diff --git a/terraform/provider/litellm/client.go b/terraform/provider/litellm/client.go
index 58e52aabefc..76526a8595c 100644
--- a/terraform/provider/litellm/client.go
+++ b/terraform/provider/litellm/client.go
@@ -4,6 +4,7 @@ import (
 	"bytes"
 	"crypto/tls"
 	"encoding/json"
+	"errors"
 	"fmt"
 	"io"
 	"log"
@@ -19,6 +20,20 @@ type Client struct {
 	InsecureSkipVerify bool
 }
 
+type apiError struct {
+	StatusCode int
+	Body       string
+}
+
+func (e *apiError) Error() string {
+	return fmt.Sprintf("API request failed with status code %d: %s", e.StatusCode, e.Body)
+}
+
+func isNotFound(err error) bool {
+	var apiErr *apiError
+	return errors.As(err, &apiErr) && apiErr.StatusCode == http.StatusNotFound
+}
+
 func NewClient(apiBase, apiKey string, insecureSkipVerify bool) *Client {
 	tr := &http.Transport{
 		TLSClientConfig: &tls.Config{InsecureSkipVerify: insecureSkipVerify},
@@ -57,6 +72,9 @@ func (c *Client) CreateKey(key *Key) (*Key, error) {
 
 func (c *Client) GetKey(keyID string) (*Key, error) {
 	resp, err := c.sendRequest("GET", fmt.Sprintf("/key/info?key=%s", keyID), nil)
+	if isNotFound(err) {
+		return nil, nil
+	}
 	if err != nil {
 		return nil, err
 	}
@@ -377,7 +395,7 @@ func (c *Client) sendRequest(method, path string, body interface{}) (map[string]
 	log.Printf("Response body: %s", c.redactSensitiveData(string(bodyBytes)))
 
 	if resp.StatusCode != http.StatusOK {
-		return nil, fmt.Errorf("API request failed with status code %d: %s", resp.StatusCode, string(bodyBytes))
+		return nil, &apiError{StatusCode: resp.StatusCode, Body: string(bodyBytes)}
 	}
 
 	var result map[string]interface{}
diff --git a/terraform/provider/litellm/resource_key.go b/terraform/provider/litellm/resource_key.go
index 95bf88c0145..ffdc448f5fe 100644
--- a/terraform/provider/litellm/resource_key.go
+++ b/terraform/provider/litellm/resource_key.go
@@ -4,6 +4,7 @@ import (
 	"context"
 	"encoding/json"
 	"fmt"
+	"log"
 
 	"github.com/hashicorp/go-cty/cty"
 	"github.com/hashicorp/terraform-plugin-sdk/v2/diag"
@@ -297,6 +298,7 @@ func resourceKeyRead(ctx context.Context, d *schema.ResourceData, m interface{})
 	}
 
 	if key == nil {
+		log.Printf("[WARN] Key %s not found, removing from state", d.Id())
 		d.SetId("")
 		return nil
 	}
diff --git a/terraform/provider/litellm/resource_key_test.go b/terraform/provider/litellm/resource_key_test.go
index 722a90ee02d..1da8528576d 100644
--- a/terraform/provider/litellm/resource_key_test.go
+++ b/terraform/provider/litellm/resource_key_test.go
@@ -394,6 +394,45 @@ func TestGetKeyUnwrapsInfoEnvelope(t *testing.T) {
 	}
 }
 
+func TestResourceKeyReadDropsMissingKeyFromState(t *testing.T) {
+	srv := httptest.NewServer(http.HandlerFunc(func(w http.ResponseWriter, r *http.Request) {
+		w.Header().Set("Content-Type", "application/json")
+		w.WriteHeader(http.StatusNotFound)
+		w.Write([]byte(`{"error":{"message":"Key not found in database","type":"not_found_error","param":"key","code":"404"}}`))
+	}))
+	defer srv.Close()
+
+	d := newKeyResourceData(t, map[string]interface{}{"key_alias": "stale"})
+	d.SetId("deleted-out-of-band")
+
+	diags := resourceKeyRead(context.Background(), d, NewClient(srv.URL, "test-key", true))
+	if diags.HasError() {
+		t.Fatalf("read of a missing key must not error, got: %v", diags)
+	}
+	if d.Id() != "" {
+		t.Errorf("Id = %q, want empty so Terraform plans a recreate", d.Id())
+	}
+}
+
+func TestResourceKeyReadStillFailsOnNon404Errors(t *testing.T) {
+	srv := httptest.NewServer(http.HandlerFunc(func(w http.ResponseWriter, r *http.Request) {
+		w.WriteHeader(http.StatusInternalServerError)
+		w.Write([]byte(`{"error":{"message":"db down"}}`))
+	}))
+	defer srv.Close()
+
+	d := newKeyResourceData(t, map[string]interface{}{"key_alias": "live"})
+	d.SetId("still-exists")
+
+	diags := resourceKeyRead(context.Background(), d, NewClient(srv.URL, "test-key", true))
+	if !diags.HasError() {
+		t.Fatal("a 500 from /key/info must surface as an error, not be treated as a deleted key")
+	}
+	if d.Id() != "still-exists" {
+		t.Errorf("Id = %q, want unchanged on a transient error", d.Id())
+	}
+}
+
 // fakeKeyProxy serves /key/info from stored metadata and applies /key/update
 // the way the proxy does: an absent "metadata" keeps the stored map, a
 // present one replaces it wholesale.