diff --git a/docs/sdk/aws-xray-propagator.md b/docs/sdk/aws-xray-propagator.md
index b02f9361b..70cdce394 100644
--- a/docs/sdk/aws-xray-propagator.md
+++ b/docs/sdk/aws-xray-propagator.md
@@ -64,7 +64,7 @@ object TelemetryApp extends IOApp.Simple {
       .autoConfigured[IO]( 
         // register OTLP exporters configurer
         _.addExportersConfigurer(OtlpExportersAutoConfigure[IO])
-        // add AWS X-Ray Propagator propagator
+        // add AWS X-Ray Propagator
          .addTracerProviderCustomizer((b, _) => 
            b.addTextMapPropagators(AWSXRayPropagator())
          )
@@ -100,7 +100,7 @@ object TelemetryApp extends IOApp.Simple {
       .autoConfigured[IO]( 
         // register OTLP exporters configurer
         _.addExporterConfigurer(OtlpSpanExporterAutoConfigure[IO])
-        // add AWS X-Ray Propagator propagator
+        // add AWS X-Ray Propagator
          .addTracerProviderCustomizer((b, _) => 
            b.addTextMapPropagators(AWSXRayPropagator())
          )
@@ -118,4 +118,87 @@ object TelemetryApp extends IOApp.Simple {
 
 @:@
 
-[xray-concepts]: https://docs.aws.amazon.com/xray/latest/devguide/xray-concepts.html#xray-concepts-tracingheader
\ No newline at end of file
+## AWS Lambda
+
+AWS Lambda can [utilize][lambda-xray-envvars] `_X_AMZN_TRACE_ID` environment variable or 
+`com.amazonaws.xray.traceHeader` system property to set the X-Ray tracing header.
+
+Use `AWSXRayLambdaPropagator` in such a case.
+
+@:select(sdk-entry-point)
+
+@:choice(sdk)
+
+`OpenTelemetrySdk.autoConfigured` configures both `MeterProvider` and `TracerProvider`:
+
+```scala mdoc:silent:reset
+import cats.effect.{IO, IOApp}
+import org.typelevel.otel4s.metrics.MeterProvider
+import org.typelevel.otel4s.sdk.OpenTelemetrySdk
+import org.typelevel.otel4s.sdk.contrib.aws.context.propagation._
+import org.typelevel.otel4s.sdk.exporter.otlp.autoconfigure.OtlpExportersAutoConfigure
+import org.typelevel.otel4s.trace.TracerProvider
+
+object TelemetryApp extends IOApp.Simple {
+
+  def run: IO[Unit] =
+    OpenTelemetrySdk
+      .autoConfigured[IO]( 
+        // register OTLP exporters configurer
+        _.addExportersConfigurer(OtlpExportersAutoConfigure[IO])
+        // add AWS X-Ray Lambda Propagator
+         .addTracerProviderCustomizer((b, _) => 
+           b.addTextMapPropagators(AWSXRayLambdaPropagator())
+         )
+      )
+      .use { autoConfigured =>
+        val sdk = autoConfigured.sdk
+        program(sdk.meterProvider, sdk.tracerProvider)
+      }
+
+  def program(
+      meterProvider: MeterProvider[IO], 
+      tracerProvider: TracerProvider[IO]
+  ): IO[Unit] =
+    ???
+}
+```
+
+@:choice(traces)
+
+`SdkTraces` configures only `TracerProvider`:
+
+```scala mdoc:silent:reset
+import cats.effect.{IO, IOApp}
+import org.typelevel.otel4s.sdk.contrib.aws.context.propagation._
+import org.typelevel.otel4s.sdk.exporter.otlp.trace.autoconfigure.OtlpSpanExporterAutoConfigure
+import org.typelevel.otel4s.sdk.trace.SdkTraces
+import org.typelevel.otel4s.trace.TracerProvider
+
+object TelemetryApp extends IOApp.Simple {
+
+  def run: IO[Unit] =
+    SdkTraces
+      .autoConfigured[IO]( 
+        // register OTLP exporters configurer
+        _.addExporterConfigurer(OtlpSpanExporterAutoConfigure[IO])
+        // add AWS X-Ray Lambda Propagator
+         .addTracerProviderCustomizer((b, _) => 
+           b.addTextMapPropagators(AWSXRayLambdaPropagator())
+         )
+      )
+      .use { autoConfigured =>
+        program(autoConfigured.tracerProvider)
+      }
+
+  def program(
+      tracerProvider: TracerProvider[IO]
+  ): IO[Unit] =
+    ???
+}
+```
+
+@:@
+
+[xray-concepts]: https://docs.aws.amazon.com/xray/latest/devguide/xray-concepts.html#xray-concepts-tracingheader
+[lambda-xray-envvars]: https://docs.aws.amazon.com/lambda/latest/dg/configuration-envvars.html
\ No newline at end of file
diff --git a/sdk-contrib/aws/xray-propagator/src/main/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayLambdaPropagator.scala b/sdk-contrib/aws/xray-propagator/src/main/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayLambdaPropagator.scala
new file mode 100644
index 000000000..9950c6d90
--- /dev/null
+++ b/sdk-contrib/aws/xray-propagator/src/main/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayLambdaPropagator.scala
@@ -0,0 +1,141 @@
+/*
+ * Copyright 2024 Typelevel
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *     http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+package org.typelevel.otel4s.sdk.contrib.aws.context.propagation
+
+import org.typelevel.otel4s.context.propagation.TextMapGetter
+import org.typelevel.otel4s.context.propagation.TextMapPropagator
+import org.typelevel.otel4s.context.propagation.TextMapUpdater
+import org.typelevel.otel4s.sdk.autoconfigure.AutoConfigure
+import org.typelevel.otel4s.sdk.context.Context
+import org.typelevel.otel4s.sdk.trace.SdkContextKeys
+
+/** An example of the AWS X-Ray Tracing Header:
+  * {{{
+  *   X-Amzn-Trace-Id: Root=1-5759e988-bd862e3fe1be46a994272793;Parent=53995c3f42cd8ad8;Sampled=1
+  * }}}
+  *
+  * If the header is missing, the Lambda's `com.amazonaws.xray.traceHeader`
+  * system property or `_X_AMZN_TRACE_ID` environment variable will be used as a
+  * fallback.
+  *
+  * @see
+  *   [[https://docs.aws.amazon.com/xray/latest/devguide/xray-concepts.html#xray-concepts-tracingheader]]
+  *
+  * @see
+  *   [[https://docs.aws.amazon.com/lambda/latest/dg/configuration-envvars.html]]
+  */
+private final class AWSXRayLambdaPropagator private[propagation] (
+    getProp: String => Option[String],
+    getEnv: String => Option[String]
+) extends TextMapPropagator[Context] {
+  import AWSXRayLambdaPropagator.Const
+
+  private val propagator = AWSXRayPropagator()
+
+  def fields: Iterable[String] = propagator.fields
+
+  def extract[A: TextMapGetter](ctx: Context, carrier: A): Context = {
+    val xRayContext = propagator.extract(ctx, carrier)
+    xRayContext.get(SdkContextKeys.SpanContextKey) match {
+      case Some(_) =>
+        xRayContext
+
+      case None =>
+        val headerOpt =
+          getProp(Const.TraceHeaderSystemProp)
+            .orElse(getEnv(Const.TraceHeaderEnvVar))
+
+        headerOpt match {
+          case Some(header) =>
+            propagator.extract(
+              ctx,
+              Map(AWSXRayPropagator.Headers.TraceId -> header)
+            )
+
+          case None =>
+            xRayContext
+        }
+    }
+  }
+
+  def inject[A: TextMapUpdater](ctx: Context, carrier: A): A =
+    propagator.inject(ctx, carrier)
+
+  override def toString: String = "AWSXRayLambdaPropagator"
+
+}
+
+object AWSXRayLambdaPropagator {
+  private val Propagator =
+    new AWSXRayLambdaPropagator(sys.props.get, sys.env.get)
+
+  private object Const {
+    val name = "xray-lambda"
+
+    val TraceHeaderEnvVar = "_X_AMZN_TRACE_ID"
+    val TraceHeaderSystemProp = "com.amazonaws.xray.traceHeader"
+  }
+
+  /** Returns an instance of the AWSXRayLambdaPropagator.
+    *
+    * The propagator utilizes `X-Amzn-Trace-Id` header to extract and inject
+    * tracing details.
+    *
+    * If the header is missing, the Lambda's `com.amazonaws.xray.traceHeader`
+    * system property or `_X_AMZN_TRACE_ID` environment variable will be used as
+    * a fallback.
+    *
+    * An example of the AWS X-Ray Tracing Header:
+    * {{{
+    *   X-Amzn-Trace-Id: Root=1-5759e988-bd862e3fe1be46a994272793;Parent=53995c3f42cd8ad8;Sampled=1
+    * }}}
+    *
+    * @example
+    *   {{{
+    * OpenTelemetrySdk.autoConfigured[IO](
+    *   _.addTracerProviderCustomizer((b, _) => b.addTextMapPropagators(AWSXRayLambdaPropagator())
+    * )
+    *   }}}
+    * @see
+    *   [[https://docs.aws.amazon.com/xray/latest/devguide/xray-concepts.html#xray-concepts-tracingheader]]
+    */
+  def apply(): TextMapPropagator[Context] = Propagator
+
+  /** Returns the named configurer `xray-lambda`. You can use it to dynamically
+    * enable AWS X-Ray lambda propagator via environment variable or system
+    * properties.
+    *
+    * @example
+    *   {{{
+    * OpenTelemetrySdk.autoConfigured[IO](
+    *   _.addTextMapPropagatorConfigurer(AWSXRayLambdaPropagator.configurer[IO])
+    * )
+    *   }}}
+    *
+    * Enable propagator via environment variable:
+    * {{{
+    *  OTEL_PROPAGATORS=xray-lambda
+    * }}}
+    * or system property:
+    * {{{
+    *    -Dotel.propagators=xray-lambda
+    * }}}
+    */
+  def configurer[F[_]]: AutoConfigure.Named[F, TextMapPropagator[Context]] =
+    AutoConfigure.Named.const(Const.name, Propagator)
+
+}
diff --git a/sdk-contrib/aws/xray-propagator/src/main/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayPropagator.scala b/sdk-contrib/aws/xray-propagator/src/main/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayPropagator.scala
index 143ab6ab3..c398fd08f 100644
--- a/sdk-contrib/aws/xray-propagator/src/main/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayPropagator.scala
+++ b/sdk-contrib/aws/xray-propagator/src/main/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayPropagator.scala
@@ -28,7 +28,7 @@ import org.typelevel.otel4s.trace.TraceFlags
 import org.typelevel.otel4s.trace.TraceState
 import scodec.bits.ByteVector
 
-/** An example of the AWS Xray Tracing Header:
+/** An example of the AWS X-Ray Tracing Header:
   * {{{
   *   X-Amzn-Trace-Id: Root=1-5759e988-bd862e3fe1be46a994272793;Parent=53995c3f42cd8ad8;Sampled=1
   * }}}
@@ -156,7 +156,7 @@ private final class AWSXRayPropagator extends TextMapPropagator[Context] {
 object AWSXRayPropagator {
   private val Propagator = new AWSXRayPropagator
 
-  private object Headers {
+  private[propagation] object Headers {
     val TraceId = "X-Amzn-Trace-Id"
   }
 
@@ -181,7 +181,7 @@ object AWSXRayPropagator {
     * The propagator utilizes `X-Amzn-Trace-Id` header to extract and inject
     * tracing details.
     *
-    * An example of the AWS Xray Tracing Header:
+    * An example of the AWS X-Ray Tracing Header:
     * {{{
     *   X-Amzn-Trace-Id: Root=1-5759e988-bd862e3fe1be46a994272793;Parent=53995c3f42cd8ad8;Sampled=1
     * }}}
diff --git a/sdk-contrib/aws/xray-propagator/src/test/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayLambdaPropagatorSuite.scala b/sdk-contrib/aws/xray-propagator/src/test/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayLambdaPropagatorSuite.scala
new file mode 100644
index 000000000..914abef37
--- /dev/null
+++ b/sdk-contrib/aws/xray-propagator/src/test/scala/org/typelevel/otel4s/sdk/contrib/aws/context/propagation/AWSXRayLambdaPropagatorSuite.scala
@@ -0,0 +1,196 @@
+/*
+ * Copyright 2024 Typelevel
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *     http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+package org.typelevel.otel4s.sdk.contrib.aws.context.propagation
+
+import munit.ScalaCheckSuite
+import org.scalacheck.Prop
+import org.typelevel.otel4s.sdk.context.Context
+import org.typelevel.otel4s.sdk.trace.SdkContextKeys
+import org.typelevel.otel4s.sdk.trace.scalacheck.Gens
+import org.typelevel.otel4s.trace.SpanContext
+
+class AWSXRayLambdaPropagatorSuite extends ScalaCheckSuite {
+
+  private val propagator = AWSXRayLambdaPropagator()
+
+  //
+  // Common
+  //
+
+  test("fields") {
+    assertEquals(propagator.fields, List("X-Amzn-Trace-Id"))
+  }
+
+  test("toString") {
+    assertEquals(propagator.toString, "AWSXRayLambdaPropagator")
+  }
+
+  //
+  // Inject
+  //
+
+  test("inject nothing when context is empty") {
+    val result = propagator.inject(Context.root, Map.empty[String, String])
+    assertEquals(result.size, 0)
+  }
+
+  test("inject - invalid context - do nothing") {
+    val ctx = SpanContext.invalid
+    val context = Context.root.updated(SdkContextKeys.SpanContextKey, ctx)
+
+    assertEquals(
+      propagator.inject(context, Map.empty[String, String]),
+      Map.empty[String, String]
+    )
+  }
+
+  test("inject - valid context") {
+    Prop.forAll(Gens.spanContext) { ctx =>
+      val context = Context.root.updated(SdkContextKeys.SpanContextKey, ctx)
+      val expected = toTraceId(ctx)
+      val result = propagator.inject(context, Map.empty[String, String])
+
+      assertEquals(result.get("X-Amzn-Trace-Id"), Some(expected))
+    }
+  }
+
+  //
+  // Extract (common)
+  //
+
+  test("extract - empty context") {
+    val ctx = propagator.extract(Context.root, Map.empty[String, String])
+    assertEquals(getSpanContext(ctx), None)
+  }
+
+  test("extract - 'X-Amzn-Trace-Id' header is missing") {
+    val ctx = propagator.extract(Context.root, Map("key" -> "value"))
+    assertEquals(getSpanContext(ctx), None)
+  }
+
+  test("extract - valid 'X-Amzn-Trace-Id' header") {
+    Prop.forAll(Gens.spanContext) { ctx =>
+      val carrier = Map("X-Amzn-Trace-Id" -> toTraceId(ctx))
+      val result = propagator.extract(Context.root, carrier)
+      assertEquals(getSpanContext(result), Some(asRemote(ctx)))
+    }
+  }
+
+  test("extract - 'X-Amzn-Trace-Id' header has invalid format") {
+    val carrier = Map("X-Amzn-Trace-Id" -> "Root=00-11-22-33")
+    val result = propagator.extract(Context.root, carrier)
+    assertEquals(getSpanContext(result), None)
+  }
+
+  test("extract - invalid header - missing values") {
+    val carrier = Map("X-Amzn-Trace-Id" -> "Root=;Parent=;Sampled=")
+    val result = propagator.extract(Context.root, carrier)
+    assertEquals(getSpanContext(result), None)
+  }
+
+  test("extract - invalid Root format - missing version") {
+    val carrier = Map(
+      "X-Amzn-Trace-Id" -> "Root=5759e988-bd862e3fe1be46a994272793;Parent=53995c3f42cd8ad8;Sampled=1"
+    )
+    val result = propagator.extract(Context.root, carrier)
+    assertEquals(getSpanContext(result), None)
+  }
+
+  test("extract - invalid Root format - no separator") {
+    Prop.forAll(Gens.spanContext) { ctx =>
+      val sampled = if (ctx.isSampled) "1" else "0"
+      val carrier = Map(
+        "X-Amzn-Trace-Id" -> s"Root=1-${ctx.traceIdHex};Parent=${ctx.spanIdHex};Sampled=$sampled"
+      )
+      val result = propagator.extract(Context.root, carrier)
+      assertEquals(getSpanContext(result), None)
+    }
+  }
+
+  test("extract - invalid span id (too long)") {
+    Prop.forAll(Gens.spanContext) { ctx =>
+      val sampled = if (ctx.isSampled) "1" else "0"
+      val traceId = s"${ctx.traceIdHex}:${ctx.spanIdHex}00:0:$sampled"
+      val carrier = Map("X-Amzn-Trace-Id" -> traceId)
+      val result = propagator.extract(Context.root, carrier)
+      assertEquals(getSpanContext(result), None)
+    }
+  }
+
+  test("extract - invalid flags (too long)") {
+    Prop.forAll(Gens.spanContext) { ctx =>
+      val carrier = Map(
+        "X-Amzn-Trace-Id" -> s"Root=1-${ctx.traceIdHex.take(8)}-${ctx.traceIdHex.drop(8)};Parent=${ctx.spanIdHex};Sampled=123"
+      )
+      val result = propagator.extract(Context.root, carrier)
+      assertEquals(getSpanContext(result), None)
+    }
+  }
+
+  //
+  // Extract (lambda-specific scenarios)
+  //
+
+  test("extract - use env variable when input is empty") {
+    Prop.forAll(Gens.spanContext) { ctx =>
+      val props = Map.empty[String, String]
+      val env = Map("_X_AMZN_TRACE_ID" -> toTraceId(ctx))
+      val propagator = new AWSXRayLambdaPropagator(props.get, env.get)
+      val result = propagator.extract(Context.root, Map.empty[String, String])
+      assertEquals(getSpanContext(result), Some(asRemote(ctx)))
+    }
+  }
+
+  test("extract - use sys prop when input is empty") {
+    Prop.forAll(Gens.spanContext) { ctx =>
+      val props = Map("com.amazonaws.xray.traceHeader" -> toTraceId(ctx))
+      val env = Map.empty[String, String]
+      val propagator = new AWSXRayLambdaPropagator(props.get, env.get)
+      val result = propagator.extract(Context.root, Map.empty[String, String])
+      assertEquals(getSpanContext(result), Some(asRemote(ctx)))
+    }
+  }
+
+  test("extract - prioritize sys prop over env variable when input is empty") {
+    Prop.forAll(Gens.spanContext, Gens.spanContext) { (ctx1, ctx2) =>
+      val props = Map("com.amazonaws.xray.traceHeader" -> toTraceId(ctx1))
+      val env = Map("_X_AMZN_TRACE_ID" -> toTraceId(ctx2))
+      val propagator = new AWSXRayLambdaPropagator(props.get, env.get)
+      val result = propagator.extract(Context.root, Map.empty[String, String])
+      assertEquals(getSpanContext(result), Some(asRemote(ctx1)))
+    }
+  }
+
+  private def toTraceId(ctx: SpanContext): String = {
+    val sampled = if (ctx.isSampled) "1" else "0"
+    val traceId = ctx.traceIdHex.take(8) + "-" + ctx.traceIdHex.drop(8)
+    s"Root=1-$traceId;Parent=${ctx.spanIdHex};Sampled=$sampled"
+  }
+
+  private def getSpanContext(ctx: Context): Option[SpanContext] =
+    ctx.get(SdkContextKeys.SpanContextKey)
+
+  private def asRemote(ctx: SpanContext): SpanContext =
+    SpanContext(
+      traceId = ctx.traceId,
+      spanId = ctx.spanId,
+      traceFlags = ctx.traceFlags,
+      traceState = ctx.traceState,
+      remote = true
+    )
+
+}