diff --git a/agent/agent.go b/agent/agent.go
index 1870e477c..ebc5e87b6 100644
--- a/agent/agent.go
+++ b/agent/agent.go
@@ -363,22 +363,24 @@ func (a *Agent) Start() error {
 	// create the proxy process manager and start it. This is purposely
 	// done here after the local state above is loaded in so we can have
 	// a more accurate initial state view.
-	a.proxyManager = proxy.NewManager()
-	a.proxyManager.AllowRoot = a.config.ConnectProxyAllowManagedRoot
-	a.proxyManager.State = a.State
-	a.proxyManager.Logger = a.logger
-	if a.config.DataDir != "" {
-		// DataDir is required for all non-dev mode agents, but we want
-		// to allow setting the data dir for demos and so on for the agent,
-		// so do the check above instead.
-		a.proxyManager.DataDir = filepath.Join(a.config.DataDir, "proxy")
+	if !c.ConnectTestDisableManagedProxies {
+		a.proxyManager = proxy.NewManager()
+		a.proxyManager.AllowRoot = a.config.ConnectProxyAllowManagedRoot
+		a.proxyManager.State = a.State
+		a.proxyManager.Logger = a.logger
+		if a.config.DataDir != "" {
+			// DataDir is required for all non-dev mode agents, but we want
+			// to allow setting the data dir for demos and so on for the agent,
+			// so do the check above instead.
+			a.proxyManager.DataDir = filepath.Join(a.config.DataDir, "proxy")
 
-		// Restore from our snapshot (if it exists)
-		if err := a.proxyManager.Restore(a.proxyManager.SnapshotPath()); err != nil {
-			a.logger.Printf("[WARN] agent: error restoring proxy state: %s", err)
+			// Restore from our snapshot (if it exists)
+			if err := a.proxyManager.Restore(a.proxyManager.SnapshotPath()); err != nil {
+				a.logger.Printf("[WARN] agent: error restoring proxy state: %s", err)
+			}
 		}
+		go a.proxyManager.Run()
 	}
-	go a.proxyManager.Run()
 
 	// Start watching for critical services to deregister, based on their
 	// checks.
diff --git a/agent/config/runtime.go b/agent/config/runtime.go
index 63a5c5db8..695bff954 100644
--- a/agent/config/runtime.go
+++ b/agent/config/runtime.go
@@ -661,6 +661,16 @@ type RuntimeConfig struct {
 	// ConnectCAConfig is the config to use for the CA provider.
 	ConnectCAConfig map[string]interface{}
 
+	// ConnectTestDisableManagedProxies is not exposed to public config but us
+	// used by TestAgent to prevent self-executing the test binary in the
+	// background if a managed proxy is created for a test. The only place we
+	// actually want to test processes really being spun up and managed is in
+	// `agent/proxy` and it does it at a lower level. Note that this still allows
+	// registering managed proxies via API and other methods, and still creates
+	// all the agent state for them, just doesn't actually start external
+	// processes up.
+	ConnectTestDisableManagedProxies bool
+
 	// DNSAddrs contains the list of TCP and UDP addresses the DNS server will
 	// bind to. If the DNS endpoint is disabled (ports.dns <= 0) the list is
 	// empty.
diff --git a/agent/config/runtime_test.go b/agent/config/runtime_test.go
index 102e0623e..9852347c6 100644
--- a/agent/config/runtime_test.go
+++ b/agent/config/runtime_test.go
@@ -4245,6 +4245,7 @@ func TestSanitize(t *testing.T) {
     "ConnectProxyDefaultDaemonCommand": [],
     "ConnectProxyDefaultExecMode": "",
     "ConnectProxyDefaultScriptCommand": [],
+    "ConnectTestDisableManagedProxies": false,
     "ConsulCoordinateUpdateBatchSize": 0,
     "ConsulCoordinateUpdateMaxBatches": 0,
     "ConsulCoordinateUpdatePeriod": "15s",
diff --git a/agent/testagent.go b/agent/testagent.go
index 3703ded1b..4bcd4d40c 100644
--- a/agent/testagent.go
+++ b/agent/testagent.go
@@ -352,16 +352,6 @@ func TestConfig(sources ...config.Source) *config.RuntimeConfig {
 				ca_config {
 					cluster_id = "` + connect.TestClusterID + `"
 				}
-				proxy_defaults {
-					// Generally we don't actually need to test real proxy startup except
-					// in the Daemon package which explicitly manages how it starts things
-					// so making this a no-op long running command like /bin/sleep would
-					// be fine, but there is no such thing on windows etc. We hackily rely
-					// on the fact that if the executable doesn't exist, the Daemon
-					// manager will get an exec error and retry it with a backoff beningly
-					// until tests pass.
-				  daemon_command = ["/bin/sleep", "3600"]
-				}
 			}
 			performance {
 				raft_multiplier = 1
@@ -386,6 +376,10 @@ func TestConfig(sources ...config.Source) *config.RuntimeConfig {
 		fmt.Println("WARNING:", w)
 	}
 
+	// Disable connect proxy execution since it causes all kinds of problems with
+	// self-executing tests etc.
+	cfg.ConnectTestDisableManagedProxies = true
+
 	return &cfg
 }