diff --git a/internal/cmds/cmds.go b/internal/cmds/cmds.go
index 0e0a427..6facf69 100755
--- a/internal/cmds/cmds.go
+++ b/internal/cmds/cmds.go
@@ -223,9 +223,12 @@ func enable(ctx *log.Context, h types.HandlerEnvironment, report *types.RunComma
 	if _, err := os.Stat(policyPath); err == nil {
 		extensionPolicyManagerPtr, rceps, err, exitCode = extensionpolicysettingsrc.InitializeExtensionPolicySettings(ctx, policyPath)
 		if err != nil {
-			return "", "", err, exitCode
+			// TODO: In the future, fail the command if the policy file was invalid and return the exitCode.
+			// For now, log the error and continue with the command execution.
+			ctx.Log("error", "failed to initialize extension policy settings. Executing command with no policy applied for now.", "error", err, "errorCode", exitCode)
+		} else {
+			ctx.Log("message", "successfully initialized extension policy settings")
 		}
-		ctx.Log("message", "successfully initialized extension policy settings")
 	} else if os.IsNotExist(err) {
 		ctx.Log("message", "extension policy settings file does not exist. No policy applied.", "error", err)
 		extensionPolicyManagerPtr = nil
diff --git a/internal/cmds/cmds_test.go b/internal/cmds/cmds_test.go
index a9530d8..f5f7bb2 100755
--- a/internal/cmds/cmds_test.go
+++ b/internal/cmds/cmds_test.go
@@ -1697,6 +1697,55 @@ func Test_enable_e2e_extension_policy_settings_block_statusfail(t *testing.T) {
 	require.True(t, strings.Contains(report[0].Status.FormattedMessage.Message, "executionState\":\"Failed\",\"executionMessage\":\"Execution failed"), "execution message should indicate failure")
 }
 
+// This test verifies that an invalid policy file does not block execution,
+// and the extension proceeds with no policy applied.
+func Test_enable_e2e_extension_policy_settings_corrupt_policy_continues(t *testing.T) {
+	// Two primary scenarios for corrupt policy: empty file and invalid JSON.
+	corruptPolicies := map[string][]byte{
+		"empty file":   {},
+		"invalid json": []byte("{ this is not valid json"),
+	}
+
+	for name, corruptContent := range corruptPolicies {
+		t.Run(name, func(t *testing.T) {
+			ctx := log.NewContext(log.NewNopLogger())
+			extName, seqNum := "corruptPolicyRun", 0
+			scriptContent := []byte("#!/bin/bash\necho hello\n")
+
+			srv := make_server_with_content(scriptContent)
+			defer srv.Close()
+
+			dataDir, err := os.MkdirTemp("", "policy-corrupt")
+			require.Nil(t, err)
+			defer os.RemoveAll(dataDir)
+
+			// Create a valid environment first, then overwrite the policy file with corrupt content.
+			policy := &extensionpolicysettingsrc.RCv2ExtensionPolicySettings{
+				LimitScripts: "alloweddownloaded",
+			}
+			fakeEnv := setupPolicyE2E(t, dataDir, extName, seqNum, srv.URL+"/script.sh", false, "", "", policy)
+
+			// Corrupt the policy file so that loading/parsing it fails.
+			policyFilePath := filepath.Join(fakeEnv.HandlerEnvironment.ConfigFolder, constants.PolicyFileName)
+			require.Nil(t, os.WriteFile(policyFilePath, corruptContent, 0600), "could not write corrupt policy file")
+
+			scriptWasExecuted := false
+			RunCmd = func(ctx *log.Context, dir, scriptFilePath string, cfg *handlersettings.HandlerSettings, metadata types.RCMetadata) (error, int) {
+				scriptWasExecuted = true
+				return nil, 0
+			}
+
+			err = commandProcessor.ProcessHandlerCommandWithDetails(ctx, CmdEnable, fakeEnv, extName, seqNum, constants.DownloadFolder, dataDir)
+			require.Nil(t, err, "enable command should succeed despite corrupt policy")
+			require.True(t, scriptWasExecuted, "script should still be executed when policy is corrupt")
+
+			report := readStatusReport(t, fakeEnv, extName, seqNum) // verify status report exists and is valid
+			require.Equal(t, types.StatusSuccess, report[0].Status.Status, "status report should indicate success")
+			require.True(t, strings.Contains(report[0].Status.FormattedMessage.Message, "executionState\":\"Succeeded\",\"executionMessage\":\"Execution completed"), "execution message should indicate success")
+		})
+	}
+}
+
 func Test_enable_e2e_extension_policy_settings_block_statussuccess_disableOutputBlobs(t *testing.T) {
 	ctx := log.NewContext(log.NewNopLogger())
 	extName, seqNum := "badPolicyRun", 0