diff --git a/.changeset/surface-config-source-errors.md b/.changeset/surface-config-source-errors.md
new file mode 100644
index 00000000..e0786f24
--- /dev/null
+++ b/.changeset/surface-config-source-errors.md
@@ -0,0 +1,5 @@
+---
+'@salesforce/b2c-tooling-sdk': minor
+---
+
+Surface config source errors as warnings. When a config source (like dw.json) has malformed content, the error is now displayed as a warning instead of being silently ignored.
diff --git a/docs/guide/extending.md b/docs/guide/extending.md
index f4b9db7c..21439b09 100644
--- a/docs/guide/extending.md
+++ b/docs/guide/extending.md
@@ -205,6 +205,31 @@ export class MyCustomSource implements ConfigSource {
 }
 ```
 
+### Error Handling
+
+If your `ConfigSource` encounters an error (e.g., malformed config file, network failure), you can:
+
+1. **Return `undefined`** - Source is silently skipped (use for "source not available")
+2. **Throw an exception** - Error is surfaced as a warning to the user
+
+```typescript
+load(options: ResolveConfigOptions): ConfigLoadResult | undefined {
+  const configPath = '/path/to/config';
+
+  if (!fs.existsSync(configPath)) {
+    return undefined; // Source not available - skip silently
+  }
+
+  // Let JSON.parse errors propagate - they'll become warnings
+  const content = fs.readFileSync(configPath, 'utf8');
+  const config = JSON.parse(content); // Throws if malformed
+
+  return { config, location: configPath };
+}
+```
+
+When a source throws, the CLI displays a warning and continues with other sources. This helps users identify configuration problems without blocking execution.
+
 ### Plugin Configuration
 
 Plugins cannot add flags to commands they don't own (this is an oclif limitation). Instead, plugins should accept configuration via environment variables:
diff --git a/packages/b2c-tooling-sdk/src/cli/config.ts b/packages/b2c-tooling-sdk/src/cli/config.ts
index 2f619312..b0091256 100644
--- a/packages/b2c-tooling-sdk/src/cli/config.ts
+++ b/packages/b2c-tooling-sdk/src/cli/config.ts
@@ -245,9 +245,9 @@ export function loadConfig(
     );
   }
 
-  // Log warnings
+  // Log warnings (at warn level so users can see configuration issues)
   for (const warning of resolved.warnings) {
-    logger.trace({warning}, `[Config] ${warning.message}`);
+    logger.warn({warning}, `[Config] ${warning.message}`);
   }
 
   return resolved;
diff --git a/packages/b2c-tooling-sdk/src/config/dw-json.ts b/packages/b2c-tooling-sdk/src/config/dw-json.ts
index 5bc31047..6b1f7541 100644
--- a/packages/b2c-tooling-sdk/src/config/dw-json.ts
+++ b/packages/b2c-tooling-sdk/src/config/dw-json.ts
@@ -239,9 +239,10 @@ export function loadDwJson(options: LoadDwJsonOptions = {}): LoadDwJsonResult |
       path: dwJsonPath,
     };
   } catch (error) {
-    // Invalid JSON or read error
+    // Invalid JSON or read error - log at trace level and re-throw
+    // The resolver will catch this and create a SOURCE_ERROR warning
     const message = error instanceof Error ? error.message : String(error);
     logger.trace({path: dwJsonPath, error: message}, '[DwJsonSource] Failed to parse config file');
-    return undefined;
+    throw error;
   }
 }
diff --git a/packages/b2c-tooling-sdk/src/config/mapping.ts b/packages/b2c-tooling-sdk/src/config/mapping.ts
index fe9749f2..71676e7a 100644
--- a/packages/b2c-tooling-sdk/src/config/mapping.ts
+++ b/packages/b2c-tooling-sdk/src/config/mapping.ts
@@ -125,7 +125,7 @@ export function mergeConfigsWithProtection(
   if (hostnameMismatch && hostnameProtection) {
     warnings.push({
       code: 'HOSTNAME_MISMATCH',
-      message: `Hostname override "${overrides.hostname}" differs from config file "${base.hostname}". Config file values ignored.`,
+      message: `Server override "${overrides.hostname}" differs from config file "${base.hostname}". Config file values ignored.`,
       details: {
         providedHostname: overrides.hostname,
         configHostname: base.hostname,
diff --git a/packages/b2c-tooling-sdk/src/config/resolver.ts b/packages/b2c-tooling-sdk/src/config/resolver.ts
index 9f5cddad..1870a3c4 100644
--- a/packages/b2c-tooling-sdk/src/config/resolver.ts
+++ b/packages/b2c-tooling-sdk/src/config/resolver.ts
@@ -16,9 +16,11 @@ import type {B2CInstance} from '../instance/index.js';
 import {mergeConfigsWithProtection, getPopulatedFields, createInstanceFromConfig} from './mapping.js';
 import {DwJsonSource, MobifySource, PackageJsonSource} from './sources/index.js';
 import type {
+  ConfigLoadResult,
   ConfigSource,
   ConfigSourceInfo,
   ConfigResolutionResult,
+  ConfigWarning,
   NormalizedConfig,
   ResolveConfigOptions,
   ResolvedB2CConfig,
@@ -155,6 +157,7 @@ export class ConfigResolver {
    */
   resolve(overrides: Partial<NormalizedConfig> = {}, options: ResolveConfigOptions = {}): ConfigResolutionResult {
     const sourceInfos: ConfigSourceInfo[] = [];
+    const sourceWarnings: ConfigWarning[] = [];
     const baseConfig: NormalizedConfig = {};
 
     // Create enriched options that will be updated with accumulated config values.
@@ -165,7 +168,19 @@ export class ConfigResolver {
     // Load from each source in order, merging results
     // Earlier sources have higher priority - later sources only fill in missing values
     for (const source of this.sources) {
-      const result = source.load(enrichedOptions);
+      let result: ConfigLoadResult | undefined;
+      try {
+        result = source.load(enrichedOptions);
+      } catch (error) {
+        // Source threw an error (e.g., malformed config file) - create warning and continue
+        const message = error instanceof Error ? error.message : String(error);
+        sourceWarnings.push({
+          code: 'SOURCE_ERROR',
+          message: `Failed to load configuration from ${source.name}: ${message}`,
+          details: {source: source.name, error: message},
+        });
+        continue;
+      }
       if (result && result.config) {
         const {config: sourceConfig, location} = result;
         const fields = getPopulatedFields(sourceConfig);
@@ -219,10 +234,13 @@ export class ConfigResolver {
     }
 
     // Apply overrides with hostname mismatch protection
-    const {config, warnings} = mergeConfigsWithProtection(overrides, baseConfig, {
+    const {config, warnings: mergeWarnings} = mergeConfigsWithProtection(overrides, baseConfig, {
       hostnameProtection: options.hostnameProtection,
     });
 
+    // Combine source warnings with merge warnings
+    const warnings = [...sourceWarnings, ...mergeWarnings];
+
     return {config, warnings, sources: sourceInfos};
   }
 
diff --git a/packages/b2c-tooling-sdk/src/config/sources/mobify-source.ts b/packages/b2c-tooling-sdk/src/config/sources/mobify-source.ts
index 221e11ad..01b6cb1f 100644
--- a/packages/b2c-tooling-sdk/src/config/sources/mobify-source.ts
+++ b/packages/b2c-tooling-sdk/src/config/sources/mobify-source.ts
@@ -70,10 +70,11 @@ export class MobifySource implements ConfigSource {
         location: mobifyPath,
       };
     } catch (error) {
-      // Invalid JSON or read error
+      // Invalid JSON or read error - log at trace level and re-throw
+      // The resolver will catch this and create a SOURCE_ERROR warning
       const message = error instanceof Error ? error.message : String(error);
       logger.trace({location: mobifyPath, error: message}, '[MobifySource] Failed to parse credentials file');
-      return undefined;
+      throw error;
     }
   }
 
diff --git a/packages/b2c-tooling-sdk/src/config/sources/package-json-source.ts b/packages/b2c-tooling-sdk/src/config/sources/package-json-source.ts
index 229ad62c..06ba5f7e 100644
--- a/packages/b2c-tooling-sdk/src/config/sources/package-json-source.ts
+++ b/packages/b2c-tooling-sdk/src/config/sources/package-json-source.ts
@@ -108,9 +108,11 @@ export class PackageJsonSource implements ConfigSource {
 
       return {config, location: packageJsonPath};
     } catch (error) {
+      // Invalid JSON or read error - log at trace level and re-throw
+      // The resolver will catch this and create a SOURCE_ERROR warning
       const message = error instanceof Error ? error.message : String(error);
       logger.trace({location: packageJsonPath, error: message}, '[PackageJsonSource] Failed to parse package.json');
-      return undefined;
+      throw error;
     }
   }
 }
diff --git a/packages/b2c-tooling-sdk/test/config/dw-json.test.ts b/packages/b2c-tooling-sdk/test/config/dw-json.test.ts
index e73fc5ee..639ae4aa 100644
--- a/packages/b2c-tooling-sdk/test/config/dw-json.test.ts
+++ b/packages/b2c-tooling-sdk/test/config/dw-json.test.ts
@@ -151,12 +151,11 @@ describe('config/dw-json', () => {
       expect(result?.config.hostname).to.equal('root.demandware.net');
     });
 
-    it('returns undefined for invalid JSON', () => {
+    it('throws for invalid JSON', () => {
       const dwJsonPath = path.join(tempDir, 'dw.json');
       fs.writeFileSync(dwJsonPath, 'invalid json');
 
-      const result = loadDwJson();
-      expect(result).to.be.undefined;
+      expect(() => loadDwJson()).to.throw(SyntaxError);
     });
 
     it('returns undefined for non-existent explicit path', () => {
diff --git a/packages/b2c-tooling-sdk/test/config/resolver.test.ts b/packages/b2c-tooling-sdk/test/config/resolver.test.ts
index bda0cc85..795bc907 100644
--- a/packages/b2c-tooling-sdk/test/config/resolver.test.ts
+++ b/packages/b2c-tooling-sdk/test/config/resolver.test.ts
@@ -217,6 +217,72 @@ describe('config/resolver', () => {
         expect(warnings[0].code).to.equal('HOSTNAME_MISMATCH');
       });
 
+      it('creates SOURCE_ERROR warning when source throws', () => {
+        // Create a source that throws an error
+        const throwingSource: ConfigSource = {
+          name: 'throwing-source',
+          load() {
+            throw new Error('Malformed config file');
+          },
+        };
+        const validSource = new MockSource('valid', {
+          hostname: 'example.demandware.net',
+          clientId: 'valid-client',
+        });
+        const resolver = new ConfigResolver([throwingSource, validSource]);
+
+        const {config, warnings, sources} = resolver.resolve();
+
+        // Should have one SOURCE_ERROR warning
+        expect(warnings).to.have.length(1);
+        expect(warnings[0].code).to.equal('SOURCE_ERROR');
+        expect(warnings[0].message).to.include('throwing-source');
+        expect(warnings[0].message).to.include('Malformed config file');
+        expect(warnings[0].details).to.deep.equal({
+          source: 'throwing-source',
+          error: 'Malformed config file',
+        });
+
+        // Valid source should still contribute config
+        expect(config.hostname).to.equal('example.demandware.net');
+        expect(config.clientId).to.equal('valid-client');
+        expect(sources).to.have.length(1);
+        expect(sources[0].name).to.equal('valid');
+      });
+
+      it('continues with remaining sources after SOURCE_ERROR', () => {
+        // First source throws, second succeeds, third also throws
+        const throwingSource1: ConfigSource = {
+          name: 'bad-source-1',
+          priority: -1,
+          load() {
+            throw new Error('Error 1');
+          },
+        };
+        const validSource = new MockSource('valid', {hostname: 'example.com'}, undefined, 0);
+        const throwingSource2: ConfigSource = {
+          name: 'bad-source-2',
+          priority: 1,
+          load() {
+            throw new Error('Error 2');
+          },
+        };
+        const resolver = new ConfigResolver([throwingSource1, validSource, throwingSource2]);
+
+        const {config, warnings, sources} = resolver.resolve();
+
+        // Should have two SOURCE_ERROR warnings
+        expect(warnings).to.have.length(2);
+        expect(warnings[0].code).to.equal('SOURCE_ERROR');
+        expect(warnings[0].message).to.include('bad-source-1');
+        expect(warnings[1].code).to.equal('SOURCE_ERROR');
+        expect(warnings[1].message).to.include('bad-source-2');
+
+        // Valid source contributes config
+        expect(config.hostname).to.equal('example.com');
+        expect(sources).to.have.length(1);
+      });
+
       it('returns empty config when no sources have data', () => {
         const resolver = new ConfigResolver([]);
 
diff --git a/packages/b2c-tooling-sdk/test/config/sources.test.ts b/packages/b2c-tooling-sdk/test/config/sources.test.ts
index 6e279165..fda8662f 100644
--- a/packages/b2c-tooling-sdk/test/config/sources.test.ts
+++ b/packages/b2c-tooling-sdk/test/config/sources.test.ts
@@ -300,7 +300,7 @@ describe('config/sources', () => {
       }
     });
 
-    it('returns undefined for invalid JSON in ~/.mobify', function () {
+    it('creates SOURCE_ERROR warning for invalid JSON in ~/.mobify', function () {
       const originalHomedir = os.homedir;
       let canMock = false;
       try {
@@ -320,9 +320,14 @@ describe('config/sources', () => {
         fs.writeFileSync(mobifyPath, 'invalid json');
 
         const resolver = new ConfigResolver();
-        const {config} = resolver.resolve();
+        const {config, warnings} = resolver.resolve();
 
+        // Config should not have the API key
         expect(config.mrtApiKey).to.be.undefined;
+        // Should have a SOURCE_ERROR warning for MobifySource
+        const sourceError = warnings.find((w) => w.code === 'SOURCE_ERROR' && w.message.includes('MobifySource'));
+        expect(sourceError).to.not.be.undefined;
+        expect(sourceError?.message).to.include('Failed to load configuration');
 
         // Restore
         Object.defineProperty(os, 'homedir', {