diff --git a/.changeset/funny-oranges-switch.md b/.changeset/funny-oranges-switch.md
new file mode 100644
index 0000000000..23c3104441
--- /dev/null
+++ b/.changeset/funny-oranges-switch.md
@@ -0,0 +1,5 @@
+---
+'@backstage/cli': patch
+---
+
+Fixed a bug where `NODE_ENV` was not set in the environment when starting the backend in development mode. It has always been the case that Webpack transformed `NODE_ENV` when running in development mode, but this did not affect dependencies in `node_modules` as they are treated as external.
diff --git a/packages/cli/src/lib/bundler/backend.ts b/packages/cli/src/lib/bundler/backend.ts
index 1b161976e3..3094450d4b 100644
--- a/packages/cli/src/lib/bundler/backend.ts
+++ b/packages/cli/src/lib/bundler/backend.ts
@@ -26,6 +26,10 @@ export async function serveBackend(options: BackendServeOptions) {
     isDev: true,
   });
 
+  // Webpack only replaces occurrences of this in code it touches, which does
+  // not include dependencies in node_modules. So we set it here at runtime as well.
+  (process.env as { NODE_ENV: string }).NODE_ENV = 'development';
+
   const compiler = webpack(config, (err: Error | undefined) => {
     if (err) {
       console.error(err);