diff --git a/CHANGELOG.md b/CHANGELOG.md
index 90ff10089..0787cf9fb 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -1,5 +1,8 @@
 ## Unreleased
 
+BUG FIXES:
+* `r/tfe_workspace_settings`: Prevent unintended clearing of workspace-level tags on the first apply when tags is unset by making tag updates sparse. By @shwetamurali [#1851](https://github.com/hashicorp/terraform-provider-tfe/pull/1851)
+
 ## v0.69.0
 
 BREAKING CHANGES:
diff --git a/internal/provider/resource_tfe_workspace_settings.go b/internal/provider/resource_tfe_workspace_settings.go
index b6fd85fd0..8ac83337e 100644
--- a/internal/provider/resource_tfe_workspace_settings.go
+++ b/internal/provider/resource_tfe_workspace_settings.go
@@ -513,20 +513,24 @@ func (r *workspaceSettings) updateSettings(ctx context.Context, data *modelWorks
 		updateOptions.ExecutionMode = tfe.String("remote")
 	}
 
-	tags := data.Tags.Elements()
-	for key, val := range tags {
-		if strVal, ok := val.(types.String); ok && !strVal.IsNull() {
-			updateOptions.TagBindings = append(updateOptions.TagBindings, &tfe.TagBinding{
-				Key:   key,
-				Value: strVal.ValueString(),
-			})
-		}
-	}
-
-	if len(tags) == 0 {
-		err := r.config.Client.Workspaces.DeleteAllTagBindings(ctx, workspaceID)
-		if err != nil {
-			return fmt.Errorf("error removing tag bindings from workspace %s: %w", workspaceID, err)
+	if !data.Tags.IsNull() && !data.Tags.IsUnknown() {
+		tags := data.Tags.Elements()
+
+		switch {
+		case len(tags) == 0:
+			if err := r.config.Client.Workspaces.DeleteAllTagBindings(ctx, workspaceID); err != nil {
+				return fmt.Errorf("error removing tag bindings from workspace %s: %w", workspaceID, err)
+			}
+		default:
+			for key, val := range tags {
+				strVal, ok := val.(types.String)
+				if ok && !strVal.IsNull() && !strVal.IsUnknown() {
+					updateOptions.TagBindings = append(updateOptions.TagBindings, &tfe.TagBinding{
+						Key:   key,
+						Value: strVal.ValueString(),
+					})
+				}
+			}
 		}
 	}
 
diff --git a/internal/provider/resource_tfe_workspace_settings_test.go b/internal/provider/resource_tfe_workspace_settings_test.go
index b266366f5..e854fc60a 100644
--- a/internal/provider/resource_tfe_workspace_settings_test.go
+++ b/internal/provider/resource_tfe_workspace_settings_test.go
@@ -594,3 +594,121 @@ resource "tfe_workspace_settings" "test" {
 }
 `
 }
+
+func TestAccTFEWorkspaceSettings_preservesWorkspaceTagsOnFirstApply(t *testing.T) {
+	rInt := rand.New(rand.NewSource(time.Now().UnixNano())).Int()
+
+	configStep := fmt.Sprintf(`
+resource "tfe_organization" "test" {
+  name  = "tst-tfeprovider-%d"
+  email = "admin@company.com"
+}
+
+resource "tfe_project" "test" {
+  organization = tfe_organization.test.name
+  name = "tfe-provider-test-%d"
+  tags = { projectTag = "valueA" }
+}
+
+resource "tfe_workspace" "test" {
+  name         = "tfe-provider-test-workspace-%d"
+  organization = tfe_organization.test.name
+  project_id   = tfe_project.test.id
+  tags         = { app = "web" }    # workspace-level tag
+}
+
+resource "tfe_workspace_settings" "test" {
+  workspace_id = tfe_workspace.test.id
+}
+`, rInt, rInt, rInt)
+
+	resource.Test(t, resource.TestCase{
+		PreCheck:                 func() { testAccPreCheck(t) },
+		ProtoV6ProviderFactories: testAccMuxedProviders,
+		Steps: []resource.TestStep{
+			{
+				Config: configStep,
+				Check: resource.ComposeTestCheckFunc(
+					resource.TestCheckResourceAttr("tfe_workspace_settings.test", "effective_tags.%", "2"),
+					resource.TestCheckResourceAttr("tfe_workspace_settings.test", "effective_tags.projectTag", "valueA"),
+					resource.TestCheckResourceAttr("tfe_workspace_settings.test", "effective_tags.app", "web"),
+				),
+			},
+		},
+	})
+}
+
+func TestAccTFEWorkspaceSettings_explicitEmptyClearsWorkspaceTags(t *testing.T) {
+	rInt := rand.New(rand.NewSource(time.Now().UnixNano())).Int()
+
+	configStep1 := fmt.Sprintf(`
+resource "tfe_organization" "test" {
+  name  = "tst-tfeprovider-%d"
+  email = "admin@company.com"
+}
+
+resource "tfe_project" "test" {
+  organization = tfe_organization.test.name
+  name = "tfe-provider-test-%d"
+  tags = { projectTag = "valueA" }
+}
+
+resource "tfe_workspace" "test" {
+  name         = "tfe-provider-test-workspace-%d"
+  organization = tfe_organization.test.name
+  project_id   = tfe_project.test.id
+  tags         = { app = "web" }    # workspace-level tag
+}
+
+resource "tfe_workspace_settings" "test" {
+  workspace_id = tfe_workspace.test.id
+}
+`, rInt, rInt, rInt)
+
+	configStep2 := fmt.Sprintf(`
+resource "tfe_organization" "test" {
+  name  = "tst-tfeprovider-%d"
+  email = "admin@company.com"
+}
+
+resource "tfe_project" "test" {
+  organization = tfe_organization.test.name
+  name = "tfe-provider-test-%d"
+  tags = { projectTag = "valueA" }
+}
+
+resource "tfe_workspace" "test" {
+  name         = "tfe-provider-test-workspace-%d"
+  organization = tfe_organization.test.name
+  project_id   = tfe_project.test.id
+}
+
+resource "tfe_workspace_settings" "test" {
+  workspace_id = tfe_workspace.test.id
+  tags         = {}
+}
+`, rInt, rInt, rInt)
+
+	resource.Test(t, resource.TestCase{
+		PreCheck:                 func() { testAccPreCheck(t) },
+		ProtoV6ProviderFactories: testAccMuxedProviders,
+		Steps: []resource.TestStep{
+			{
+				Config: configStep1,
+				Check: resource.ComposeTestCheckFunc(
+					resource.TestCheckResourceAttr("tfe_workspace_settings.test", "effective_tags.%", "2"),
+					resource.TestCheckResourceAttr("tfe_workspace_settings.test", "effective_tags.projectTag", "valueA"),
+					resource.TestCheckResourceAttr("tfe_workspace_settings.test", "effective_tags.app", "web"),
+				),
+			},
+			{
+				Config: configStep2,
+				Check: resource.ComposeTestCheckFunc(
+					resource.TestCheckResourceAttr("tfe_workspace_settings.test", "effective_tags.%", "1"),
+					resource.TestCheckResourceAttr("tfe_workspace_settings.test", "effective_tags.projectTag", "valueA"),
+					resource.TestCheckNoResourceAttr("tfe_workspace_settings.test", "effective_tags.app"),
+				),
+			},
+		},
+	})
+}