diff --git a/startupscript/butane/probe-proxy-readiness.sh b/startupscript/butane/probe-proxy-readiness.sh
index 77ddff782..c6d6965d9 100644
--- a/startupscript/butane/probe-proxy-readiness.sh
+++ b/startupscript/butane/probe-proxy-readiness.sh
@@ -11,43 +11,61 @@ set -o xtrace
 # shellcheck source=/dev/null
 source /home/core/metadata-utils.sh
 
-APP_HEALTH="$( (docker inspect --format='{{.State.Health.Status}}' application-server 2>/dev/null || echo "none") | xargs)"
-
-if docker ps -q --filter "name=proxy-agent" | grep -q . \
-    && docker ps -q --filter "name=application-server" | grep -q . \
-    && [[ "${APP_HEALTH}" == "healthy" || "${APP_HEALTH}" == "none" ]]; then
-    echo "Proxy is ready (application-server health: ${APP_HEALTH})."
-    status="$(get_guest_attribute "startup_script/status" "")"
-    isSuccess="false"
-    if [[ "${status}" != "ERROR" ]]; then
-        set_metadata "startup_script/status" "COMPLETE"
-        isSuccess="true"
+# Wait for containers to be healthy with timeout (5 minutes)
+MAX_RETRIES=150
+RETRY_INTERVAL=2
+retry_count=0
+
+while [[ ${retry_count} -lt ${MAX_RETRIES} ]]; do
+    APP_HEALTH="$( (docker inspect --format='{{.State.Health.Status}}' application-server 2>/dev/null || echo "none") | xargs)"
+
+    if docker ps -q --filter "name=proxy-agent" | grep -q . \
+        && docker ps -q --filter "name=application-server" | grep -q . \
+        && [[ "${APP_HEALTH}" == "healthy" || "${APP_HEALTH}" == "none" ]]; then
+        echo "Proxy is ready (application-server health: ${APP_HEALTH})."
+        break
     fi
 
-    FIRST_BOOT_FILE="/home/core/first-boot"
-    MONITORING_UTILS_FILE="/home/core/monitoring-utils.sh"
-    if [[ ! -f "${FIRST_BOOT_FILE}" ]]; then
-        # first boot file does not exist
-        # record devcontainer end for monitoring
-        source /home/core/service-utils.sh
-        source "${MONITORING_UTILS_FILE}"
-
-        # Fetch workspace ID and resourc eID
-        WORKSPACE_USER_FACING_ID="$(get_metadata_value "terra-workspace-id" "")"
-        SERVER="$(get_metadata_value "terra-cli-server" "prod")"
-        WSM_SERVICE_URL="$(get_service_url "wsm" "${SERVER}")"
-        set +o xtrace
-        RESPONSE=$(curl -s -X GET "${WSM_SERVICE_URL}/api/workspaces/v1/workspaceByUserFacingId/${WORKSPACE_USER_FACING_ID}" \
-                    -H "Authorization: Bearer $(/home/core/wb.sh auth print-access-token)")
-        set -o xtrace
-        WORKSPACE_ID=$(echo "${RESPONSE}" | jq -r '.id');
-        RESOURCE_ID="$(get_metadata_value "wb-resource-id" "")"
-
-        # Record devcontainer service has completed
-        record_devcontainer_end "${WSM_SERVICE_URL}" "${WORKSPACE_ID}" "${RESOURCE_ID}" "${isSuccess}"
+    retry_count=$((retry_count + 1))
+    if [[ ${retry_count} -lt ${MAX_RETRIES} ]]; then
+        echo "Waiting for containers to be ready (attempt ${retry_count}/${MAX_RETRIES}, app health: ${APP_HEALTH})..."
+        sleep ${RETRY_INTERVAL}
     fi
-    touch "${FIRST_BOOT_FILE}"
-else
-    echo "proxy-agent or application-server is not started"
+done
+
+if [[ ${retry_count} -ge ${MAX_RETRIES} ]]; then
+    echo "Timeout waiting for proxy-agent or application-server to be ready"
     exit 1
 fi
+
+# If we reach here, the retry loop succeeded
+status="$(get_guest_attribute "startup_script/status" "")"
+isSuccess="false"
+if [[ "${status}" != "ERROR" ]]; then
+    set_metadata "startup_script/status" "COMPLETE"
+    isSuccess="true"
+fi
+
+FIRST_BOOT_FILE="/home/core/first-boot"
+MONITORING_UTILS_FILE="/home/core/monitoring-utils.sh"
+if [[ ! -f "${FIRST_BOOT_FILE}" ]]; then
+    # first boot file does not exist
+    # record devcontainer end for monitoring
+    source /home/core/service-utils.sh
+    source "${MONITORING_UTILS_FILE}"
+
+    # Fetch workspace ID and resourc eID
+    WORKSPACE_USER_FACING_ID="$(get_metadata_value "terra-workspace-id" "")"
+    SERVER="$(get_metadata_value "terra-cli-server" "prod")"
+    WSM_SERVICE_URL="$(get_service_url "wsm" "${SERVER}")"
+    set +o xtrace
+    RESPONSE=$(curl -s -X GET "${WSM_SERVICE_URL}/api/workspaces/v1/workspaceByUserFacingId/${WORKSPACE_USER_FACING_ID}" \
+                -H "Authorization: Bearer $(/home/core/wb.sh auth print-access-token)")
+    set -o xtrace
+    WORKSPACE_ID=$(echo "${RESPONSE}" | jq -r '.id');
+    RESOURCE_ID="$(get_metadata_value "wb-resource-id" "")"
+
+    # Record devcontainer service has completed
+    record_devcontainer_end "${WSM_SERVICE_URL}" "${WORKSPACE_ID}" "${RESOURCE_ID}" "${isSuccess}"
+fi
+touch "${FIRST_BOOT_FILE}"