diff --git a/sdk/identity/azure-identity/azure/identity/_credentials/shared_cache.py b/sdk/identity/azure-identity/azure/identity/_credentials/shared_cache.py
index edddc8a8974c..4ebb45a226c5 100644
--- a/sdk/identity/azure-identity/azure/identity/_credentials/shared_cache.py
+++ b/sdk/identity/azure-identity/azure/identity/_credentials/shared_cache.py
@@ -2,6 +2,7 @@
 # Copyright (c) Microsoft Corporation.
 # Licensed under the MIT License.
 # ------------------------------------
+import os
 import time
 
 from msal.application import PublicClientApplication
@@ -119,12 +120,16 @@ def _initialize(self):
 
         self._load_cache()
         if self._cache:
+            if "AZURE_IDENTITY_DISABLE_CP1" in os.environ:
+                capabilities = None
+            else:
+                capabilities = ["CP1"]  # able to handle CAE claims challenges
             self._app = PublicClientApplication(
                 client_id=self._auth_record.client_id,
                 authority="https://{}/{}".format(self._auth_record.authority, self._tenant_id),
                 token_cache=self._cache,
                 http_client=MsalClient(**self._client_kwargs),
-                client_capabilities=["CP1"]
+                client_capabilities=capabilities
             )
 
         self._initialized = True
diff --git a/sdk/identity/azure-identity/azure/identity/_internal/interactive.py b/sdk/identity/azure-identity/azure/identity/_internal/interactive.py
index 3b678d64f8da..2eb9653900e9 100644
--- a/sdk/identity/azure-identity/azure/identity/_internal/interactive.py
+++ b/sdk/identity/azure-identity/azure/identity/_internal/interactive.py
@@ -8,6 +8,7 @@
 import base64
 import json
 import logging
+import os
 import time
 from typing import TYPE_CHECKING
 
@@ -206,7 +207,11 @@ def _acquire_token_silent(self, *scopes, **kwargs):
     def _get_app(self):
         # type: () -> msal.PublicClientApplication
         if not self._msal_app:
-            self._msal_app = self._create_app(msal.PublicClientApplication, client_capabilities=["CP1"])
+            if "AZURE_IDENTITY_DISABLE_CP1" in os.environ:
+                capabilities = None
+            else:
+                capabilities = ["CP1"]  # able to handle CAE claims challenges
+            self._msal_app = self._create_app(msal.PublicClientApplication, client_capabilities=capabilities)
         return self._msal_app
 
     @abc.abstractmethod
diff --git a/sdk/identity/azure-identity/tests/test_device_code_credential.py b/sdk/identity/azure-identity/tests/test_device_code_credential.py
index 98c2647679f3..0df5feb02629 100644
--- a/sdk/identity/azure-identity/tests/test_device_code_credential.py
+++ b/sdk/identity/azure-identity/tests/test_device_code_credential.py
@@ -248,18 +248,25 @@ def test_timeout():
 
 
 def test_client_capabilities():
-    """the credential should configure MSAL for capability CP1 (ability to handle claims challenges)"""
+    """the credential should configure MSAL for capability CP1 unless AZURE_IDENTITY_DISABLE_CP1 is set"""
 
     transport = Mock(send=Mock(side_effect=Exception("this test mocks MSAL, so no request should be sent")))
-    credential = DeviceCodeCredential(transport=transport)
 
     with patch("msal.PublicClientApplication") as PublicClientApplication:
-        credential._get_app()
+        DeviceCodeCredential(transport=transport)._get_app()
 
     assert PublicClientApplication.call_count == 1
     _, kwargs = PublicClientApplication.call_args
     assert kwargs["client_capabilities"] == ["CP1"]
 
+    with patch.dict("os.environ", {"AZURE_IDENTITY_DISABLE_CP1": "true"}):
+        with patch("msal.PublicClientApplication") as PublicClientApplication:
+            DeviceCodeCredential(transport=transport)._get_app()
+
+    assert PublicClientApplication.call_count == 1
+    _, kwargs = PublicClientApplication.call_args
+    assert kwargs["client_capabilities"] is None
+
 
 def test_claims_challenge():
     """get_token and authenticate should pass any claims challenge to MSAL token acquisition APIs"""
diff --git a/sdk/identity/azure-identity/tests/test_shared_cache_credential.py b/sdk/identity/azure-identity/tests/test_shared_cache_credential.py
index 9ee2dcf1327f..12dec789f76f 100644
--- a/sdk/identity/azure-identity/tests/test_shared_cache_credential.py
+++ b/sdk/identity/azure-identity/tests/test_shared_cache_credential.py
@@ -736,7 +736,7 @@ def mock_send(request, **_):
 
 
 def test_client_capabilities():
-    """the credential should configure MSAL for capability CP1 (ability to handle claims challenges)"""
+    """the credential should configure MSAL for capability CP1 unless AZURE_IDENTITY_DISABLE_CP1 is set"""
 
     record = AuthenticationRecord("tenant-id", "client_id", "authority", "home_account_id", "username")
     transport = Mock(send=Mock(side_effect=Exception("this test mocks MSAL, so no request should be sent")))
@@ -751,6 +751,17 @@ def test_client_capabilities():
     _, kwargs = PublicClientApplication.call_args
     assert kwargs["client_capabilities"] == ["CP1"]
 
+    credential = SharedTokenCacheCredential(
+        transport=transport, authentication_record=record, _cache=TokenCache()
+    )
+    with patch(SharedTokenCacheCredential.__module__ + ".PublicClientApplication") as PublicClientApplication:
+        with patch.dict("os.environ", {"AZURE_IDENTITY_DISABLE_CP1": "true"}):
+            credential._initialize()
+
+    assert PublicClientApplication.call_count == 1
+    _, kwargs = PublicClientApplication.call_args
+    assert kwargs["client_capabilities"] is None
+
 
 def test_claims_challenge():
     """get_token should pass any claims challenge to MSAL token acquisition APIs"""
diff --git a/sdk/identity/azure-identity/tests/test_username_password_credential.py b/sdk/identity/azure-identity/tests/test_username_password_credential.py
index 3ac70a1fb544..d07f03dfa1d1 100644
--- a/sdk/identity/azure-identity/tests/test_username_password_credential.py
+++ b/sdk/identity/azure-identity/tests/test_username_password_credential.py
@@ -149,11 +149,11 @@ def test_authenticate():
 
 
 def test_client_capabilities():
-    """the credential should configure MSAL for capability CP1 (ability to handle claims challenges)"""
+    """the credential should configure MSAL for capability CP1 unless AZURE_IDENTITY_DISABLE_CP1 is set"""
 
     transport = Mock(send=Mock(side_effect=Exception("this test mocks MSAL, so no request should be sent")))
-    credential = UsernamePasswordCredential("client-id", "username", "password", transport=transport)
 
+    credential = UsernamePasswordCredential("client-id", "username", "password", transport=transport)
     with patch("msal.PublicClientApplication") as PublicClientApplication:
         credential._get_app()
 
@@ -161,6 +161,15 @@ def test_client_capabilities():
     _, kwargs = PublicClientApplication.call_args
     assert kwargs["client_capabilities"] == ["CP1"]
 
+    credential = UsernamePasswordCredential("client-id", "username", "password", transport=transport)
+    with patch.dict("os.environ", {"AZURE_IDENTITY_DISABLE_CP1": "true"}):
+        with patch("msal.PublicClientApplication") as PublicClientApplication:
+            credential._get_app()
+
+    assert PublicClientApplication.call_count == 1
+    _, kwargs = PublicClientApplication.call_args
+    assert kwargs["client_capabilities"] is None
+
 
 def test_claims_challenge():
     """get_token should and authenticate pass any claims challenge to MSAL token acquisition APIs"""