diff --git a/packages/cli/src/gemini.tsx b/packages/cli/src/gemini.tsx
index 91425d8d..a2e14ab0 100644
--- a/packages/cli/src/gemini.tsx
+++ b/packages/cli/src/gemini.tsx
@@ -17,8 +17,8 @@ import { start_sandbox } from './utils/sandbox.js';
 import {
   LoadedSettings,
   loadSettings,
-  SettingScope,
   USER_SETTINGS_PATH,
+  SettingScope,
 } from './config/settings.js';
 import { themeManager } from './ui/themes/theme-manager.js';
 import { getStartupWarnings } from './utils/startupWarnings.js';
@@ -111,15 +111,9 @@ export async function main() {
     process.exit(0);
   }
 
-  // Set a default auth type if one isn't set for a couple of known cases.
+  // Set a default auth type if one isn't set.
   if (!settings.merged.selectedAuthType) {
-    if (process.env.GEMINI_API_KEY) {
-      settings.setValue(
-        SettingScope.User,
-        'selectedAuthType',
-        AuthType.USE_GEMINI,
-      );
-    } else if (process.env.CLOUD_SHELL === 'true') {
+    if (process.env.CLOUD_SHELL === 'true') {
       settings.setValue(
         SettingScope.User,
         'selectedAuthType',
diff --git a/packages/cli/src/ui/components/AuthDialog.test.tsx b/packages/cli/src/ui/components/AuthDialog.test.tsx
index 8f07e2a5..60a8a930 100644
--- a/packages/cli/src/ui/components/AuthDialog.test.tsx
+++ b/packages/cli/src/ui/components/AuthDialog.test.tsx
@@ -5,7 +5,7 @@
  */
 
 import { render } from 'ink-testing-library';
-import { describe, it, expect, vi } from 'vitest';
+import { describe, it, expect, vi, beforeEach, afterEach } from 'vitest';
 import { AuthDialog } from './AuthDialog.js';
 import { LoadedSettings, SettingScope } from '../../config/settings.js';
 import { AuthType } from '@google/gemini-cli-core';
@@ -13,7 +13,21 @@ import { AuthType } from '@google/gemini-cli-core';
 describe('AuthDialog', () => {
   const wait = (ms = 50) => new Promise((resolve) => setTimeout(resolve, ms));
 
+  let originalEnv: NodeJS.ProcessEnv;
+
+  beforeEach(() => {
+    originalEnv = { ...process.env };
+    process.env.GEMINI_API_KEY = '';
+    vi.clearAllMocks();
+  });
+
+  afterEach(() => {
+    process.env = originalEnv;
+  });
+
   it('should show an error if the initial auth type is invalid', () => {
+    process.env.GEMINI_API_KEY = '';
+
     const settings: LoadedSettings = new LoadedSettings(
       {
         settings: {
@@ -41,6 +55,30 @@ describe('AuthDialog', () => {
     );
   });
 
+  it('should detect GEMINI_API_KEY environment variable', () => {
+    process.env.GEMINI_API_KEY = 'foobar';
+
+    const settings: LoadedSettings = new LoadedSettings(
+      {
+        settings: {
+          selectedAuthType: undefined,
+        },
+        path: '',
+      },
+      {
+        settings: {},
+        path: '',
+      },
+      [],
+    );
+
+    const { lastFrame } = render(
+      <AuthDialog onSelect={() => {}} settings={settings} />,
+    );
+
+    expect(lastFrame()).toContain('Existing API key detected (GEMINI_API_KEY)');
+  });
+
   it('should prevent exiting when no auth method is selected and show error message', async () => {
     const onSelect = vi.fn();
     const settings: LoadedSettings = new LoadedSettings(
diff --git a/packages/cli/src/ui/components/AuthDialog.tsx b/packages/cli/src/ui/components/AuthDialog.tsx
index a33e284d..d46feb0b 100644
--- a/packages/cli/src/ui/components/AuthDialog.tsx
+++ b/packages/cli/src/ui/components/AuthDialog.tsx
@@ -24,7 +24,11 @@ export function AuthDialog({
   initialErrorMessage,
 }: AuthDialogProps): React.JSX.Element {
   const [errorMessage, setErrorMessage] = useState<string | null>(
-    initialErrorMessage || null,
+    initialErrorMessage
+      ? initialErrorMessage
+      : process.env.GEMINI_API_KEY
+        ? 'Existing API key detected (GEMINI_API_KEY). Select "Gemini API Key" option to use it.'
+        : null,
   );
   const items = [
     {
@@ -46,13 +50,17 @@ export function AuthDialog({
     { label: 'Vertex AI', value: AuthType.USE_VERTEX_AI },
   ];
 
-  let initialAuthIndex = items.findIndex(
-    (item) => item.value === settings.merged.selectedAuthType,
-  );
+  const initialAuthIndex = items.findIndex((item) => {
+    if (settings.merged.selectedAuthType) {
+      return item.value === settings.merged.selectedAuthType;
+    }
 
-  if (initialAuthIndex === -1) {
-    initialAuthIndex = 0;
-  }
+    if (process.env.GEMINI_API_KEY) {
+      return item.value === AuthType.USE_GEMINI;
+    }
+
+    return item.value === AuthType.LOGIN_WITH_GOOGLE;
+  });
 
   const handleAuthSelect = (authMethod: AuthType) => {
     const error = validateAuthMethod(authMethod);
@@ -90,13 +98,18 @@ export function AuthDialog({
       padding={1}
       width="100%"
     >
-      <Text bold>Select Auth Method</Text>
-      <RadioButtonSelect
-        items={items}
-        initialIndex={initialAuthIndex}
-        onSelect={handleAuthSelect}
-        isFocused={true}
-      />
+      <Text bold>Get started</Text>
+      <Box marginTop={1}>
+        <Text>How would you like to authenticate for this project?</Text>
+      </Box>
+      <Box marginTop={1}>
+        <RadioButtonSelect
+          items={items}
+          initialIndex={initialAuthIndex}
+          onSelect={handleAuthSelect}
+          isFocused={true}
+        />
+      </Box>
       {errorMessage && (
         <Box marginTop={1}>
           <Text color={Colors.AccentRed}>{errorMessage}</Text>