
+    def test_set_xindex_drop_existing(self) -> None:
+        da = DataArray([1, 2, 3, 4], coords={"x": ("x", [0, 1, 2, 3])}, dims="x")
+        result = da.set_xindex("x", PandasIndex)
+        assert "x" in result.xindexes
+
     def test_dataset_getitem(self) -> None:
         dv = self.ds["foo"]
         assert_identical(dv, self.dv)
diff --git a/xarray/tests/test_dataset.py b/xarray/tests/test_dataset.py
index 6dce32aeb5c..17d3e25b642 100644
--- a/xarray/tests/test_dataset.py
+++ b/xarray/tests/test_dataset.py
@@ -3995,10 +3995,23 @@ class NotAnIndex: ...
         with pytest.raises(ValueError, match="those variables are data variables"):
             ds.set_xindex("data_var", PandasIndex)
 
-        ds2 = Dataset(coords={"x": ("x", [0, 1, 2, 3])})
+        ds = Dataset(coords={"x": ("x", [0, 1, 2, 3])})
 
-        with pytest.raises(ValueError, match="those coordinates already have an index"):
-            ds2.set_xindex("x", PandasIndex)
+        # With drop_existing=True, it should succeed
+        result = ds.set_xindex("x", PandasIndex)
+        assert "x" in result.xindexes
+        assert isinstance(result.xindexes["x"], PandasIndex)
+
+        class CustomIndex(PandasIndex):
+            pass
+
+        result_custom = ds.set_xindex("x", CustomIndex)
+        assert "x" in result_custom.xindexes
+        assert isinstance(result_custom.xindexes["x"], CustomIndex)
+
+        # Verify the result is equivalent to drop_indexes + set_xindex
+        expected = ds.drop_indexes("x").set_xindex("x", CustomIndex)
+        assert_identical(result_custom, expected)
 
     def test_set_xindex_options(self) -> None:
         ds = Dataset(coords={"foo": ("x", ["a", "a", "b", "b"])})