diff --git a/src/deploy/extensions/prepare.spec.ts b/src/deploy/extensions/prepare.spec.ts
new file mode 100644
index 00000000000..f8f6e8dc2a3
--- /dev/null
+++ b/src/deploy/extensions/prepare.spec.ts
@@ -0,0 +1,94 @@
+import { expect } from "chai";
+import * as sinon from "sinon";
+
+import { prepareDynamicExtensions } from "./prepare";
+import * as planner from "./planner";
+import * as projectUtils from "../../projectUtils";
+import * as extensionsHelper from "../../extensions/extensionsHelper";
+import * as requirePermissions from "../../requirePermissions";
+import { Context, Payload } from "./args";
+import * as v2FunctionHelper from "./v2FunctionHelper";
+import * as tos from "../../extensions/tos";
+
+describe("Extensions prepare", () => {
+  describe("prepareDynamicExtensions", () => {
+    let haveDynamicStub: sinon.SinonStub;
+    let ensureExtensionsApiEnabledStub: sinon.SinonStub;
+    let requirePermissionsStub: sinon.SinonStub;
+    let needProjectIdStub: sinon.SinonStub;
+    let needProjectNumberStub: sinon.SinonStub;
+
+    beforeEach(() => {
+      haveDynamicStub = sinon.stub(planner, "haveDynamic").resolves([]);
+      ensureExtensionsApiEnabledStub = sinon
+        .stub(extensionsHelper, "ensureExtensionsApiEnabled")
+        .resolves();
+      requirePermissionsStub = sinon.stub(requirePermissions, "requirePermissions").resolves();
+      needProjectIdStub = sinon.stub(projectUtils, "needProjectId").returns("test-project");
+      needProjectNumberStub = sinon.stub(projectUtils, "needProjectNumber").resolves("123456");
+    });
+
+    afterEach(() => {
+      haveDynamicStub.restore();
+      ensureExtensionsApiEnabledStub.restore();
+      requirePermissionsStub.restore();
+      needProjectIdStub.restore();
+      needProjectNumberStub.restore();
+    });
+
+    it("should swallow errors and exit cleanly if the extensions API is down", async () => {
+      haveDynamicStub.rejects(new Error("Extensions API is having an outage"));
+
+      const context: Context = {};
+      const payload: Payload = {};
+      const options: any = {
+        config: {
+          src: { functions: { source: "functions" } },
+        },
+      };
+      const builds = {};
+
+      // This should not throw.
+      await expect(prepareDynamicExtensions(context, options, payload, builds)).to.not.be.rejected;
+    });
+
+    it("should proceed normally if extensions API is healthy", async () => {
+      haveDynamicStub.resolves([
+        {
+          instanceId: "test-extension",
+          ref: { publisherId: "test", extensionId: "test", version: "0.1.0" },
+          params: {},
+          systemParams: {},
+          labels: { codebase: "default" },
+        },
+      ]);
+
+      const context: Context = {};
+      const payload: Payload = {};
+      const options: any = {
+        config: {
+          get: () => [],
+          src: { functions: { source: "functions" } },
+        },
+        rc: { getEtags: () => [] },
+        dryRun: true,
+      };
+      const builds = {};
+
+      const wantDynamicStub: sinon.SinonStub = sinon.stub(planner, "wantDynamic").resolves([]);
+      const v2apistub: sinon.SinonStub = sinon
+        .stub(v2FunctionHelper, "ensureNecessaryV2ApisAndRoles")
+        .resolves();
+      const tosStub: sinon.SinonStub = sinon
+        .stub(tos, "getAppDeveloperTOSStatus")
+        .resolves({ lastAcceptedVersion: "1.0.0" } as any);
+
+      // Expect successful completion
+      await expect(prepareDynamicExtensions(context, options, payload, builds)).to.not.be.rejected;
+
+      wantDynamicStub.restore();
+      v2apistub.restore();
+      tosStub.restore();
+    });
+  });
+});
diff --git a/src/deploy/extensions/prepare.ts b/src/deploy/extensions/prepare.ts
index cf3de21efa2..72a42cf1976 100644
--- a/src/deploy/extensions/prepare.ts
+++ b/src/deploy/extensions/prepare.ts
@@ -22,6 +22,7 @@ import { Build } from "../functions/build";
 import { getEndpointFilters } from "../functions/functionsDeployHelper";
 import { normalizeAndValidate } from "../../functions/projectConfig";
 import { DeployOptions } from "..";
+import { logLabeledError } from "../../utils";
 
 const matchesInstanceId = (dep: planner.InstanceSpec) => (test: planner.InstanceSpec) => {
   return dep.instanceId === test.instanceId;
@@ -173,13 +174,23 @@ export async function prepareDynamicExtensions(
   const projectId = needProjectId(options);
   const projectNumber = await needProjectNumber(options);
 
-  await ensureExtensionsApiEnabled(options);
-  await requirePermissions(options, ["firebaseextensions.instances.list"]);
+  let haveExtensions: planner.DeploymentInstanceSpec[] = [];
+  try {
+    await ensureExtensionsApiEnabled(options);
+    await requirePermissions(options, ["firebaseextensions.instances.list"]);
 
-  let haveExtensions = await planner.haveDynamic(projectId);
-  haveExtensions = haveExtensions.filter((e) =>
-    extensionMatchesAnyFilter(e.labels?.codebase, e.instanceId, filters),
-  );
+    haveExtensions = await planner.haveDynamic(projectId);
+    haveExtensions = haveExtensions.filter((e) =>
+      extensionMatchesAnyFilter(e.labels?.codebase, e.instanceId, filters),
+    );
+  } catch (err) {
+    logLabeledError(
+      "extensions",
+      "Failed to fetch the list of extensions. Assuming for now that there are no existing extensions. " +
+        "If you are trying to install an extension through Firebase Functions this may fail later.",
+    );
+    return;
+  }
 
   if (Object.keys(extensions).length === 0 && haveExtensions.length === 0) {
     // Nothing defined, and nothing to delete