diff --git a/release_notes.md b/release_notes.md
index 7f2d3d806a..912ee06406 100644
--- a/release_notes.md
+++ b/release_notes.md
@@ -6,4 +6,4 @@
 - Add JitTrace Files for v4.1042
 - Updating OTel related nuget packages (#11216)
 - Moving to version 1.5.7 of Microsoft.Azure.AppService.Middleware.Functions (https://github.com/Azure/azure-functions-host/pull/11231)
-
+- Mark Failed Container Specialization as Fatal (https://github.com/Azure/azure-functions-host/pull/11250)
diff --git a/src/WebJobs.Script.WebHost/Management/AtlasInstanceManager.cs b/src/WebJobs.Script.WebHost/Management/AtlasInstanceManager.cs
index a4cf1948dc..720eec0f84 100644
--- a/src/WebJobs.Script.WebHost/Management/AtlasInstanceManager.cs
+++ b/src/WebJobs.Script.WebHost/Management/AtlasInstanceManager.cs
@@ -1,4 +1,4 @@
-// Copyright (c) .NET Foundation. All rights reserved.
+// Copyright (c) .NET Foundation. All rights reserved.
 // Licensed under the MIT License. See License.txt in the project root for license information.
 
 using System;
@@ -276,6 +276,11 @@ await _runFromPackageHandler.ApplyRunFromPackageContext(pkgContext, options.Scri
                         _logger.LogWarning($"Failed to {nameof(_runFromPackageHandler.ApplyRunFromPackageContext)}. Attempting to use local disk instead");
                         await _runFromPackageHandler.ApplyRunFromPackageContext(pkgContext, options.ScriptPath, false);
                     }
+                    else if (!blobContextApplied && !azureFilesMounted)
+                    {
+                        await _meshServiceClient.NotifyHealthEvent(ContainerHealthEventType.Fatal, this.GetType(),
+                            $"Failed to mount Azure File Share and failed to {nameof(_runFromPackageHandler.ApplyRunFromPackageContext)}");
+                    }
                 }
                 else if (pkgContext.IsRunFromLocalPackage())
                 {
diff --git a/test/WebJobs.Script.Tests.Integration/Management/InstanceManagerTests.cs b/test/WebJobs.Script.Tests.Integration/Management/InstanceManagerTests.cs
index 1fdae1cdcf..c327800496 100644
--- a/test/WebJobs.Script.Tests.Integration/Management/InstanceManagerTests.cs
+++ b/test/WebJobs.Script.Tests.Integration/Management/InstanceManagerTests.cs
@@ -1,4 +1,4 @@
-// Copyright (c) .NET Foundation. All rights reserved.
+// Copyright (c) .NET Foundation. All rights reserved.
 // Licensed under the MIT License. See License.txt in the project root for license information.
 
 using System;
@@ -1190,6 +1190,10 @@ public async Task Falls_Back_To_Local_Disk_If_Azure_Files_Unavailable_Only_If_Az
                 .Setup(r => r.ApplyRunFromPackageContext(It.IsAny<RunFromPackageContext>(), It.IsAny<string>(), false,
                     false)).ReturnsAsync(false); // return false to trigger failure
 
+            // setup notifyhealth method
+            _meshServiceClientMock.Setup(m => m.NotifyHealthEvent(ContainerHealthEventType.Fatal,
+                It.IsAny<Type>(), It.IsAny<string>())).Returns(Task.CompletedTask);
+
             // There will be no 2nd attempt since azure files mounting failed.
 
             var optionsFactory = new TestOptionsFactory<ScriptApplicationHostOptions>(new ScriptApplicationHostOptions() { ScriptPath = scriptPath });