diff --git a/docs/book/src/known-issues.md b/docs/book/src/known-issues.md
index 701b9eb09..0c520e24e 100644
--- a/docs/book/src/known-issues.md
+++ b/docs/book/src/known-issues.md
@@ -65,3 +65,7 @@ az rest --method post --uri "${URI}" --body "${BODY}" --headers "Content-Type=ap
 To protect the stability of the system and prevent custom admission controllers from impacting internal services in the kube-system, namespace AKS has an Admissions Enforcer, which automatically excludes kube-system and AKS internal namespaces. Refer to [doc](https://docs.microsoft.com/en-us/azure/aks/faq#can-admission-controller-webhooks-impact-kube-system-and-internal-aks-namespaces) for more details.
 
 If you're deploying a pod in the `kube-system` namespace of an AKS cluster and need the environment variables, projected service account token volume injected by the Azure Workload Identity Mutating Webhook, add the `"admissions.enforcer/disabled": "true"` label or annotation in the [MutatingWebhookConfiguration](https://github.com/Azure/azure-workload-identity/blob/8644a217f09902fa1ac63e05cf04d9a3f3f1ebc3/deploy/azure-wi-webhook.yaml#L206-L235).
+
+## Proxy sidecar not injected into pods that have `hostNetwork: true`
+
+The proxy sidecar modifies the `iptables` rules to redirect traffic to the Azure Instance Metadata Service (IMDS) endpoint to the proxy sidecar. This is not supported when `hostNetwork: true` is set on the pod as it will modify the host's `iptables` rules which will impact other pods running on the same host.
diff --git a/pkg/webhook/webhook.go b/pkg/webhook/webhook.go
index 23f65b272..c6c3b2c23 100644
--- a/pkg/webhook/webhook.go
+++ b/pkg/webhook/webhook.go
@@ -125,6 +125,14 @@ func (m *podMutator) Handle(ctx context.Context, req admission.Request) (respons
 	}
 
 	if shouldInjectProxySidecar(pod) {
+		// if the pod has hostNetwork set to true, we cannot inject the proxy sidecar
+		// as it'll end up modifying the network stack of the host and affecting other pods
+		if pod.Spec.HostNetwork {
+			err := errors.New("hostNetwork is set to true, cannot inject proxy sidecar")
+			logger.Error("failed to inject proxy sidecar", err)
+			return admission.Errored(http.StatusBadRequest, err)
+		}
+
 		proxyPort, err := getProxyPort(pod)
 		if err != nil {
 			logger.Error("failed to get proxy port", err)
diff --git a/pkg/webhook/webhook_test.go b/pkg/webhook/webhook_test.go
index e61afa036..4e2bfe775 100644
--- a/pkg/webhook/webhook_test.go
+++ b/pkg/webhook/webhook_test.go
@@ -7,6 +7,7 @@ import (
 	"path/filepath"
 	"reflect"
 	"strconv"
+	"strings"
 	"testing"
 
 	admissionv1 "k8s.io/api/admission/v1"
@@ -26,12 +27,13 @@ var (
 	serviceAccountTokenExpiry = MinServiceAccountTokenExpiration
 )
 
-func newPod(name, namespace, serviceAccountName string, labels map[string]string) *corev1.Pod {
+func newPod(name, namespace, serviceAccountName string, labels, annotations map[string]string, hostNetwork bool) *corev1.Pod {
 	return &corev1.Pod{
 		ObjectMeta: metav1.ObjectMeta{
-			Name:      name,
-			Namespace: namespace,
-			Labels:    labels,
+			Name:        name,
+			Namespace:   namespace,
+			Labels:      labels,
+			Annotations: annotations,
 		},
 		Spec: corev1.PodSpec{
 			ServiceAccountName: serviceAccountName,
@@ -47,12 +49,13 @@ func newPod(name, namespace, serviceAccountName string, labels map[string]string
 					Image: "image",
 				},
 			},
+			HostNetwork: hostNetwork,
 		},
 	}
 }
 
-func newPodRaw(name, namespace, serviceAccountName string, labels map[string]string) []byte {
-	pod := newPod(name, namespace, serviceAccountName, labels)
+func newPodRaw(name, namespace, serviceAccountName string, labels, annotations map[string]string, hostNetwork bool) []byte {
+	pod := newPod(name, namespace, serviceAccountName, labels, annotations, hostNetwork)
 	raw, err := json.Marshal(pod)
 	if err != nil {
 		panic(err)
@@ -785,7 +788,7 @@ func TestHandle(t *testing.T) {
 						Version: "v1",
 						Kind:    "Pod",
 					},
-					Object:    runtime.RawExtension{Raw: newPodRaw("pod", "ns1", test.serviceAccountName, test.podLabels)},
+					Object:    runtime.RawExtension{Raw: newPodRaw("pod", "ns1", test.serviceAccountName, test.podLabels, nil, false)},
 					Namespace: "ns1",
 					Operation: admissionv1.Create,
 				},
@@ -1268,3 +1271,72 @@ func TestGetProxyPort(t *testing.T) {
 		})
 	}
 }
+
+func TestHandleError(t *testing.T) {
+	serviceAccounts := []client.Object{}
+	for _, name := range []string{"default", "sa"} {
+		serviceAccounts = append(serviceAccounts, &corev1.ServiceAccount{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      name,
+				Namespace: "ns1",
+				Annotations: map[string]string{
+					ClientIDAnnotation:                  "clientID",
+					ServiceAccountTokenExpiryAnnotation: "4800",
+				},
+			},
+		})
+	}
+
+	decoder, _ := atypes.NewDecoder(runtime.NewScheme())
+
+	tests := []struct {
+		name          string
+		object        runtime.RawExtension
+		clientObjects []client.Object
+		expectedErr   string
+	}{
+		{
+			name: "pod has host network",
+			object: runtime.RawExtension{Raw: newPodRaw("pod", "ns1", "sa",
+				map[string]string{UseWorkloadIdentityLabel: "true"}, map[string]string{InjectProxySidecarAnnotation: "true"}, true)},
+			clientObjects: serviceAccounts,
+			expectedErr:   "hostNetwork is set to true, cannot inject proxy sidecar",
+		},
+	}
+
+	for _, test := range tests {
+		t.Run(test.name, func(t *testing.T) {
+			if err := registerMetrics(); err != nil {
+				t.Fatalf("failed to register metrics: %v", err)
+			}
+
+			m := &podMutator{
+				client:  fake.NewClientBuilder().WithObjects(test.clientObjects...).Build(),
+				reader:  fake.NewClientBuilder().WithObjects().Build(),
+				config:  &config.Config{TenantID: "tenantID"},
+				decoder: decoder,
+			}
+
+			req := atypes.Request{
+				AdmissionRequest: admissionv1.AdmissionRequest{
+					Kind: metav1.GroupVersionKind{
+						Group:   "",
+						Version: "v1",
+						Kind:    "Pod",
+					},
+					Object:    test.object,
+					Namespace: "ns1",
+					Operation: admissionv1.Create,
+				},
+			}
+
+			resp := m.Handle(context.Background(), req)
+			if resp.Allowed {
+				t.Fatalf("expected to be denied")
+			}
+			if !strings.Contains(resp.Result.Message, test.expectedErr) {
+				t.Fatalf("expected error to contain: %v, got: %v", test.expectedErr, resp.Result.Message)
+			}
+		})
+	}
+}