diff --git a/.nextchanges/bundles/template-symlinked-directory.md b/.nextchanges/bundles/template-symlinked-directory.md
new file mode 100644
index 00000000000..70d04910b9b
--- /dev/null
+++ b/.nextchanges/bundles/template-symlinked-directory.md
@@ -0,0 +1 @@
+* Report a clear error for symlinked directories in `bundle init` templates instead of failing partway through with `is a directory`. ([#6758](https://github.com/databricks/cli/pull/6758))
diff --git a/acceptance/bundle/templates-machinery/symlinked-directory/databricks_template_schema.json b/acceptance/bundle/templates-machinery/symlinked-directory/databricks_template_schema.json
new file mode 100644
index 00000000000..0967ef424bc
--- /dev/null
+++ b/acceptance/bundle/templates-machinery/symlinked-directory/databricks_template_schema.json
@@ -0,0 +1 @@
+{}
diff --git a/acceptance/bundle/templates-machinery/symlinked-directory/out.test.toml b/acceptance/bundle/templates-machinery/symlinked-directory/out.test.toml
new file mode 100644
index 00000000000..56f228d004e
--- /dev/null
+++ b/acceptance/bundle/templates-machinery/symlinked-directory/out.test.toml
@@ -0,0 +1,4 @@
+Cloud = false
+GOOS.windows = false
+EnvMatrix.DATABRICKS_BUNDLE_ENGINE = ["terraform", "direct"]
+EnvMatrix.DMS = ["", "true"]
diff --git a/acceptance/bundle/templates-machinery/symlinked-directory/output.txt b/acceptance/bundle/templates-machinery/symlinked-directory/output.txt
new file mode 100644
index 00000000000..a33a36010b4
--- /dev/null
+++ b/acceptance/bundle/templates-machinery/symlinked-directory/output.txt
@@ -0,0 +1,4 @@
+Error: linked: symbolic links to directories are not supported in templates
+
+>>> find.py linked|shared
+template/shared/file.txt
diff --git a/acceptance/bundle/templates-machinery/symlinked-directory/script b/acceptance/bundle/templates-machinery/symlinked-directory/script
new file mode 100644
index 00000000000..dff8c2db8b2
--- /dev/null
+++ b/acceptance/bundle/templates-machinery/symlinked-directory/script
@@ -0,0 +1,9 @@
+export NO_COLOR=1
+
+# The symlink is created here rather than committed: the acceptance harness copies
+# test inputs with filepath.Walk, which reads a symlinked directory as a file.
+ln -s shared template/linked
+
+musterr $CLI bundle init .
+
+trace find.py 'linked|shared'
diff --git a/acceptance/bundle/templates-machinery/symlinked-directory/template/shared/file.txt b/acceptance/bundle/templates-machinery/symlinked-directory/template/shared/file.txt
new file mode 100644
index 00000000000..ce013625030
--- /dev/null
+++ b/acceptance/bundle/templates-machinery/symlinked-directory/template/shared/file.txt
@@ -0,0 +1 @@
+hello
diff --git a/acceptance/bundle/templates-machinery/symlinked-directory/test.toml b/acceptance/bundle/templates-machinery/symlinked-directory/test.toml
new file mode 100644
index 00000000000..9aeb6cef49f
--- /dev/null
+++ b/acceptance/bundle/templates-machinery/symlinked-directory/test.toml
@@ -0,0 +1,2 @@
+GOOS.windows = false
+Ignore = ["template/linked"]
diff --git a/libs/template/renderer.go b/libs/template/renderer.go
index cce0861c0d2..6704f907419 100644
--- a/libs/template/renderer.go
+++ b/libs/template/renderer.go
@@ -311,8 +311,24 @@ func (r *renderer) walk() error {
 				continue
 			}
 
+			entryPath := path.Join(currentDirectory, entry.Name())
+
+			// fs.ReadDir reports entries via Lstat, so IsDir is false for a symlink
+			// pointing at a directory. Such an entry is not readable as a file, and
+			// following it could traverse a symlink cycle, so reject it here rather
+			// than fail partway through materializing the template.
+			if entry.Type()&fs.ModeSymlink != 0 {
+				info, err := fs.Stat(r.srcFS, entryPath)
+				if err != nil {
+					return err
+				}
+				if info.IsDir() {
+					return fmt.Errorf("%s: symbolic links to directories are not supported in templates", entryPath)
+				}
+			}
+
 			// Generate in memory representation of file
-			f, err := r.computeFile(path.Join(currentDirectory, entry.Name()))
+			f, err := r.computeFile(entryPath)
 			if err != nil {
 				return err
 			}
diff --git a/libs/template/renderer_test.go b/libs/template/renderer_test.go
index 64ffdb6dbdc..e938af108f7 100644
--- a/libs/template/renderer_test.go
+++ b/libs/template/renderer_test.go
@@ -419,6 +419,57 @@ func TestRendererWalk(t *testing.T) {
 	assert.Equal(t, "file four", getContent(r, "dir2/file4"))
 }
 
+func TestRendererWalkSymlinks(t *testing.T) {
+	if runtime.GOOS == "windows" {
+		t.Skip("symlink creation needs privilege on Windows")
+	}
+
+	tests := []struct {
+		name        string
+		target      string
+		expectedErr string
+	}{
+		{
+			name:   "symlink to file",
+			target: "shared/file.txt",
+		},
+		{
+			name:        "symlink to directory",
+			target:      "shared",
+			expectedErr: "linked: symbolic links to directories are not supported in templates",
+		},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			ctx := t.Context()
+			ctx = cmdctx.SetWorkspaceClient(ctx, nil)
+
+			templateDir := t.TempDir()
+			require.NoError(t, os.MkdirAll(filepath.Join(templateDir, "template", "shared"), 0o755))
+			require.NoError(t, os.MkdirAll(filepath.Join(templateDir, "library"), 0o755))
+			testutil.WriteFile(t, filepath.Join(templateDir, "template", "shared", "file.txt"), "hello")
+			require.NoError(t, os.Symlink(tt.target, filepath.Join(templateDir, "template", "linked")))
+
+			r, err := newRenderer(ctx, nil, nil, os.DirFS(templateDir), "template", "library")
+			require.NoError(t, err)
+
+			err = r.walk()
+			if tt.expectedErr != "" {
+				assert.EqualError(t, err, tt.expectedErr)
+				return
+			}
+
+			require.NoError(t, err)
+			paths := make([]string, 0, len(r.files))
+			for _, f := range r.files {
+				paths = append(paths, f.RelPath())
+			}
+			assert.Equal(t, []string{"linked", "shared/file.txt"}, paths)
+		})
+	}
+}
+
 func TestRendererFailFunction(t *testing.T) {
 	ctx := t.Context()
 	ctx = cmdctx.SetWorkspaceClient(ctx, nil)