diff --git a/langfuse/_client/attributes.py b/langfuse/_client/attributes.py
index 5ae81000c..9699850ea 100644
--- a/langfuse/_client/attributes.py
+++ b/langfuse/_client/attributes.py
@@ -23,6 +23,9 @@
 from langfuse.model import PromptClient
 from langfuse.types import MapValue, SpanLevel
 
+from opentelemetry import baggage
+import opentelemetry.context as otel_context
+
 
 class LangfuseOtelSpanAttributes:
     # Langfuse-Trace attributes
@@ -61,6 +64,16 @@ class LangfuseOtelSpanAttributes:
     AS_ROOT = "langfuse.internal.as_root"
 
 
+def propagate_attributes(
+    *,
+    current_ctx: otel_context.Context,
+    dict_to_propagate: Dict[str, Any],
+) -> otel_context.Context:
+    for key, value in dict_to_propagate.items():
+        current_ctx = baggage.set_baggage(key, str(value), context=current_ctx)
+    return current_ctx
+
+
 def create_trace_attributes(
     *,
     name: Optional[str] = None,
diff --git a/langfuse/_client/span.py b/langfuse/_client/span.py
index 9fa9c7489..a49ec23cd 100644
--- a/langfuse/_client/span.py
+++ b/langfuse/_client/span.py
@@ -20,6 +20,7 @@
     TYPE_CHECKING,
     Any,
     Dict,
+    Iterator,
     List,
     Literal,
     Optional,
@@ -29,7 +30,9 @@
     overload,
 )
 
+from contextlib import contextmanager
 from opentelemetry import trace as otel_trace_api
+from opentelemetry import context
 from opentelemetry.util._decorator import _AgnosticContextManager
 
 from langfuse.model import PromptClient
@@ -42,6 +45,7 @@
     create_generation_attributes,
     create_span_attributes,
     create_trace_attributes,
+    propagate_attributes,
 )
 from langfuse._client.constants import (
     ObservationTypeLiteral,
@@ -203,6 +207,7 @@ def end(self, *, end_time: Optional[int] = None) -> "LangfuseObservationWrapper"
 
         return self
 
+    @contextmanager
     def update_trace(
         self,
         *,
@@ -215,7 +220,7 @@ def update_trace(
         metadata: Optional[Any] = None,
         tags: Optional[List[str]] = None,
         public: Optional[bool] = None,
-    ) -> "LangfuseObservationWrapper":
+    ) -> Iterator[None]:
         """Update the trace that this span belongs to.
 
         This method updates trace-level attributes of the trace that this span
@@ -234,7 +239,7 @@ def update_trace(
             public: Whether the trace should be publicly accessible
         """
         if not self._otel_span.is_recording():
-            return self
+            yield
 
         media_processed_input = self._process_media_and_apply_mask(
             data=input, field="input", span=self._otel_span
@@ -258,9 +263,19 @@ def update_trace(
             public=public,
         )
 
+        ctx = otel_trace_api.set_span_in_context(self._otel_span)
+        ctx = propagate_attributes(
+            current_ctx=ctx,
+            dict_to_propagate=attributes,
+        )
+
+        token = context.attach(ctx)
         self._otel_span.set_attributes(attributes)
 
-        return self
+        try:
+            yield
+        finally:
+            context.detach(token)
 
     @overload
     def score(
diff --git a/langfuse/_client/span_processor.py b/langfuse/_client/span_processor.py
index ca8fb9b5a..ce0a5644f 100644
--- a/langfuse/_client/span_processor.py
+++ b/langfuse/_client/span_processor.py
@@ -15,9 +15,11 @@
 import os
 from typing import Dict, List, Optional
 
+from opentelemetry.context import Context
 from opentelemetry.exporter.otlp.proto.http.trace_exporter import OTLPSpanExporter
-from opentelemetry.sdk.trace import ReadableSpan
+from opentelemetry.sdk.trace import ReadableSpan, Span
 from opentelemetry.sdk.trace.export import BatchSpanProcessor
+from opentelemetry.processor.baggage import BaggageSpanProcessor, ALLOW_ALL_BAGGAGE_KEYS
 
 from langfuse._client.constants import LANGFUSE_TRACER_NAME
 from langfuse._client.environment_variables import (
@@ -65,6 +67,10 @@ def __init__(
             else []
         )
 
+        # Initialize a BaggageSpanProcessor so baggage keys are attached to spans.
+        # Allow all baggage keys by default (same behaviour as before).
+        self._baggage_processor = BaggageSpanProcessor(ALLOW_ALL_BAGGAGE_KEYS)
+
         env_flush_at = os.environ.get(LANGFUSE_FLUSH_AT, None)
         flush_at = flush_at or int(env_flush_at) if env_flush_at is not None else None
 
@@ -105,6 +111,16 @@ def __init__(
             else None,
         )
 
+    def on_start(self, span: Span, parent_context: Optional[Context] = None) -> None:
+        # Forward to baggage processor first so baggage can be attached early.
+        self._baggage_processor.on_start(span, parent_context)
+
+        # Call parent on_start if it exists (no-op for BatchSpanProcessor but safe).
+        try:
+            super().on_start(span, parent_context)
+        except TypeError:
+            super().on_start(span)
+
     def on_end(self, span: ReadableSpan) -> None:
         # Only export spans that belong to the scoped project
         # This is important to not send spans to wrong project in multi-project setups
diff --git a/poetry.lock b/poetry.lock
index d88f11dbb..15f41e0b1 100644
--- a/poetry.lock
+++ b/poetry.lock
@@ -1,4 +1,4 @@
-# This file is automatically @generated by Poetry 2.1.1 and should not be changed by hand.
+# This file is automatically @generated by Poetry 2.2.0 and should not be changed by hand.
 
 [[package]]
 name = "annotated-types"
@@ -1139,6 +1139,23 @@ opentelemetry-sdk = ">=1.36.0,<1.37.0"
 requests = ">=2.7,<3.0"
 typing-extensions = ">=4.5.0"
 
+[[package]]
+name = "opentelemetry-processor-baggage"
+version = "0.58b0"
+description = "OpenTelemetry Baggage Span Processor"
+optional = false
+python-versions = ">=3.9"
+groups = ["main"]
+files = [
+    {file = "opentelemetry_processor_baggage-0.58b0-py3-none-any.whl", hash = "sha256:eacad51f9f3714a76daccb2a94dde0402838c97479d6848283a1f06457cb6ce4"},
+    {file = "opentelemetry_processor_baggage-0.58b0.tar.gz", hash = "sha256:a99a656d4867f9b96e0da31e2f9ef0d1c6136c0122472411618936c5e6205c77"},
+]
+
+[package.dependencies]
+opentelemetry-api = ">=1.5,<2.0"
+opentelemetry-sdk = ">=1.5,<2.0"
+wrapt = ">=1.0.0,<2.0.0"
+
 [[package]]
 name = "opentelemetry-proto"
 version = "1.36.0"
@@ -2853,4 +2870,4 @@ openai = ["openai"]
 [metadata]
 lock-version = "2.1"
 python-versions = ">=3.9,<4.0"
-content-hash = "83ae81e7b9fd90ae8000dc0ac491ff766b899b166a5fc895043d0555267e288c"
+content-hash = "f41f23b39f79795827754dceb93c38e1038c613246e790d3b4e193fc265df15b"
diff --git a/pyproject.toml b/pyproject.toml
index ff5ebafac..2627d33cb 100644
--- a/pyproject.toml
+++ b/pyproject.toml
@@ -20,6 +20,7 @@ requests = "^2"
 opentelemetry-api = "^1.33.1"
 opentelemetry-sdk = "^1.33.1"
 opentelemetry-exporter-otlp-proto-http = "^1.33.1"
+opentelemetry-processor-baggage = "^0.58b0"
 
 [tool.poetry.group.dev.dependencies]
 pytest = ">=7.4,<9.0"
diff --git a/tests/test_core_sdk.py b/tests/test_core_sdk.py
index f29851d84..93493b383 100644
--- a/tests/test_core_sdk.py
+++ b/tests/test_core_sdk.py
@@ -606,24 +606,24 @@ def test_score_trace_nested_observation():
 
     # Create a parent span and set trace name
     with langfuse.start_as_current_span(name="parent-span") as parent_span:
-        parent_span.update_trace(name=trace_name)
-
-        # Create a child span
-        child_span = langfuse.start_span(name="span")
+        # Set trace name and trace metadata as attributes on parent-span _and_ span using context manager.
+        with parent_span.update_trace(name=trace_name, metadata={"foo": "bar"}):
+            # Create a child span
+            child_span = langfuse.start_span(name="span")
 
-        # Score the child span
-        child_span.score(
-            name="valuation",
-            value=0.5,
-            comment="This is a comment",
-        )
+            # Score the child span
+            child_span.score(
+                name="valuation",
+                value=0.5,
+                comment="This is a comment",
+            )
 
-        # Get IDs for verification
-        child_span_id = child_span.id
-        trace_id = parent_span.trace_id
+            # Get IDs for verification
+            child_span_id = child_span.id
+            trace_id = parent_span.trace_id
 
-        # End the child span
-        child_span.end()
+            # End the child span
+            child_span.end()
 
     # Ensure data is sent
     langfuse.flush()
@@ -635,6 +635,12 @@ def test_score_trace_nested_observation():
     assert trace.name == trace_name
     assert len(trace.scores) == 1
 
+    observations = trace.observations
+    assert len(observations) == 2  # Parent span and child span
+    # Do not verify the attributes, since we actually strip them on the server for Langfuse SDK spans.
+    # for obs in observations:
+    #     assert obs.metadata["attributes"]["langfuse.trace.metadata.foo"] == "bar"
+
     score = trace.scores[0]
 
     assert score.name == "valuation"