diff --git a/includes/class-create-block-theme-api.php b/includes/class-create-block-theme-api.php
index 12c42522..a81e09ba 100644
--- a/includes/class-create-block-theme-api.php
+++ b/includes/class-create-block-theme-api.php
@@ -369,9 +369,9 @@ function rest_save_theme( $request ) {
 
 		if ( isset( $options['saveStyle'] ) && true === $options['saveStyle'] ) {
 			if ( is_child_theme() ) {
-				CBT_Theme_JSON::add_theme_json_to_local( 'current', null, null, $options );
+				CBT_Theme_JSON::add_theme_json_to_local( 'current', $options );
 			} else {
-				CBT_Theme_JSON::add_theme_json_to_local( 'all', null, null, $options );
+				CBT_Theme_JSON::add_theme_json_to_local( 'all', $options );
 			}
 			CBT_Theme_Styles::clear_user_styles_customizations();
 		}
diff --git a/includes/create-theme/resolver_additions.php b/includes/create-theme/resolver_additions.php
index 21117cf9..0caf1c2c 100644
--- a/includes/create-theme/resolver_additions.php
+++ b/includes/create-theme/resolver_additions.php
@@ -15,65 +15,53 @@ class CBT_Theme_JSON_Resolver extends WP_Theme_JSON_Resolver {
 		 *
 		 * @param string $content ['all', 'current', 'user'] Determines which settings content to include in the export.
 		 * @param array $extra_theme_data Any theme json extra data to be included in the export.
+		 * @param array $options Export options.
 		 * All options include user settings.
 		 * 'current' will include settings from the currently installed theme but NOT from the parent theme.
 		 * 'all' will include settings from the current theme as well as the parent theme (if it has one)
 		 * 'variation' will include just the user custom styles and settings.
 		 */
-		public static function export_theme_data( $content, $extra_theme_data = null ) {
+		public static function export_theme_data( $content, $extra_theme_data = null, $options = array() ) {
 			$current_theme = wp_get_theme();
-			if ( class_exists( 'WP_Theme_JSON_Gutenberg' ) ) {
-				$theme = new WP_Theme_JSON_Gutenberg();
-			} else {
-				$theme = new WP_Theme_JSON();
-			}
+			$theme         = static::create_theme_json();
 
 			if ( 'all' === $content && $current_theme->parent() ) {
 				// Get parent theme.json.
-				$parent_theme_json_data = static::read_json_file( static::get_file_path_from_theme( 'theme.json', true ) );
+				$parent_theme_json_data = static::get_theme_file_contents( true );
 				$parent_theme_json_data = static::translate( $parent_theme_json_data, $current_theme->parent()->get( 'TextDomain' ) );
 
 				// Get the schema from the parent JSON.
-				$schema = $parent_theme_json_data['$schema'];
-				if ( array_key_exists( 'schema', $parent_theme_json_data ) ) {
+				if ( array_key_exists( '$schema', $parent_theme_json_data ) ) {
 					$schema = $parent_theme_json_data['$schema'];
 				}
 
-				if ( class_exists( 'WP_Theme_JSON_Gutenberg' ) ) {
-					$parent_theme = new WP_Theme_JSON_Gutenberg( $parent_theme_json_data );
-				} else {
-					$parent_theme = new WP_Theme_JSON( $parent_theme_json_data );
-				}
+				$parent_theme = static::create_theme_json( $parent_theme_json_data );
 				$theme->merge( $parent_theme );
 			}
 
 			if ( 'all' === $content || 'current' === $content ) {
-				$theme_json_data = static::read_json_file( static::get_file_path_from_theme( 'theme.json' ) );
+				$theme_json_data = static::get_theme_file_contents();
 				$theme_json_data = static::translate( $theme_json_data, wp_get_theme()->get( 'TextDomain' ) );
 
 				// Get the schema from the parent JSON.
-				if ( array_key_exists( 'schema', $theme_json_data ) ) {
+				if ( array_key_exists( '$schema', $theme_json_data ) ) {
 					$schema = $theme_json_data['$schema'];
 				}
 
-				if ( class_exists( 'WP_Theme_JSON_Gutenberg' ) ) {
-					$theme_theme = new WP_Theme_JSON_Gutenberg( $theme_json_data );
-				} else {
-					$theme_theme = new WP_Theme_JSON( $theme_json_data );
-				}
+				$theme_theme = static::create_theme_json( $theme_json_data );
 				$theme->merge( $theme_theme );
 			}
 
-			// Merge the User Data
-			$theme->merge( static::get_user_data() );
+			// Merge the User Data.
+			$user_data = static::get_user_data();
+			if ( ! empty( $options['removeCustomColorPrefix'] ) ) {
+				$user_data = static::maybe_remove_custom_prefix_from_user_color_palette_slugs( $user_data );
+			}
+			$theme->merge( $user_data );
 
 			// Merge the extra theme data received as a parameter
 			if ( ! empty( $extra_theme_data ) ) {
-				if ( class_exists( 'WP_Theme_JSON_Gutenberg' ) ) {
-					$extra_data = new WP_Theme_JSON_Gutenberg( $extra_theme_data );
-				} else {
-					$extra_data = new WP_Theme_JSON( $extra_theme_data );
-				}
+				$extra_data = static::create_theme_json( $extra_theme_data );
 				$theme->merge( $extra_data );
 			}
 
@@ -102,12 +90,148 @@ public static function export_theme_data( $content, $extra_theme_data = null ) {
 			return static::stringify( $data );
 		}
 
+		/**
+		 * Remove the custom- prefix from user-created color slugs when the
+		 * normalized slug does not conflict with an existing color slug.
+		 *
+		 * WordPress stores colors added in the editor as custom presets. When
+		 * those colors are saved to the theme palette, their generated custom-
+		 * prefix is redundant unless the unprefixed slug already exists.
+		 *
+		 * @param WP_Theme_JSON $user_data User theme JSON data.
+		 * @return WP_Theme_JSON User theme JSON data, with normalized color slugs when applicable.
+		 */
+		private static function maybe_remove_custom_prefix_from_user_color_palette_slugs( $user_data ) {
+			$theme_json_data = static::get_theme_file_contents();
+			$theme_palette   = $theme_json_data['settings']['color']['palette'] ?? array();
+
+			$raw_user_data  = $user_data->get_raw_data();
+			$custom_palette = $raw_user_data['settings']['color']['palette']['custom'] ?? null;
+
+			if ( empty( $custom_palette ) || ! is_array( $custom_palette ) ) {
+				return $user_data;
+			}
+
+			$existing_slugs    = array_merge(
+				static::get_color_palette_slugs( $theme_palette ),
+				static::get_color_palette_slugs( $custom_palette )
+			);
+			$normalized_slugs  = array();
+			$slug_replacements = array();
+
+			foreach ( $custom_palette as $index => $color ) {
+				$color_slug = $color['slug'] ?? '';
+
+				if ( empty( $color_slug ) || 0 !== strpos( $color_slug, 'custom-' ) ) {
+					continue;
+				}
+
+				$slug_without_prefix = substr( $color_slug, strlen( 'custom-' ) );
+
+				if (
+					'' === $slug_without_prefix ||
+					in_array( $slug_without_prefix, $existing_slugs, true ) ||
+					in_array( $slug_without_prefix, $normalized_slugs, true )
+				) {
+					continue;
+				}
+
+				$custom_palette[ $index ]['slug'] = $slug_without_prefix;
+				$slug_replacements[ $color_slug ] = $slug_without_prefix;
+				$normalized_slugs[]               = $slug_without_prefix;
+			}
+
+			if ( empty( $slug_replacements ) ) {
+				return $user_data;
+			}
+
+			$raw_user_data['settings']['color']['palette']['custom'] = $custom_palette;
+
+			if ( isset( $raw_user_data['styles'] ) ) {
+				static::replace_color_slug_references( $raw_user_data['styles'], $slug_replacements );
+			}
+
+			return static::create_theme_json( $raw_user_data );
+		}
+
+		/**
+		 * Get color slugs from a theme.json palette.
+		 *
+		 * @param array $palette Color palette data.
+		 * @return array Color slugs.
+		 */
+		private static function get_color_palette_slugs( $palette ) {
+			if ( empty( $palette ) || ! is_array( $palette ) ) {
+				return array();
+			}
+
+			if ( isset( $palette[0] ) ) {
+				return array_filter( array_column( $palette, 'slug' ) );
+			}
+
+			$slugs = array();
+
+			foreach ( $palette as $palette_group ) {
+				if ( is_array( $palette_group ) ) {
+					$slugs = array_merge( $slugs, array_filter( array_column( $palette_group, 'slug' ) ) );
+				}
+			}
+
+			return $slugs;
+		}
+
+		/**
+		 * Create the appropriate theme JSON object for the current environment.
+		 *
+		 * @param array $data Theme JSON data.
+		 * @return WP_Theme_JSON Theme JSON object.
+		 */
+		private static function create_theme_json( $data = array() ) {
+			return class_exists( 'WP_Theme_JSON_Gutenberg' )
+				? new WP_Theme_JSON_Gutenberg( $data )
+				: new WP_Theme_JSON( $data );
+		}
+
+		/**
+		 * Replace color slug references in style values after slug normalization.
+		 *
+		 * @param mixed $data Theme JSON style data.
+		 * @param array $slug_replacements Slug replacements keyed by original slug.
+		 */
+		private static function replace_color_slug_references( &$data, $slug_replacements ) {
+			if ( is_array( $data ) ) {
+				foreach ( $data as &$value ) {
+					static::replace_color_slug_references( $value, $slug_replacements );
+				}
+				unset( $value );
+				return;
+			}
+
+			if ( ! is_string( $data ) ) {
+				return;
+			}
+
+			foreach ( $slug_replacements as $old_slug => $new_slug ) {
+				$data = str_replace(
+					array(
+						'var:preset|color|' . $old_slug,
+						'var(--wp--preset--color--' . $old_slug . ')',
+					),
+					array(
+						'var:preset|color|' . $new_slug,
+						'var(--wp--preset--color--' . $new_slug . ')',
+					),
+					$data
+				);
+			}
+		}
+
 		/**
 		 * Get the user data.
 		 *
 		 * This is a copy of the parent function with the addition of the Gutenberg resolver.
 		 *
-		 * @return array
+		 * @return WP_Theme_JSON User theme JSON data.
 		 */
 		public static function get_user_data() {
 			// Determine the correct method to retrieve user data
@@ -128,8 +252,8 @@ public static function stringify( $data ) {
 			return preg_replace( '~(?:^|\G)\h{4}~m', "\t", $data );
 		}
 
-		public static function get_theme_file_contents() {
-			$theme_json_data = static::read_json_file( static::get_file_path_from_theme( 'theme.json' ) );
+		public static function get_theme_file_contents( $parent = false ) {
+			$theme_json_data = static::read_json_file( static::get_file_path_from_theme( 'theme.json', $parent ) );
 			return $theme_json_data;
 		}
 
diff --git a/includes/create-theme/theme-json.php b/includes/create-theme/theme-json.php
index dfedb885..2b6f110c 100644
--- a/includes/create-theme/theme-json.php
+++ b/includes/create-theme/theme-json.php
@@ -2,10 +2,10 @@
 
 class CBT_Theme_JSON {
 
-	public static function add_theme_json_to_local( $export_type ) {
+	public static function add_theme_json_to_local( $export_type, $options = array() ) {
 		file_put_contents(
 			get_stylesheet_directory() . '/theme.json',
-			CBT_Theme_JSON_Resolver::export_theme_data( $export_type )
+			CBT_Theme_JSON_Resolver::export_theme_data( $export_type, null, $options )
 		);
 	}
 
diff --git a/src/editor-sidebar/save-panel.js b/src/editor-sidebar/save-panel.js
index 568cddf0..2cd23fb4 100644
--- a/src/editor-sidebar/save-panel.js
+++ b/src/editor-sidebar/save-panel.js
@@ -37,6 +37,8 @@ export const SaveThemePanel = () => {
 				_preference?.processOnlySavedTemplates ?? true,
 			savePatterns: _preference?.savePatterns ?? true,
 			saveFonts: _preference?.saveFonts ?? true,
+			removeCustomColorPrefix:
+				_preference?.removeCustomColorPrefix ?? false,
 			removeNavRefs: _preference?.removeNavRefs ?? false,
 			localizeText: _preference?.localizeText ?? false,
 			localizeImages: _preference?.localizeImages ?? false,
@@ -259,6 +261,25 @@ export const SaveThemePanel = () => {
 							handleTogglePreference( 'removeTaxQuery' )
 						}
 					/>
+					<CheckboxControl
+						__nextHasNoMarginBottom
+						label={ __(
+							'Remove the custom- prefix from color slugs',
+							'create-block-theme'
+						) }
+						help={ __(
+							'Best for new blank themes. Leave this disabled if your existing content already uses custom- color slugs.',
+							'create-block-theme'
+						) }
+						disabled={ ! preference.saveStyle }
+						checked={
+							preference.saveStyle &&
+							preference.removeCustomColorPrefix
+						}
+						onChange={ () =>
+							handleTogglePreference( 'removeCustomColorPrefix' )
+						}
+					/>
 					<Button
 						variant="primary"
 						icon={ archive }
diff --git a/tests/class-create-block-theme-test-case.php b/tests/class-create-block-theme-test-case.php
new file mode 100644
index 00000000..47af4b6c
--- /dev/null
+++ b/tests/class-create-block-theme-test-case.php
@@ -0,0 +1,34 @@
+<?php
+/**
+ * Base test case for Create Block Theme tests.
+ *
+ * @package Create_Block_Theme
+ */
+abstract class Create_Block_Theme_Test_Case extends WP_UnitTestCase {
+
+	protected function create_blank_theme() {
+		$test_theme_slug = 'cbttesttheme';
+
+		delete_theme( $test_theme_slug );
+
+		$request = new WP_REST_Request( 'POST', '/create-block-theme/v1/create-blank' );
+		$request->set_param( 'name', $test_theme_slug );
+		$request->set_param( 'description', '' );
+		$request->set_param( 'uri', '' );
+		$request->set_param( 'author', '' );
+		$request->set_param( 'author_uri', '' );
+		$request->set_param( 'tags_custom', '' );
+		$request->set_param( 'recommended_plugins', '' );
+
+		rest_do_request( $request );
+
+		CBT_Theme_JSON_Resolver::clean_cached_data();
+
+		return $test_theme_slug;
+	}
+
+	protected function uninstall_theme( $theme_slug ) {
+		CBT_Theme_JSON_Resolver::write_user_settings( array() );
+		delete_theme( $theme_slug );
+	}
+}
diff --git a/tests/test-theme-colors.php b/tests/test-theme-colors.php
new file mode 100644
index 00000000..15da9f43
--- /dev/null
+++ b/tests/test-theme-colors.php
@@ -0,0 +1,194 @@
+<?php
+/**
+ * Class Test_Create_Block_Theme_Colors
+ *
+ * @package Create_Block_Theme
+ */
+require_once __DIR__ . '/class-create-block-theme-test-case.php';
+
+class Test_Create_Block_Theme_Colors extends Create_Block_Theme_Test_Case {
+
+	protected static $admin_id;
+
+	public static function wpSetUpBeforeClass( WP_UnitTest_Factory $factory ) {
+		self::$admin_id = $factory->user->create(
+			array(
+				'role' => 'administrator',
+			)
+		);
+	}
+
+	public function test_custom_color_prefix_is_removed_when_option_is_enabled_for_blank_theme() {
+		wp_set_current_user( self::$admin_id );
+
+		$test_theme_slug = $this->create_blank_theme();
+
+		$this->add_user_color_palette(
+			array(
+				array(
+					'slug'  => 'custom-base',
+					'name'  => 'Base',
+					'color' => '#2B2B2B',
+				),
+				array(
+					'slug'  => 'custom-contrast',
+					'name'  => 'Contrast',
+					'color' => '#F5F0E8',
+				),
+			),
+			array(
+				'color' => array(
+					'background' => 'var:preset|color|custom-base',
+					'text'       => 'var(--wp--preset--color--custom-contrast)',
+				),
+			)
+		);
+
+		CBT_Theme_JSON::add_theme_json_to_local( 'all', array( 'removeCustomColorPrefix' => true ) );
+		CBT_Theme_JSON_Resolver::clean_cached_data();
+
+		$theme_data = CBT_Theme_JSON_Resolver::get_theme_file_contents();
+
+		$this->assertEquals( 'base', $theme_data['settings']['color']['palette'][0]['slug'] );
+		$this->assertEquals( 'contrast', $theme_data['settings']['color']['palette'][1]['slug'] );
+		$this->assertEquals( 'var(--wp--preset--color--base)', $theme_data['styles']['color']['background'] );
+		$this->assertEquals( 'var(--wp--preset--color--contrast)', $theme_data['styles']['color']['text'] );
+
+		$this->uninstall_theme( $test_theme_slug );
+	}
+
+	public function test_custom_color_prefix_is_preserved_by_default_for_blank_theme() {
+		wp_set_current_user( self::$admin_id );
+
+		$test_theme_slug = $this->create_blank_theme();
+
+		$this->add_user_color_palette(
+			array(
+				array(
+					'slug'  => 'custom-base',
+					'name'  => 'Base',
+					'color' => '#2B2B2B',
+				),
+				array(
+					'slug'  => 'custom-contrast',
+					'name'  => 'Contrast',
+					'color' => '#F5F0E8',
+				),
+			),
+			array(
+				'color' => array(
+					'background' => 'var:preset|color|custom-base',
+					'text'       => 'var(--wp--preset--color--custom-contrast)',
+				),
+			)
+		);
+
+		CBT_Theme_JSON::add_theme_json_to_local( 'all' );
+		CBT_Theme_JSON_Resolver::clean_cached_data();
+
+		$theme_data = CBT_Theme_JSON_Resolver::get_theme_file_contents();
+
+		$this->assertEquals( 'custom-base', $theme_data['settings']['color']['palette'][0]['slug'] );
+		$this->assertEquals( 'custom-contrast', $theme_data['settings']['color']['palette'][1]['slug'] );
+		$this->assertEquals( 'var(--wp--preset--color--custom-base)', $theme_data['styles']['color']['background'] );
+		$this->assertEquals( 'var(--wp--preset--color--custom-contrast)', $theme_data['styles']['color']['text'] );
+
+		$this->uninstall_theme( $test_theme_slug );
+	}
+
+	public function test_custom_color_prefix_is_removed_when_option_is_enabled_for_theme_with_palette() {
+		wp_set_current_user( self::$admin_id );
+
+		$test_theme_slug = $this->create_blank_theme();
+
+		$theme_json                                 = CBT_Theme_JSON_Resolver::get_theme_file_contents();
+		$theme_json['settings']['color']['palette'] = array(
+			array(
+				'slug'  => 'base',
+				'name'  => 'Base',
+				'color' => '#2B2B2B',
+			),
+		);
+		CBT_Theme_JSON_Resolver::write_theme_file_contents( $theme_json );
+
+		$this->add_user_color_palette(
+			array(
+				array(
+					'slug'  => 'custom-accent',
+					'name'  => 'Accent',
+					'color' => '#C8A96E',
+				),
+			)
+		);
+
+		CBT_Theme_JSON::add_theme_json_to_local( 'all', array( 'removeCustomColorPrefix' => true ) );
+		CBT_Theme_JSON_Resolver::clean_cached_data();
+
+		$theme_data = CBT_Theme_JSON_Resolver::get_theme_file_contents();
+
+		$this->assertEquals( 'base', $theme_data['settings']['color']['palette'][0]['slug'] );
+		$this->assertEquals( 'accent', $theme_data['settings']['color']['palette'][1]['slug'] );
+
+		$this->uninstall_theme( $test_theme_slug );
+	}
+
+	public function test_custom_color_prefix_is_preserved_when_normalized_slug_already_exists() {
+		wp_set_current_user( self::$admin_id );
+
+		$test_theme_slug = $this->create_blank_theme();
+
+		$theme_json                                 = CBT_Theme_JSON_Resolver::get_theme_file_contents();
+		$theme_json['settings']['color']['palette'] = array(
+			array(
+				'slug'  => 'base',
+				'name'  => 'Base',
+				'color' => '#2B2B2B',
+			),
+		);
+		CBT_Theme_JSON_Resolver::write_theme_file_contents( $theme_json );
+
+		$this->add_user_color_palette(
+			array(
+				array(
+					'slug'  => 'custom-base',
+					'name'  => 'Custom Base',
+					'color' => '#F5F0E8',
+				),
+			),
+			array(
+				'color' => array(
+					'background' => 'var:preset|color|custom-base',
+				),
+			)
+		);
+
+		CBT_Theme_JSON::add_theme_json_to_local( 'all', array( 'removeCustomColorPrefix' => true ) );
+		CBT_Theme_JSON_Resolver::clean_cached_data();
+
+		$theme_data = CBT_Theme_JSON_Resolver::get_theme_file_contents();
+
+		$this->assertEquals( 'base', $theme_data['settings']['color']['palette'][0]['slug'] );
+		$this->assertEquals( 'custom-base', $theme_data['settings']['color']['palette'][1]['slug'] );
+		$this->assertEquals( 'var(--wp--preset--color--custom-base)', $theme_data['styles']['color']['background'] );
+
+		$this->uninstall_theme( $test_theme_slug );
+	}
+
+	private function add_user_color_palette( $palette, $styles = array() ) {
+		$settings = array(
+			'color' => array(
+				'palette' => array(
+					'custom' => $palette,
+				),
+			),
+		);
+
+		$global_styles_id = CBT_Theme_JSON_Resolver::get_user_global_styles_post_id();
+		$request          = new WP_REST_Request( 'POST', '/wp/v2/global-styles/' . $global_styles_id );
+		$request->set_param( 'settings', $settings );
+		$request->set_param( 'styles', $styles );
+		rest_do_request( $request );
+
+		CBT_Theme_JSON_Resolver::clean_cached_data();
+	}
+}
diff --git a/tests/test-theme-fonts.php b/tests/test-theme-fonts.php
index 3d5810b0..bea641d2 100644
--- a/tests/test-theme-fonts.php
+++ b/tests/test-theme-fonts.php
@@ -4,7 +4,9 @@
  *
  * @package Create_Block_Theme
  */
-class Test_Create_Block_Theme_Fonts extends WP_UnitTestCase {
+require_once __DIR__ . '/class-create-block-theme-test-case.php';
+
+class Test_Create_Block_Theme_Fonts extends Create_Block_Theme_Test_Case {
 
 	protected static $admin_id;
 	protected static $editor_id;
@@ -380,33 +382,6 @@ private function save_theme() {
 		CBT_Theme_Fonts::persist_font_settings();
 	}
 
-	private function create_blank_theme() {
-
-		$test_theme_slug = 'cbttesttheme';
-
-		delete_theme( $test_theme_slug );
-
-		$request = new WP_REST_Request( 'POST', '/create-block-theme/v1/create-blank' );
-		$request->set_param( 'name', $test_theme_slug );
-		$request->set_param( 'description', '' );
-		$request->set_param( 'uri', '' );
-		$request->set_param( 'author', '' );
-		$request->set_param( 'author_uri', '' );
-		$request->set_param( 'tags_custom', '' );
-		$request->set_param( 'recommended_plugins', '' );
-
-		rest_do_request( $request );
-
-		CBT_Theme_JSON_Resolver::clean_cached_data();
-
-		return $test_theme_slug;
-	}
-
-	private function uninstall_theme( $theme_slug ) {
-		CBT_Theme_JSON_Resolver::write_user_settings( array() );
-		delete_theme( $theme_slug );
-	}
-
 	private function activate_user_font() {
 
 		$font_dir              = wp_get_font_dir();
@@ -499,4 +474,3 @@ public function test_make_filename_from_fontface() {
 		$this->assertEquals( $expected, $actual );
 	}
 }
-