diff --git a/linkerd/app/outbound/src/http/endpoint.rs b/linkerd/app/outbound/src/http/endpoint.rs
index 3022ef96f9..351c741721 100644
--- a/linkerd/app/outbound/src/http/endpoint.rs
+++ b/linkerd/app/outbound/src/http/endpoint.rs
@@ -1,4 +1,4 @@
-use super::{NewRequireIdentity, ProxyConnectionClose};
+use super::{NewRequireIdentity, NewStripProxyError, ProxyConnectionClose};
 use crate::Outbound;
 use linkerd_app_core::{
     classify, config, errors, http_tracing, metrics,
@@ -49,6 +49,9 @@ impl<C> Outbound<C> {
                 // Set the TLS status on responses so that the stack can detect whether the request
                 // was sent over a meshed connection.
                 .push_http_response_insert_target::<tls::ConditionalClientTls>()
+                // If the outbound proxy is not configured to emit headers, then strip the
+                // `l5d-proxy-errors` header if set by the peer.
+                .push(NewStripProxyError::layer(config.emit_headers))
                 // Tear down server connections when a peer proxy generates an error.
                 // TODO(ver) this should only be honored when forwarding and not when the connection
                 // is part of a balancer.
diff --git a/linkerd/app/outbound/src/http/mod.rs b/linkerd/app/outbound/src/http/mod.rs
index 2c96b2fcfa..7adaadd3a2 100644
--- a/linkerd/app/outbound/src/http/mod.rs
+++ b/linkerd/app/outbound/src/http/mod.rs
@@ -4,8 +4,12 @@ pub mod logical;
 mod proxy_connection_close;
 mod require_id_header;
 mod server;
+mod strip_proxy_error;
 
-use self::{proxy_connection_close::ProxyConnectionClose, require_id_header::NewRequireIdentity};
+use self::{
+    proxy_connection_close::ProxyConnectionClose, require_id_header::NewRequireIdentity,
+    strip_proxy_error::NewStripProxyError,
+};
 pub(crate) use self::{require_id_header::IdentityRequired, server::ServerRescue};
 use crate::tcp;
 pub use linkerd_app_core::proxy::http::*;
diff --git a/linkerd/app/outbound/src/http/strip_proxy_error.rs b/linkerd/app/outbound/src/http/strip_proxy_error.rs
new file mode 100644
index 0000000000..0fe28c07e8
--- /dev/null
+++ b/linkerd/app/outbound/src/http/strip_proxy_error.rs
@@ -0,0 +1,40 @@
+use linkerd_app_core::{
+    errors::respond::L5D_PROXY_ERROR,
+    proxy::http,
+    svc::{self, NewService},
+};
+
+#[derive(Clone, Debug)]
+pub struct NewStripProxyError<N> {
+    strip: bool,
+    inner: N,
+}
+
+impl<N> NewStripProxyError<N> {
+    pub fn layer(emit_headers: bool) -> impl svc::layer::Layer<N, Service = Self> + Clone {
+        svc::layer::mk(move |inner| Self {
+            strip: !emit_headers,
+            inner,
+        })
+    }
+}
+
+impl<T, N> NewService<T> for NewStripProxyError<N>
+where
+    N: NewService<T>,
+{
+    type Service = svc::Either<
+        N::Service,
+        http::strip_header::response::StripHeader<&'static str, N::Service>,
+    >;
+
+    fn new_service(&self, target: T) -> Self::Service {
+        let inner = self.inner.new_service(target);
+
+        if self.strip {
+            return svc::Either::B(http::StripHeader::response(L5D_PROXY_ERROR, inner));
+        };
+
+        svc::Either::A(inner)
+    }
+}
diff --git a/linkerd/proxy/http/src/lib.rs b/linkerd/proxy/http/src/lib.rs
index 89dbc9ff63..38af6cff6b 100644
--- a/linkerd/proxy/http/src/lib.rs
+++ b/linkerd/proxy/http/src/lib.rs
@@ -33,6 +33,7 @@ pub use self::{
     override_authority::{AuthorityOverride, NewOverrideAuthority},
     retain::Retain,
     server::NewServeHttp,
+    strip_header::StripHeader,
     timeout::{NewTimeout, ResponseTimeout, ResponseTimeoutError},
     version::Version,
 };
diff --git a/linkerd/proxy/http/src/strip_header.rs b/linkerd/proxy/http/src/strip_header.rs
index e7756ddfc8..f95752c3da 100644
--- a/linkerd/proxy/http/src/strip_header.rs
+++ b/linkerd/proxy/http/src/strip_header.rs
@@ -97,17 +97,13 @@ pub mod response {
     /// stripped.
     pub enum RspHeader {}
 
-    type StripHeader<H, S> = super::StripHeader<H, S, RspHeader>;
+    pub type StripHeader<H, S> = super::StripHeader<H, S, RspHeader>;
 
     pub fn layer<H, S>(header: H) -> impl layer::Layer<S, Service = StripHeader<H, S>> + Clone
     where
         H: AsHeaderName + Clone,
     {
-        layer::mk(move |inner| StripHeader {
-            inner,
-            header: header.clone(),
-            _marker: PhantomData,
-        })
+        layer::mk(move |inner| StripHeader::response(header.clone(), inner))
     }
 
     #[pin_project]
@@ -117,6 +113,16 @@ pub mod response {
         header: H,
     }
 
+    impl<H, S> StripHeader<H, S> {
+        pub fn response(header: H, inner: S) -> Self {
+            Self {
+                inner,
+                header,
+                _marker: PhantomData,
+            }
+        }
+    }
+
     impl<H, S, B, Req> tower::Service<Req> for StripHeader<H, S>
     where
         H: AsHeaderName + Clone,