diff --git a/src/drs/commands/setup.py b/src/drs/commands/setup.py
index fb77ea2..fead31c 100644
--- a/src/drs/commands/setup.py
+++ b/src/drs/commands/setup.py
@@ -18,6 +18,7 @@
 from __future__ import annotations
 
 import asyncio
+import os
 import sys
 from pathlib import Path
 from typing import Any
@@ -41,6 +42,43 @@
 err_console = Console(stderr=True)
 
 
+def _set_token_env_vars() -> list[str]:
+    """Return token env vars that will override config, in resolution order."""
+    return [name for name in ("DREMIO_TOKEN", "DREMIO_PAT") if os.environ.get(name)]
+
+
+def _warn_token_env_override(config_path: Path) -> None:
+    """Warn when an env token will override the config written by setup."""
+    token_envs = _set_token_env_vars()
+    if not token_envs:
+        return
+    token_env_list = " and ".join(token_envs)
+    token_env_verb = "is" if len(token_envs) == 1 else "are"
+    unset_command = f"unset {' '.join(token_envs)}"
+
+    console.print()
+    console.print(
+        Panel(
+            f"[bold yellow]{token_env_list} {token_env_verb} set in your environment.[/bold yellow]\n\n"
+            "Dremio CLI resolves credentials in this order:\n"
+            "  1. --token\n"
+            "  2. DREMIO_TOKEN / DREMIO_PAT\n"
+            f"  3. {config_path}\n\n"
+            "That means future [bold]dremio[/bold] commands will use the environment token, "
+            "not the PAT saved by this setup wizard.\n\n"
+            f"To use the saved config, run [bold]{unset_command}[/bold] before using dremio. "
+            f"To keep using environment auth, update [bold]{token_env_list}[/bold] to the PAT you just entered.",
+            title="Environment Token Overrides Config",
+            border_style="yellow",
+        )
+    )
+    if not typer.confirm("Continue setup anyway?", default=False):
+        console.print(
+            f"Setup cancelled. Unset or update {token_env_list}, then run [bold cyan]dremio setup[/bold cyan] again."
+        )
+        raise typer.Exit(1)
+
+
 async def validate_credentials(uri: str, pat: str, project_id: str) -> tuple[bool, str, dict[str, Any] | None]:
     """Test credentials by calling get_project(). Returns (success, message, project_data)."""
     config = DrsConfig(uri=uri, pat=pat, project_id=project_id)
@@ -188,6 +226,8 @@ def setup_command(
             console.print("Setup cancelled.")
             raise typer.Exit(0)
 
+    _warn_token_env_override(config_path)
+
     # Step 1: Region
     api_uri, app_url = _prompt_region()
 
diff --git a/tests/test_commands/test_setup.py b/tests/test_commands/test_setup.py
index 2bab050..7931e65 100644
--- a/tests/test_commands/test_setup.py
+++ b/tests/test_commands/test_setup.py
@@ -31,6 +31,12 @@
 runner = CliRunner()
 
 
+@pytest.fixture(autouse=True)
+def clear_dremio_env(monkeypatch: pytest.MonkeyPatch) -> None:
+    for name in ("DREMIO_TOKEN", "DREMIO_PAT", "DREMIO_PROJECT_ID", "DREMIO_URI"):
+        monkeypatch.delenv(name, raising=False)
+
+
 def test_write_config(tmp_path) -> None:
     config_path = tmp_path / "config.yaml"
     write_config("https://api.eu.dremio.cloud", "my-pat", "my-project", config_path)
@@ -227,6 +233,68 @@ def test_setup_existing_config_overwrite(tmp_path) -> None:
     assert data["pat"] == "new-pat"
 
 
+def test_setup_warns_when_dremio_pat_overrides_config(tmp_path, monkeypatch: pytest.MonkeyPatch) -> None:
+    """A DREMIO_PAT env var should be called out before writing config."""
+    config_path = tmp_path / "config.yaml"
+    monkeypatch.setenv("DREMIO_PAT", "env-pat")
+
+    with (
+        patch("drs.commands.setup.sys") as mock_sys,
+        patch("drs.commands.setup.DEFAULT_CONFIG_PATH", config_path),
+    ):
+        mock_sys.stdin.isatty.return_value = True
+        result = runner.invoke(app, ["setup"], input="n\n")
+
+    assert result.exit_code == 1
+    assert "DREMIO_PAT is set" in result.output
+    assert "will use the environment token" in result.output
+    assert "unset DREMIO_PAT" in result.output
+    assert not config_path.exists()
+
+
+def test_setup_warns_to_unset_both_token_env_vars(tmp_path, monkeypatch: pytest.MonkeyPatch) -> None:
+    """If both token env vars are set, both must be included in unset guidance."""
+    config_path = tmp_path / "config.yaml"
+    monkeypatch.setenv("DREMIO_TOKEN", "env-token")
+    monkeypatch.setenv("DREMIO_PAT", "env-pat")
+
+    with (
+        patch("drs.commands.setup.sys") as mock_sys,
+        patch("drs.commands.setup.DEFAULT_CONFIG_PATH", config_path),
+    ):
+        mock_sys.stdin.isatty.return_value = True
+        result = runner.invoke(app, ["setup"], input="n\n")
+
+    assert result.exit_code == 1
+    assert "DREMIO_TOKEN and DREMIO_PAT are set" in result.output
+    assert "unset DREMIO_TOKEN DREMIO_PAT" in result.output
+    assert not config_path.exists()
+
+
+def test_setup_can_continue_after_env_token_warning(tmp_path, monkeypatch: pytest.MonkeyPatch) -> None:
+    """Accepting the env-token warning should continue through normal setup."""
+    config_path = tmp_path / "config.yaml"
+    monkeypatch.setenv("DREMIO_PAT", "env-pat")
+
+    mock_client = AsyncMock()
+    mock_client.get_project = AsyncMock(return_value={"id": "p1", "name": "Test Project"})
+    mock_client.close = AsyncMock()
+
+    with (
+        patch("drs.commands.setup.sys") as mock_sys,
+        patch("drs.commands.setup.DremioClient", return_value=mock_client),
+        patch("drs.commands.setup.DEFAULT_CONFIG_PATH", config_path),
+    ):
+        mock_sys.stdin.isatty.return_value = True
+        result = runner.invoke(app, ["setup"], input="y\n1\nfile-pat\nfile-project\n")
+
+    assert result.exit_code == 0
+    assert "DREMIO_PAT is set" in result.output
+    data = yaml.safe_load(config_path.read_text())
+    assert data["pat"] == "file-pat"
+    assert data["project_id"] == "file-project"
+
+
 def test_setup_retry_then_abort(tmp_path) -> None:
     """Validation failure followed by declining retry should exit 1."""
     config_path = tmp_path / "config.yaml"