diff --git a/.changeset/chilled-dogs-compare.md b/.changeset/chilled-dogs-compare.md
new file mode 100644
index 000000000..11af5d227
--- /dev/null
+++ b/.changeset/chilled-dogs-compare.md
@@ -0,0 +1,5 @@
+---
+"create-llama": patch
+---
+
+Add support for LlamaTrace (Python)
diff --git a/create-app.ts b/create-app.ts
index 008ab91ba..7e00e0bab 100644
--- a/create-app.ts
+++ b/create-app.ts
@@ -9,7 +9,7 @@ import { makeDir } from "./helpers/make-dir";
 
 import fs from "fs";
 import terminalLink from "terminal-link";
-import type { InstallTemplateArgs } from "./helpers";
+import type { InstallTemplateArgs, TemplateObservability } from "./helpers";
 import { installTemplate } from "./helpers";
 import { writeDevcontainer } from "./helpers/devcontainer";
 import { templatesDir } from "./helpers/dir";
@@ -142,14 +142,7 @@ export async function createApp({
     )} and learn how to get started.`,
   );
 
-  if (args.observability === "opentelemetry") {
-    console.log(
-      `\n${yellow("Observability")}: Visit the ${terminalLink(
-        "documentation",
-        "https://traceloop.com/docs/openllmetry/integrations",
-      )} to set up the environment variables and start seeing execution traces.`,
-    );
-  }
+  outputObservability(args.observability);
 
   if (
     dataSources.some((dataSource) => dataSource.type === "file") &&
@@ -167,3 +160,24 @@ export async function createApp({
 
   console.log();
 }
+
+function outputObservability(observability?: TemplateObservability) {
+  switch (observability) {
+    case "traceloop":
+      console.log(
+        `\n${yellow("Observability")}: Visit the ${terminalLink(
+          "documentation",
+          "https://traceloop.com/docs/openllmetry/integrations",
+        )} to set up the environment variables and start seeing execution traces.`,
+      );
+      break;
+    case "llamatrace":
+      console.log(
+        `\n${yellow("Observability")}: LlamaTrace has been configured for your project. Visit the ${terminalLink(
+          "LlamaTrace dashboard",
+          "https://llamatrace.com/login",
+        )} to view your traces and monitor your application.`,
+      );
+      break;
+  }
+}
diff --git a/helpers/env-variables.ts b/helpers/env-variables.ts
index 34930cad5..553b96536 100644
--- a/helpers/env-variables.ts
+++ b/helpers/env-variables.ts
@@ -2,9 +2,10 @@ import fs from "fs/promises";
 import path from "path";
 import { TOOL_SYSTEM_PROMPT_ENV_VAR, Tool } from "./tools";
 import {
+  InstallTemplateArgs,
   ModelConfig,
-  TemplateDataSource,
   TemplateFramework,
+  TemplateObservability,
   TemplateType,
   TemplateVectorDB,
 } from "./types";
@@ -461,18 +462,35 @@ const getTemplateEnvs = (template?: TemplateType): EnvVar[] => {
   }
 };
 
+const getObservabilityEnvs = (
+  observability?: TemplateObservability,
+): EnvVar[] => {
+  if (observability === "llamatrace") {
+    return [
+      {
+        name: "PHOENIX_API_KEY",
+        description:
+          "API key for LlamaTrace observability. Retrieve from https://llamatrace.com/login",
+      },
+    ];
+  }
+  return [];
+};
+
 export const createBackendEnvFile = async (
   root: string,
-  opts: {
-    llamaCloudKey?: string;
-    vectorDb?: TemplateVectorDB;
-    modelConfig: ModelConfig;
-    framework: TemplateFramework;
-    dataSources?: TemplateDataSource[];
-    template?: TemplateType;
-    port?: number;
-    tools?: Tool[];
-  },
+  opts: Pick<
+    InstallTemplateArgs,
+    | "llamaCloudKey"
+    | "vectorDb"
+    | "modelConfig"
+    | "framework"
+    | "dataSources"
+    | "template"
+    | "externalPort"
+    | "tools"
+    | "observability"
+  >,
 ) => {
   // Init env values
   const envFileName = ".env";
@@ -482,16 +500,14 @@ export const createBackendEnvFile = async (
       description: `The Llama Cloud API key.`,
       value: opts.llamaCloudKey,
     },
-    // Add model environment variables
+    // Add environment variables of each component
     ...getModelEnvs(opts.modelConfig),
-    // Add engine environment variables
     ...getEngineEnvs(),
-    // Add vector database environment variables
     ...getVectorDBEnvs(opts.vectorDb, opts.framework),
-    ...getFrameworkEnvs(opts.framework, opts.port),
+    ...getFrameworkEnvs(opts.framework, opts.externalPort),
     ...getToolEnvs(opts.tools),
-    // Add template environment variables
     ...getTemplateEnvs(opts.template),
+    ...getObservabilityEnvs(opts.observability),
     getSystemPromptEnv(opts.tools),
   ];
   // Render and write env file
diff --git a/helpers/index.ts b/helpers/index.ts
index 79f3c6873..91eed694d 100644
--- a/helpers/index.ts
+++ b/helpers/index.ts
@@ -168,16 +168,7 @@ export const installTemplate = async (
       props.template === "multiagent" ||
       props.template === "extractor"
     ) {
-      await createBackendEnvFile(props.root, {
-        modelConfig: props.modelConfig,
-        llamaCloudKey: props.llamaCloudKey,
-        vectorDb: props.vectorDb,
-        framework: props.framework,
-        dataSources: props.dataSources,
-        port: props.externalPort,
-        tools: props.tools,
-        template: props.template,
-      });
+      await createBackendEnvFile(props.root, props);
     }
 
     if (props.dataSources.length > 0) {
diff --git a/helpers/python.ts b/helpers/python.ts
index 095c1a0a2..6bb9dc902 100644
--- a/helpers/python.ts
+++ b/helpers/python.ts
@@ -380,18 +380,27 @@ export const installPythonTemplate = async ({
     tools,
   );
 
-  if (observability === "opentelemetry") {
-    addOnDependencies.push({
-      name: "traceloop-sdk",
-      version: "^0.15.11",
-    });
+  if (observability && observability !== "none") {
+    if (observability === "traceloop") {
+      addOnDependencies.push({
+        name: "traceloop-sdk",
+        version: "^0.15.11",
+      });
+    }
+
+    if (observability === "llamatrace") {
+      addOnDependencies.push({
+        name: "llama-index-callbacks-arize-phoenix",
+        version: "^0.1.6",
+      });
+    }
 
     const templateObservabilityPath = path.join(
       templatesDir,
       "components",
       "observability",
       "python",
-      "opentelemetry",
+      observability,
     );
     await copy("**", path.join(root, "app"), {
       cwd: templateObservabilityPath,
diff --git a/helpers/types.ts b/helpers/types.ts
index 9dc9686de..0e4fde4d3 100644
--- a/helpers/types.ts
+++ b/helpers/types.ts
@@ -46,7 +46,7 @@ export type TemplateDataSource = {
   config: TemplateDataSourceConfig;
 };
 export type TemplateDataSourceType = "file" | "web" | "db" | "llamacloud";
-export type TemplateObservability = "none" | "opentelemetry";
+export type TemplateObservability = "none" | "traceloop" | "llamatrace";
 // Config for both file and folder
 export type FileSourceConfig = {
   path: string;
diff --git a/helpers/typescript.ts b/helpers/typescript.ts
index def104da4..7becd8e7e 100644
--- a/helpers/typescript.ts
+++ b/helpers/typescript.ts
@@ -70,7 +70,7 @@ export const installTSTemplate = async ({
     );
 
     const webpackConfigOtelFile = path.join(root, "webpack.config.o11y.mjs");
-    if (observability === "opentelemetry") {
+    if (observability === "traceloop") {
       const webpackConfigDefaultFile = path.join(root, "webpack.config.mjs");
       await fs.rm(webpackConfigDefaultFile);
       await fs.rename(webpackConfigOtelFile, webpackConfigDefaultFile);
@@ -248,7 +248,7 @@ async function updatePackageJson({
     };
   }
 
-  if (observability === "opentelemetry") {
+  if (observability === "traceloop") {
     packageJson.dependencies = {
       ...packageJson.dependencies,
       "@traceloop/node-server-sdk": "^0.5.19",
diff --git a/questions.ts b/questions.ts
index 6141d99fc..6d42fd229 100644
--- a/questions.ts
+++ b/questions.ts
@@ -486,7 +486,10 @@ export const askQuestions = async (
           message: "Would you like to set up observability?",
           choices: [
             { title: "No", value: "none" },
-            { title: "OpenTelemetry", value: "opentelemetry" },
+            ...(program.framework === "fastapi"
+              ? [{ title: "LlamaTrace", value: "llamatrace" }]
+              : []),
+            { title: "Traceloop", value: "traceloop" },
           ],
           initial: 0,
         },
diff --git a/templates/components/observability/python/llamatrace/observability.py b/templates/components/observability/python/llamatrace/observability.py
new file mode 100644
index 000000000..9bd415844
--- /dev/null
+++ b/templates/components/observability/python/llamatrace/observability.py
@@ -0,0 +1,12 @@
+import llama_index.core
+import os
+
+
+def init_observability():
+    PHOENIX_API_KEY = os.getenv("PHOENIX_API_KEY")
+    if not PHOENIX_API_KEY:
+        raise ValueError("PHOENIX_API_KEY environment variable is not set")
+    os.environ["OTEL_EXPORTER_OTLP_HEADERS"] = f"api_key={PHOENIX_API_KEY}"
+    llama_index.core.set_global_handler(
+        "arize_phoenix", endpoint="https://llamatrace.com/v1/traces"
+    )
diff --git a/templates/components/observability/python/opentelemetry/observability.py b/templates/components/observability/python/traceloop/observability.py
similarity index 100%
rename from templates/components/observability/python/opentelemetry/observability.py
rename to templates/components/observability/python/traceloop/observability.py
diff --git a/templates/components/observability/typescript/opentelemetry/index.ts b/templates/components/observability/typescript/traceloop/index.ts
similarity index 100%
rename from templates/components/observability/typescript/opentelemetry/index.ts
rename to templates/components/observability/typescript/traceloop/index.ts