diff --git a/crates/uv-distribution-types/src/index.rs b/crates/uv-distribution-types/src/index.rs
index 1ac47c9f2..c3d962d76 100644
--- a/crates/uv-distribution-types/src/index.rs
+++ b/crates/uv-distribution-types/src/index.rs
@@ -347,6 +347,18 @@ impl Index {
         self.url.root()
     }
 
+    /// If credentials are available (via the URL or environment) and [`AuthPolicy`] is
+    /// [`AuthPolicy::Auto`], promote to [`AuthPolicy::Always`] so that future operations
+    /// (e.g., `uv tool upgrade`) know that authentication is required even after the credentials
+    /// are stripped from the stored URL.
+    #[must_use]
+    pub fn with_promoted_auth_policy(mut self) -> Self {
+        if matches!(self.authenticate, AuthPolicy::Auto) && self.credentials().is_some() {
+            self.authenticate = AuthPolicy::Always;
+        }
+        self
+    }
+
     /// Retrieve the credentials for the index, either from the environment, or from the URL itself.
     pub fn credentials(&self) -> Option<Credentials> {
         // If the index is named, and credentials are provided via the environment, prefer those.
diff --git a/crates/uv-settings/src/settings.rs b/crates/uv-settings/src/settings.rs
index 672deb8d7..f1fc8702a 100644
--- a/crates/uv-settings/src/settings.rs
+++ b/crates/uv-settings/src/settings.rs
@@ -2107,7 +2107,12 @@ pub struct ToolOptions {
 impl From<ResolverInstallerOptions> for ToolOptions {
     fn from(value: ResolverInstallerOptions) -> Self {
         Self {
-            index: value.index,
+            index: value.index.map(|indexes| {
+                indexes
+                    .into_iter()
+                    .map(Index::with_promoted_auth_policy)
+                    .collect()
+            }),
             index_url: value.index_url,
             extra_index_url: value.extra_index_url,
             no_index: value.no_index,
diff --git a/crates/uv/tests/it/tool_install.rs b/crates/uv/tests/it/tool_install.rs
index 7d3897fc1..143928a47 100644
--- a/crates/uv/tests/it/tool_install.rs
+++ b/crates/uv/tests/it/tool_install.rs
@@ -4253,7 +4253,7 @@ async fn tool_install_credentials() {
         ]
 
         [tool.options]
-        index = [{ url = "http://[LOCALHOST]/basic-auth/simple", explicit = false, default = false, format = "simple", authenticate = "auto" }]
+        index = [{ url = "http://[LOCALHOST]/basic-auth/simple", explicit = false, default = false, format = "simple", authenticate = "always" }]
         exclude-newer = "2025-01-18T00:00:00Z"
         "#);
     });
diff --git a/crates/uv/tests/it/tool_upgrade.rs b/crates/uv/tests/it/tool_upgrade.rs
index 016088703..3e3137b8c 100644
--- a/crates/uv/tests/it/tool_upgrade.rs
+++ b/crates/uv/tests/it/tool_upgrade.rs
@@ -1,3 +1,4 @@
+use anyhow::Result;
 use assert_fs::prelude::*;
 use insta::assert_snapshot;
 
@@ -1008,3 +1009,78 @@ fn test_tool_upgrade_additional_entrypoints() {
     Upgraded tool environment for `babel` to Python 3.12
     ");
 }
+
+/// When upgrading a tool from an authenticated index with invalid credentials,
+/// the command should fail with an auth error rather than silently reporting
+/// "Nothing to upgrade".
+///
+/// See: <https://github.com/astral-sh/uv/issues/18120>
+#[tokio::test]
+async fn tool_upgrade_invalid_auth() -> Result<()> {
+    let proxy = crate::pypi_proxy::start().await;
+    let context = uv_test::test_context!("3.12")
+        .with_exclude_newer("2025-01-18T00:00:00Z")
+        .with_filtered_counts()
+        .with_filtered_exe_suffix();
+    let tool_dir = context.temp_dir.child("tools");
+    let bin_dir = context.temp_dir.child("bin");
+
+    // Install `executable-application` from an authenticated index using `--index`.
+    // The receipt will store `authenticate = "auto"` (not "always").
+    uv_snapshot!(context.filters(), context.tool_install()
+        .arg("executable-application")
+        .arg("--index")
+        .arg(proxy.authenticated_url("public", "heron", "/basic-auth/simple"))
+        .env(EnvVars::UV_TOOL_DIR, tool_dir.as_os_str())
+        .env(EnvVars::XDG_BIN_HOME, bin_dir.as_os_str())
+        .env(EnvVars::PATH, bin_dir.as_os_str()), @"
+    success: true
+    exit_code: 0
+    ----- stdout -----
+
+    ----- stderr -----
+    Resolved [N] packages in [TIME]
+    Prepared [N] packages in [TIME]
+    Installed [N] packages in [TIME]
+     + executable-application==0.3.0
+    Installed 1 executable: app
+    ");
+
+    insta::with_settings!({
+        filters => context.filters(),
+    }, {
+        // Verify the receipt has `authenticate = "always"` (promoted from "auto" because the
+        // original URL had embedded credentials).
+        assert_snapshot!(fs_err::read_to_string(tool_dir.join("executable-application").join("uv-receipt.toml")).unwrap(), @r#"
+        [tool]
+        requirements = [{ name = "executable-application" }]
+        entrypoints = [
+            { name = "app", install-path = "[TEMP_DIR]/bin/app", from = "executable-application" },
+        ]
+
+        [tool.options]
+        index = [{ url = "http://[LOCALHOST]/basic-auth/simple", explicit = false, default = false, format = "simple", authenticate = "always" }]
+        exclude-newer = "2025-01-18T00:00:00Z"
+        "#);
+    });
+
+    // Attempt to upgrade without providing credentials.
+    // Because the receipt now stores `authenticate = "always"`, the upgrade should fail
+    // with a credentials error rather than silently reporting "Nothing to upgrade".
+    uv_snapshot!(context.filters(), context.tool_upgrade()
+        .arg("executable-application")
+        .env(EnvVars::UV_TOOL_DIR, tool_dir.as_os_str())
+        .env(EnvVars::XDG_BIN_HOME, bin_dir.as_os_str())
+        .env(EnvVars::PATH, bin_dir.as_os_str()), @"
+    success: false
+    exit_code: 1
+    ----- stdout -----
+
+    ----- stderr -----
+    error: Failed to upgrade executable-application
+      Caused by: Failed to fetch: `http://[LOCALHOST]/basic-auth/simple/executable-application/`
+      Caused by: Missing credentials for http://[LOCALHOST]/basic-auth/simple/executable-application/
+    ");
+
+    Ok(())
+}