diff --git a/apps/web/src/components/LabelForm.tsx b/apps/web/src/components/LabelForm.tsx
index d083aaa66..60a768eee 100644
--- a/apps/web/src/components/LabelForm.tsx
+++ b/apps/web/src/components/LabelForm.tsx
@@ -4,6 +4,7 @@ import { Fragment, useEffect } from "react";
 import { Controller, useForm } from "react-hook-form";
 import { HiChevronUpDown, HiXMark } from "react-icons/hi2";
 
+import type { Colour } from "@kan/shared/constants";
 import { colours } from "@kan/shared/constants";
 
 import Button from "~/components/Button";
@@ -11,6 +12,7 @@ import Input from "~/components/Input";
 import Toggle from "~/components/Toggle";
 import { useModal } from "~/providers/modal";
 import { api } from "~/utils/api";
+import { resolveLabelColour } from "~/utils/labelColours";
 
 interface LabelFormInput {
   name: string;
@@ -18,11 +20,6 @@ interface LabelFormInput {
   isCreateAnotherEnabled?: boolean;
 }
 
-interface Colour {
-  name: string;
-  code: string;
-}
-
 export function LabelForm({
   boardPublicId,
   refetch,
@@ -47,9 +44,7 @@ export function LabelForm({
     useForm<LabelFormInput>({
       values: {
         name: isEdit && label.data?.name ? label.data.name : "",
-        colour: (isEdit && label.data?.colourCode
-          ? colours.find((c) => c.code === label.data?.colourCode)
-          : colours[0]) as Colour,
+        colour: resolveLabelColour(isEdit ? label.data?.colourCode : undefined),
         isCreateAnotherEnabled: false,
       },
     });
diff --git a/apps/web/src/utils/labelColours.test.ts b/apps/web/src/utils/labelColours.test.ts
new file mode 100644
index 000000000..22ca1ff89
--- /dev/null
+++ b/apps/web/src/utils/labelColours.test.ts
@@ -0,0 +1,23 @@
+import { describe, expect, it } from "vitest";
+
+import { colours } from "@kan/shared/constants";
+
+import { resolveLabelColour } from "./labelColours";
+
+describe("resolveLabelColour", () => {
+  it("returns the matching palette colour", () => {
+    expect(resolveLabelColour(colours[1]?.code)).toEqual(colours[1]);
+  });
+
+  it("preserves a custom colour", () => {
+    expect(resolveLabelColour("#4bce97")).toEqual({
+      name: "#4bce97",
+      code: "#4bce97",
+    });
+  });
+
+  it("uses the default colour when no colour is stored", () => {
+    expect(resolveLabelColour(null)).toEqual(colours[0]);
+    expect(resolveLabelColour(undefined)).toEqual(colours[0]);
+  });
+});
diff --git a/apps/web/src/utils/labelColours.ts b/apps/web/src/utils/labelColours.ts
new file mode 100644
index 000000000..88f58646b
--- /dev/null
+++ b/apps/web/src/utils/labelColours.ts
@@ -0,0 +1,18 @@
+import type { Colour } from "@kan/shared/constants";
+import { colours } from "@kan/shared/constants";
+
+export const resolveLabelColour = (
+  colourCode: string | null | undefined,
+): Colour => {
+  const defaultColour = colours[0];
+
+  if (!defaultColour) throw new Error("Label colour palette is empty");
+  if (!colourCode) return defaultColour;
+
+  return (
+    colours.find((colour) => colour.code === colourCode) ?? {
+      name: colourCode,
+      code: colourCode,
+    }
+  );
+};
diff --git a/packages/e2e/tests/self-hosted/card-labels.spec.ts b/packages/e2e/tests/self-hosted/card-labels.spec.ts
index 138ed2643..65a610e9f 100644
--- a/packages/e2e/tests/self-hosted/card-labels.spec.ts
+++ b/packages/e2e/tests/self-hosted/card-labels.spec.ts
@@ -6,9 +6,10 @@ import { CardPage } from "../support/pages/card-page";
 import { DashboardPage } from "../support/pages/dashboard-page";
 import { SelfHostedOnboardingPage } from "../support/pages/self-hosted-onboarding-page";
 import { createTestUser } from "../support/test-user";
+import { waitForTrpcMutation } from "../support/wait-for-trpc";
 
 test(
-  "a label can be created and assigned to a card, and the assignment persists",
+  "a label can be created, assigned, and edited with a custom colour",
   { tag: "@self-hosted" },
   async ({ page }) => {
     const user = createTestUser();
@@ -27,11 +28,35 @@ test(
     await board.createCard("Label test card");
     await board.openCard("Label test card");
 
-    await card.createAndAssignLabel("Urgent");
+    const labelPublicId = await card.createAndAssignLabel("Urgent");
 
     await expect(card.assignedLabelBadge("Urgent")).toBeVisible();
 
     await page.reload();
     await expect(card.assignedLabelBadge("Urgent")).toBeVisible();
+
+    const response = await page.request.post("/api/trpc/label.update?batch=1", {
+      data: {
+        "0": {
+          json: {
+            labelPublicId,
+            name: "Urgent",
+            colourCode: "#4bce97",
+          },
+        },
+      },
+    });
+    expect(response.ok()).toBe(true);
+
+    await page.reload();
+    await card.openLabelEditor("Urgent");
+
+    const dialog = page.getByRole("dialog");
+    await expect(dialog.getByRole("button", { name: "#4bce97" })).toBeVisible();
+
+    const updated = waitForTrpcMutation(page, "label.update");
+    await dialog.getByRole("button", { name: "Update label" }).click();
+    const updatedResponse = await updated;
+    expect(updatedResponse.ok()).toBe(true);
   },
 );
diff --git a/packages/e2e/tests/support/pages/card-page.ts b/packages/e2e/tests/support/pages/card-page.ts
index 26c957f59..1f4dc83f2 100644
--- a/packages/e2e/tests/support/pages/card-page.ts
+++ b/packages/e2e/tests/support/pages/card-page.ts
@@ -69,8 +69,26 @@ export class CardPage {
     const created = waitForTrpcMutation(this.page, "label.create");
     const assigned = waitForTrpcMutation(this.page, "card.addOrRemoveLabel");
     await dialog.getByRole("button", { name: "Create label" }).click();
-    await created;
+    const createdResponse = await created;
     await assigned;
+
+    const body = (await createdResponse.json()) as [
+      { result: { data: { json: { publicId: string } } } },
+    ];
+
+    return body[0].result.data.json.publicId;
+  }
+
+  async openLabelEditor(name: string) {
+    await this.labelSelectorTrigger().click();
+
+    const checkbox = this.page
+      .getByRole("checkbox", { name })
+      .filter({ visible: true });
+    const row = checkbox.locator("..");
+
+    await row.hover();
+    await row.getByRole("button").click();
   }
 
   async uploadAttachment(filePath: string) {