diff --git a/addon/v1alpha1/0000_02_addon.open-cluster-management.io_addondeploymentconfigs.crd.yaml b/addon/v1alpha1/0000_02_addon.open-cluster-management.io_addondeploymentconfigs.crd.yaml
index 1a39c3d3..e0c899b7 100644
--- a/addon/v1alpha1/0000_02_addon.open-cluster-management.io_addondeploymentconfigs.crd.yaml
+++ b/addon/v1alpha1/0000_02_addon.open-cluster-management.io_addondeploymentconfigs.crd.yaml
@@ -41,10 +41,12 @@ spec:
             properties:
               agentInstallNamespace:
                 default: open-cluster-management-agent-addon
-                description: AgentInstallNamespace is the namespace where the add-on
-                  agent should be installed on the managed cluster.
+                description: |-
+                  AgentInstallNamespace is the namespace where the add-on agent should be installed on the managed cluster.
+                  For template-type addons: set to empty string "" to use the namespace defined in the addonTemplate.
+                  For non-template addons: defaults to "open-cluster-management-agent-addon" if not specified.
                 maxLength: 63
-                pattern: ^[a-z0-9]([-a-z0-9]*[a-z0-9])?$
+                pattern: ^([a-z0-9]([-a-z0-9]*[a-z0-9])?)?$
                 type: string
               customizedVariables:
                 description: |-
diff --git a/addon/v1alpha1/types_addondeploymentconfig.go b/addon/v1alpha1/types_addondeploymentconfig.go
index 1b39f89d..3fd3d013 100644
--- a/addon/v1alpha1/types_addondeploymentconfig.go
+++ b/addon/v1alpha1/types_addondeploymentconfig.go
@@ -54,10 +54,12 @@ type AddOnDeploymentConfigSpec struct {
 	ProxyConfig ProxyConfig `json:"proxyConfig,omitempty"`
 
 	// AgentInstallNamespace is the namespace where the add-on agent should be installed on the managed cluster.
+	// For template-type addons: set to empty string "" to use the namespace defined in the addonTemplate.
+	// For non-template addons: defaults to "open-cluster-management-agent-addon" if not specified.
 	// +optional
 	// +kubebuilder:default=open-cluster-management-agent-addon
 	// +kubebuilder:validation:MaxLength=63
-	// +kubebuilder:validation:Pattern=^[a-z0-9]([-a-z0-9]*[a-z0-9])?$
+	// +kubebuilder:validation:Pattern=^([a-z0-9]([-a-z0-9]*[a-z0-9])?)?$
 	AgentInstallNamespace string `json:"agentInstallNamespace,omitempty"`
 
 	// ResourceRequirements specify the resources required by add-on agents.
diff --git a/test/integration/api/addondeploymentconfig_test.go b/test/integration/api/addondeploymentconfig_test.go
index b22a0233..850230fa 100644
--- a/test/integration/api/addondeploymentconfig_test.go
+++ b/test/integration/api/addondeploymentconfig_test.go
@@ -159,4 +159,99 @@ var _ = ginkgo.Describe("AddOnDeploymentConfig API test", func() {
 		)
 		gomega.Expect(errors.IsInvalid(err)).To(gomega.BeTrue())
 	})
+
+	ginkgo.It("Should create a AddOnDeploymentConfig with empty agentInstallNamespace", func() {
+		addOnDeploymentConfig := &addonv1alpha1.AddOnDeploymentConfig{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      addOnDeploymentConfigName,
+				Namespace: testNamespace,
+			},
+			Spec: addonv1alpha1.AddOnDeploymentConfigSpec{
+				AgentInstallNamespace: "",
+			},
+		}
+
+		_, err := hubAddonClient.AddonV1alpha1().AddOnDeploymentConfigs(testNamespace).Create(
+			context.TODO(),
+			addOnDeploymentConfig,
+			metav1.CreateOptions{},
+		)
+		gomega.Expect(err).ToNot(gomega.HaveOccurred())
+	})
+
+	ginkgo.It("Should create a AddOnDeploymentConfig with valid agentInstallNamespace", func() {
+		addOnDeploymentConfig := &addonv1alpha1.AddOnDeploymentConfig{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      addOnDeploymentConfigName,
+				Namespace: testNamespace,
+			},
+			Spec: addonv1alpha1.AddOnDeploymentConfigSpec{
+				AgentInstallNamespace: "my-custom-namespace",
+			},
+		}
+
+		_, err := hubAddonClient.AddonV1alpha1().AddOnDeploymentConfigs(testNamespace).Create(
+			context.TODO(),
+			addOnDeploymentConfig,
+			metav1.CreateOptions{},
+		)
+		gomega.Expect(err).ToNot(gomega.HaveOccurred())
+	})
+
+	ginkgo.It("Should not create a AddOnDeploymentConfig with invalid agentInstallNamespace (starts with hyphen)", func() {
+		addOnDeploymentConfig := &addonv1alpha1.AddOnDeploymentConfig{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      addOnDeploymentConfigName,
+				Namespace: testNamespace,
+			},
+			Spec: addonv1alpha1.AddOnDeploymentConfigSpec{
+				AgentInstallNamespace: "-invalid",
+			},
+		}
+
+		_, err := hubAddonClient.AddonV1alpha1().AddOnDeploymentConfigs(testNamespace).Create(
+			context.TODO(),
+			addOnDeploymentConfig,
+			metav1.CreateOptions{},
+		)
+		gomega.Expect(errors.IsInvalid(err)).To(gomega.BeTrue())
+	})
+
+	ginkgo.It("Should not create a AddOnDeploymentConfig with invalid agentInstallNamespace (contains uppercase)", func() {
+		addOnDeploymentConfig := &addonv1alpha1.AddOnDeploymentConfig{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      addOnDeploymentConfigName,
+				Namespace: testNamespace,
+			},
+			Spec: addonv1alpha1.AddOnDeploymentConfigSpec{
+				AgentInstallNamespace: "Invalid-Namespace",
+			},
+		}
+
+		_, err := hubAddonClient.AddonV1alpha1().AddOnDeploymentConfigs(testNamespace).Create(
+			context.TODO(),
+			addOnDeploymentConfig,
+			metav1.CreateOptions{},
+		)
+		gomega.Expect(errors.IsInvalid(err)).To(gomega.BeTrue())
+	})
+
+	ginkgo.It("Should not create a AddOnDeploymentConfig with agentInstallNamespace exceeding max length", func() {
+		addOnDeploymentConfig := &addonv1alpha1.AddOnDeploymentConfig{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      addOnDeploymentConfigName,
+				Namespace: testNamespace,
+			},
+			Spec: addonv1alpha1.AddOnDeploymentConfigSpec{
+				AgentInstallNamespace: rand.String(64), // max is 63
+			},
+		}
+
+		_, err := hubAddonClient.AddonV1alpha1().AddOnDeploymentConfigs(testNamespace).Create(
+			context.TODO(),
+			addOnDeploymentConfig,
+			metav1.CreateOptions{},
+		)
+		gomega.Expect(errors.IsInvalid(err)).To(gomega.BeTrue())
+	})
 })