diff --git a/litellm/proxy/common_utils/config_includes.py b/litellm/proxy/common_utils/config_includes.py
index c1bb5ae952f..eb8922bcd9f 100644
--- a/litellm/proxy/common_utils/config_includes.py
+++ b/litellm/proxy/common_utils/config_includes.py
@@ -8,6 +8,25 @@ from litellm._logging import verbose_proxy_logger
 INCLUDE_KEY: Final = "include"
 
 
+def _path_is_within_directory(path: str, directory: str) -> bool:
+    """True when ``path`` is ``directory`` itself or a file under it (after abspath)."""
+    try:
+        return os.path.commonpath([directory, path]) == directory
+    except ValueError:
+        # Different drives on Windows — never treat that as inside the config dir.
+        return False
+
+
+def _reject_include_outside_config_dir(resolved: str, root_config_path: str, include_file: str) -> str:
+    config_dir: Final = os.path.abspath(os.path.dirname(root_config_path))
+    if _path_is_within_directory(resolved, config_dir):
+        return resolved
+    raise ValueError(
+        f"Config include '{include_file}' resolves to {resolved}, which is outside the config "
+        f"directory {config_dir}. Include paths must stay under the config directory."
+    )
+
+
 def resolve_include_file_path(include_file: str, declared_in: str, root_config_path: str) -> str:
     """
     Resolve one `include` entry to the file it names, next to the config that declares it.
@@ -15,11 +34,14 @@ def resolve_include_file_path(include_file: str, declared_in: str, root_config_p
     A config written before nested entries resolved this way can name a file sitting next to the root
     config instead, so that file is still read, with a warning naming where it was found. When both
     files exist the one next to the declaring config wins and the other is named in a warning.
+
+    Resolved paths that climb out of the root config directory (``..`` or an absolute path outside
+    it) are rejected before the file is opened.
     """
     declared_relative: Final = os.path.abspath(os.path.join(os.path.dirname(declared_in), include_file))
     root_relative: Final = os.path.abspath(os.path.join(os.path.dirname(root_config_path), include_file))
     if root_relative == declared_relative or not os.path.exists(root_relative):
-        return declared_relative
+        return _reject_include_outside_config_dir(declared_relative, root_config_path, include_file)
 
     if not os.path.exists(declared_relative):
         verbose_proxy_logger.warning(
@@ -29,7 +51,7 @@ def resolve_include_file_path(include_file: str, declared_in: str, root_config_p
             declared_in,
             root_relative,
         )
-        return root_relative
+        return _reject_include_outside_config_dir(root_relative, root_config_path, include_file)
 
     verbose_proxy_logger.warning(
         "Config include '%s' declared in %s matches two files. %s sits next to that config and was read, "
@@ -39,7 +61,7 @@ def resolve_include_file_path(include_file: str, declared_in: str, root_config_p
         declared_relative,
         root_relative,
     )
-    return declared_relative
+    return _reject_include_outside_config_dir(declared_relative, root_config_path, include_file)
 
 
 class IncludeResolver(Protocol):
diff --git a/tests/unit/proxy/common_utils/test_config_includes.py b/tests/unit/proxy/common_utils/test_config_includes.py
new file mode 100644
index 00000000000..affe1770277
--- /dev/null
+++ b/tests/unit/proxy/common_utils/test_config_includes.py
@@ -0,0 +1,65 @@
+"""Unit tests for litellm.proxy.common_utils.config_includes."""
+
+import os
+
+import pytest
+
+from litellm.proxy.common_utils.config_includes import resolve_include_file_path
+
+
+def test_resolve_include_rejects_path_outside_config_dir(tmp_path):
+    """
+    Include entries that climb out of the root config directory must be rejected
+    before the file is opened (regression for #43480).
+    """
+    cfg_dir = tmp_path / "cfg"
+    cfg_dir.mkdir()
+    root_config = cfg_dir / "config.yaml"
+    root_config.write_text("model_list: []\n")
+
+    # Same shape as the issue report: ../../etc/passwd from cfg/config.yaml
+    with pytest.raises(ValueError, match="outside the config directory"):
+        resolve_include_file_path("../../etc/passwd", str(root_config), str(root_config))
+
+    # Absolute path outside the config dir
+    with pytest.raises(ValueError, match="outside the config directory"):
+        resolve_include_file_path("/etc/passwd", str(root_config), str(root_config))
+
+
+def test_resolve_include_allows_file_under_config_dir(tmp_path):
+    """Sibling and nested includes under the config directory still resolve."""
+    cfg_dir = tmp_path / "cfg"
+    nested = cfg_dir / "nested"
+    nested.mkdir(parents=True)
+    root_config = cfg_dir / "config.yaml"
+    root_config.write_text("model_list: []\n")
+    sibling = cfg_dir / "models.yaml"
+    sibling.write_text("model_list: []\n")
+    nested_include = nested / "extra.yaml"
+    nested_include.write_text("model_list: []\n")
+
+    assert resolve_include_file_path("models.yaml", str(root_config), str(root_config)) == str(
+        sibling.resolve()
+    )
+    # Nested config may climb one level with .. and still stay under cfg/
+    assert resolve_include_file_path(
+        "../models.yaml", str(nested_include), str(root_config)
+    ) == str(sibling.resolve())
+
+
+def test_resolve_include_rejects_escape_via_legacy_root_fallback(tmp_path):
+    """
+    When the include is missing next to a nested declarer but present next to the
+    root, the legacy fallback must still refuse a path that left the config dir.
+    """
+    cfg_dir = tmp_path / "cfg"
+    nested = cfg_dir / "nested"
+    nested.mkdir(parents=True)
+    root_config = cfg_dir / "config.yaml"
+    root_config.write_text("model_list: []\n")
+    nested_config = nested / "part.yaml"
+    nested_config.write_text("model_list: []\n")
+
+    # declared next to nested; ../../outside.yaml from nested → tmp_path/outside.yaml
+    with pytest.raises(ValueError, match="outside the config directory"):
+        resolve_include_file_path("../../outside.yaml", str(nested_config), str(root_config))
diff --git a/tests/unit/proxy/test_proxy_config_unit_test.py b/tests/unit/proxy/test_proxy_config_unit_test.py
index 2181c932586..e0cf89cb706 100644
--- a/tests/unit/proxy/test_proxy_config_unit_test.py
+++ b/tests/unit/proxy/test_proxy_config_unit_test.py
@@ -158,6 +158,22 @@ async def test_multiple_includes():
     assert config["litellm_settings"]["callbacks"] == ["prometheus"]
 
 
+
+@pytest.mark.asyncio
+async def test_process_includes_rejects_escaping_include(tmp_path):
+    """ProxyConfig._process_includes must fail closed on escaping include paths."""
+    cfg_dir = tmp_path / "cfg"
+    cfg_dir.mkdir()
+    outside = tmp_path / "outside.yaml"
+    outside.write_text("model_list:\n  - model_name: leaked\n    litellm_params:\n      model: openai/gpt-4o-mini\n")
+    root_config = cfg_dir / "config.yaml"
+    root_config.write_text("include:\n  - ../outside.yaml\n\nmodel_list: []\n")
+
+    proxy_config_instance = ProxyConfig()
+    with pytest.raises(ValueError, match="outside the config directory"):
+        await proxy_config_instance.get_config(config_file_path=str(root_config))
+
+
 def test_add_callbacks_from_db_config():
     """Test that callbacks are added correctly and duplicates are prevented"""
     # Setup