diff --git a/packages/runtime/src/enhancements/node/proxy.ts b/packages/runtime/src/enhancements/node/proxy.ts
index e063f002b..181d7b26b 100644
--- a/packages/runtime/src/enhancements/node/proxy.ts
+++ b/packages/runtime/src/enhancements/node/proxy.ts
@@ -289,7 +289,7 @@ export function makeProxy<T extends PrismaProxyHandler>(
                 return propVal;
             }
 
-            return createHandlerProxy(makeHandler(target, prop), propVal, prop, errorTransformer);
+            return createHandlerProxy(makeHandler(target, prop), propVal, prop, proxy, errorTransformer);
         },
     });
 
@@ -303,10 +303,15 @@ function createHandlerProxy<T extends PrismaProxyHandler>(
     handler: T,
     origTarget: any,
     model: string,
+    dbOrTx: any,
     errorTransformer?: ErrorTransformer
 ): T {
     return new Proxy(handler, {
         get(target, propKey) {
+            if (propKey === '$parent') {
+                return dbOrTx;
+            }
+
             const prop = target[propKey as keyof T];
             if (typeof prop !== 'function') {
                 // the proxy handler doesn't have this method, fall back to the original target
diff --git a/tests/integration/tests/enhancements/proxy/extension-context.test.ts b/tests/integration/tests/enhancements/proxy/extension-context.test.ts
new file mode 100644
index 000000000..f84fd1e84
--- /dev/null
+++ b/tests/integration/tests/enhancements/proxy/extension-context.test.ts
@@ -0,0 +1,78 @@
+import { loadSchema } from '@zenstackhq/testtools';
+
+describe('Proxy Extension Context', () => {
+    it('works', async () => {
+        const { enhance } = await loadSchema(
+            `
+            model Counter {
+                model String @unique
+                value Int
+                
+                @@allow('all', true)
+            }
+            
+            model Address {
+                id   String @id @default(cuid())
+                city String
+                
+                @@allow('all', true)
+            }
+            `
+        );
+
+        const db = enhance();
+        const dbExtended = db.$extends({
+            client: {
+                $one() {
+                    return 1;
+                }
+            },
+            model: {
+                $allModels: {
+                    async createWithCounter(this: any, args: any) {
+                        const modelName = this.$name;
+                        const dbOrTx = this.$parent;
+
+                        // prisma exposes some internal properties, makes sure these are still preserved
+                        expect(dbOrTx._engine).toBeDefined();
+
+                        const fn = async (tx: any) => {
+                            const counter = await tx.counter.findUnique({
+                                where: { model: modelName },
+                            });
+
+                            await tx.counter.upsert({
+                                where: { model: modelName },
+                                update: { value: (counter?.value ?? 0) + tx.$one() },
+                                create: { model: modelName, value: tx.$one() },
+                            });
+
+                            return tx[modelName].create(args);
+                        };
+
+                        if (dbOrTx['$transaction']) {
+                            // not running in a transaction, so we need to create a new transaction
+                            return dbOrTx.$transaction(fn);
+                        }
+
+                        return fn(dbOrTx);
+                    },
+                },
+            },
+        });
+
+        const cities = ['Vienna', 'New York', 'Delhi'];
+
+        await Promise.all([
+            ...cities.map((city) => dbExtended.address.createWithCounter({ data: { city } })),
+            ...cities.map((city) =>
+                dbExtended.$transaction((tx: any) => tx.address.createWithCounter({ data: { city: `${city}$tx` } }))
+            ),
+        ]);
+
+        await expect(dbExtended.counter.findUniqueOrThrow({ where: { model: 'Address' } })).resolves.toMatchObject({
+            model: 'Address',
+            value: cities.length * 2,
+        });
+    });
+});