diff --git a/messages/assess.json b/messages/assess.json
index 883c5a12..de94e23d 100644
--- a/messages/assess.json
+++ b/messages/assess.json
@@ -117,6 +117,7 @@
   "operationCancelled": "Operation cancelled.",
   "invalidYesNoResponse": "Invalid response. Please answer y or n.",
   "notSfdxProjectFolderPath": "Provided folder is not a valid Salesforce DX project. Please select a folder containing sfdx-project.json",
+  "restrictedFolderName": "Restricted folder name: %s. Do not use 'labels', 'messageChannels', or 'lwc'. Try again with a different name.",
   "errorRunningAssess": "Assessment process failed reason : %s",
   "enableVerboseOutput": "Enable verbose output",
   "apexFileChangesIdentifiedNotApplied": "Changes were identified but not applied for the %s Apex class when the assessment mode was running.",
diff --git a/messages/migrate.json b/messages/migrate.json
index b02d2db5..11b94942 100644
--- a/messages/migrate.json
+++ b/messages/migrate.json
@@ -46,6 +46,7 @@
   "notEmptyProjectFolderPath": "Provided project folder is not empty. Please provide a valid empty project folder name and path",
   "invalidYesNoResponse": "Invalid response. Please answer y or n.",
   "notSfdxProjectFolderPath": "Provided folder is not a valid Salesforce DX project. Please select a folder containing sfdx-project.json",
+  "restrictedFolderName": "Restricted folder name: %s. Do not use 'labels', 'messageChannels', or 'lwc'. Try again with a different name.",
   "operationCancelled": "Operation cancelled.",
   "errorRunningMigrate": "Migration process failed reason : %s",
   "exceptionSettingDesignersToStandardDataModel": "We've encountered an exception while configuring the Omnistudio standard designers to use the standard data model. Try again later.",
diff --git a/src/utils/projectPathUtil.ts b/src/utils/projectPathUtil.ts
index ef9377d5..b88c2606 100644
--- a/src/utils/projectPathUtil.ts
+++ b/src/utils/projectPathUtil.ts
@@ -158,6 +158,14 @@ export class ProjectPathUtil {
       return false;
     }
 
+    // Check if folder path ends with restricted names (case insensitive)
+    const restrictedFolderNames = ['labels', 'messagechannels', 'lwc'];
+    const folderName = path.basename(folderPath);
+    if (restrictedFolderNames.includes(folderName.toLowerCase())) {
+      Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      return false;
+    }
+
     if (mode === EMPTY_MODE && fs.readdirSync(folderPath).length > 0) {
       Logger.error(messages.getMessage('notEmptyProjectFolderPath'));
       return false;
diff --git a/test/utils/projectPathUtil.test.ts b/test/utils/projectPathUtil.test.ts
new file mode 100644
index 00000000..65c7ec8f
--- /dev/null
+++ b/test/utils/projectPathUtil.test.ts
@@ -0,0 +1,184 @@
+import * as fs from 'fs';
+import * as path from 'path';
+import { expect } from 'chai';
+import * as sinon from 'sinon';
+import { Messages } from '@salesforce/core';
+import { Logger } from '../../src/utils/logger';
+
+Messages.importMessagesDirectory(__dirname);
+const messages = Messages.loadMessages('@salesforce/plugin-omnistudio-migration-tool', 'assess');
+
+describe('ProjectPathUtil - Restricted Folder Name Validation', () => {
+  let loggerErrorStub: sinon.SinonStub;
+  let fsExistsSyncStub: sinon.SinonStub;
+  let fsLstatSyncStub: sinon.SinonStub;
+
+  beforeEach(() => {
+    loggerErrorStub = sinon.stub(Logger, 'error');
+    fsExistsSyncStub = sinon.stub(fs, 'existsSync');
+    fsLstatSyncStub = sinon.stub(fs, 'lstatSync');
+  });
+
+  afterEach(() => {
+    loggerErrorStub.restore();
+    fsExistsSyncStub.restore();
+    fsLstatSyncStub.restore();
+  });
+
+  /**
+   * Helper function that simulates the isValidFolderPath restricted name check
+   */
+  function isRestrictedFolderName(folderPath: string): boolean {
+    const restrictedFolderNames = ['labels', 'messagechannels', 'lwc'];
+    const folderName = path.basename(folderPath);
+    return restrictedFolderNames.includes(folderName.toLowerCase());
+  }
+
+  describe('Restricted folder names', () => {
+    it('should reject folder path ending with "lwc"', () => {
+      const folderPath = '/some/path/lwc';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.calledOnce).to.be.true;
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Restricted folder name: lwc');
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Try again with a different name');
+    });
+
+    it('should reject folder path ending with "labels"', () => {
+      const folderPath = '/some/path/labels';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.calledOnce).to.be.true;
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Restricted folder name: labels');
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Try again with a different name');
+    });
+
+    it('should reject folder path ending with "messageChannels"', () => {
+      const folderPath = '/some/path/messageChannels';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.calledOnce).to.be.true;
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Restricted folder name: messageChannels');
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Try again with a different name');
+    });
+
+    it('should reject folder path with uppercase "LWC" (case insensitive)', () => {
+      const folderPath = '/some/path/LWC';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.calledOnce).to.be.true;
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Restricted folder name: LWC');
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Try again with a different name');
+    });
+
+    it('should reject folder path with mixed case "Labels" (case insensitive)', () => {
+      const folderPath = '/some/path/Labels';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.calledOnce).to.be.true;
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Restricted folder name: Labels');
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Try again with a different name');
+    });
+
+    it('should reject folder path with uppercase "MESSAGECHANNELS" (case insensitive)', () => {
+      const folderPath = '/some/path/MESSAGECHANNELS';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.calledOnce).to.be.true;
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Restricted folder name: MESSAGECHANNELS');
+      expect(loggerErrorStub.firstCall.args[0]).to.include('Try again with a different name');
+    });
+  });
+
+  describe('Valid folder names', () => {
+    it('should allow folder path ending with "myproject"', () => {
+      const folderPath = '/some/path/myproject';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.called).to.be.false;
+    });
+
+    it('should allow folder path ending with "src"', () => {
+      const folderPath = '/some/path/src';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.called).to.be.false;
+    });
+
+    it('should allow folder path containing "lwc" but not ending with it', () => {
+      const folderPath = '/some/lwc/myproject';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.called).to.be.false;
+    });
+
+    it('should allow folder path containing "labels" but not ending with it', () => {
+      const folderPath = '/some/labels/customfolder';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.called).to.be.false;
+    });
+
+    it('should allow folder name that contains restricted name as substring', () => {
+      const folderPath = '/some/path/mylwcproject';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.called).to.be.false;
+    });
+
+    it('should allow folder name "labelsbackup"', () => {
+      const folderPath = '/some/path/labelsbackup';
+
+      if (isRestrictedFolderName(folderPath)) {
+        const folderName = path.basename(folderPath);
+        Logger.error(messages.getMessage('restrictedFolderName', [folderName]));
+      }
+
+      expect(loggerErrorStub.called).to.be.false;
+    });
+  });
+});