diff --git a/tests/test_litellm/proxy/test_proxy_cli.py b/tests/test_litellm/proxy/test_proxy_cli.py
index be91800732b..a18c2dba032 100644
--- a/tests/test_litellm/proxy/test_proxy_cli.py
+++ b/tests/test_litellm/proxy/test_proxy_cli.py
@@ -446,8 +446,24 @@ class TestProxyInitializationHelpers:
         mock_proxy_config_instance.get_config = mock_get_config
         mock_proxy_config.return_value = mock_proxy_config_instance
 
-        # Ensure DATABASE_URL is not set in the environment
-        with patch.dict(os.environ, {"DATABASE_URL": ""}, clear=True):
+        mock_proxy_server_module = MagicMock(app=mock_app)
+
+        # Only remove DATABASE_URL and DIRECT_URL to prevent the database setup
+        # code path from running. Do NOT use clear=True as it removes PATH, HOME,
+        # etc., which causes imports inside run_server to break in CI (the real
+        # litellm.proxy.proxy_server import at line 820 of proxy_cli.py has heavy
+        # side effects that fail without a proper environment).
+        env_overrides = {
+            "DATABASE_URL": "",
+            "DIRECT_URL": "",
+            "IAM_TOKEN_DB_AUTH": "",
+            "USE_AWS_KMS": "",
+        }
+        with patch.dict(os.environ, env_overrides):
+            # Remove DATABASE_URL entirely so the DB setup block is skipped
+            os.environ.pop("DATABASE_URL", None)
+            os.environ.pop("DIRECT_URL", None)
+
             with patch.dict(
                 "sys.modules",
                 {
@@ -456,7 +472,11 @@ class TestProxyInitializationHelpers:
                         ProxyConfig=mock_proxy_config,
                         KeyManagementSettings=mock_key_mgmt,
                         save_worker_config=mock_save_worker_config,
-                    )
+                    ),
+                    # Also mock litellm.proxy.proxy_server to prevent the real
+                    # import at line 820 of proxy_cli.py which has heavy side
+                    # effects (FastAPI app init, logging setup, etc.)
+                    "litellm.proxy.proxy_server": mock_proxy_server_module,
                 },
             ), patch(
                 "litellm.proxy.proxy_cli.ProxyInitializationHelpers._get_default_unvicorn_init_args"
@@ -470,7 +490,10 @@ class TestProxyInitializationHelpers:
                 # Test with no config parameter (config=None)
                 result = runner.invoke(run_server, ["--local"])
 
-                assert result.exit_code == 0
+                assert result.exit_code == 0, (
+                    f"run_server failed with exit_code={result.exit_code}, "
+                    f"output={result.output}, exception={result.exception}"
+                )
 
                 # Verify that uvicorn.run was called
                 mock_uvicorn_run.assert_called_once()
@@ -481,7 +504,10 @@ class TestProxyInitializationHelpers:
                 # Test with explicit --config None (should behave the same)
                 result = runner.invoke(run_server, ["--local", "--config", "None"])
 
-                assert result.exit_code == 0
+                assert result.exit_code == 0, (
+                    f"run_server failed with exit_code={result.exit_code}, "
+                    f"output={result.output}, exception={result.exception}"
+                )
 
                 # Verify that uvicorn.run was called again
                 mock_uvicorn_run.assert_called_once()