diff --git a/airflow-core/src/airflow/dag_processing/collection.py b/airflow-core/src/airflow/dag_processing/collection.py
index 31a664b7e02b4..6634754a58df1 100644
--- a/airflow-core/src/airflow/dag_processing/collection.py
+++ b/airflow-core/src/airflow/dag_processing/collection.py
@@ -159,10 +159,32 @@ def calculate(cls, dags: dict[str, LazyDeserializedDAG], *, session: Session) ->
 
 def _update_dag_tags(tag_names: set[str], dm: DagModel, *, session: Session) -> None:
     orm_tags = {t.name: t for t in dm.tags}
+    tags_to_delete = []
     for name, orm_tag in orm_tags.items():
         if name not in tag_names:
             session.delete(orm_tag)
-    dm.tags.extend(DagTag(name=name, dag_id=dm.dag_id) for name in tag_names.difference(orm_tags))
+            tags_to_delete.append(orm_tag)
+
+    tags_to_add = tag_names.difference(orm_tags)
+    if tags_to_delete:
+        # Remove deleted tags from the collection to keep it in sync
+        for tag in tags_to_delete:
+            dm.tags.remove(tag)
+
+        # Check if there's a potential case-only rename on MySQL (e.g., 'tag' -> 'TAG').
+        # MySQL uses case-insensitive collation for the (name, dag_id) primary key by default,
+        # which can cause duplicate key errors when renaming tags with only case changes.
+        if get_dialect_name(session) == "mysql":
+            orm_tags_lower = {name.lower(): name for name in orm_tags}
+            has_case_only_change = any(tag.lower() in orm_tags_lower for tag in tags_to_add)
+
+            if has_case_only_change:
+                # Force DELETE operations to execute before INSERT operations.
+                session.flush()
+                # Refresh the tags relationship from the database to reflect the deletions.
+                session.expire(dm, ["tags"])
+
+    dm.tags.extend(DagTag(name=name, dag_id=dm.dag_id) for name in tags_to_add)
 
 
 def _update_dag_owner_links(dag_owner_links: dict[str, str], dm: DagModel, *, session: Session) -> None:
diff --git a/airflow-core/tests/unit/dag_processing/test_collection.py b/airflow-core/tests/unit/dag_processing/test_collection.py
index e7d12f62c32be..92c03e97c52b8 100644
--- a/airflow-core/tests/unit/dag_processing/test_collection.py
+++ b/airflow-core/tests/unit/dag_processing/test_collection.py
@@ -37,6 +37,7 @@
     AssetModelOperation,
     DagModelOperation,
     _get_latest_runs_stmt,
+    _update_dag_tags,
     update_dag_parsing_results_in_db,
 )
 from airflow.exceptions import SerializationError
@@ -48,6 +49,7 @@
     DagScheduleAssetNameReference,
     DagScheduleAssetUriReference,
 )
+from airflow.models.dag import DagTag
 from airflow.models.errors import ParseImportError
 from airflow.models.serialized_dag import SerializedDagModel
 from airflow.providers.standard.operators.empty import EmptyOperator
@@ -941,3 +943,33 @@ def test_max_consecutive_failed_dag_runs_defaults_from_conf_when_none(
             update_dag_parsing_results_in_db("testing", None, [dag], {}, 0.1, set(), session)
             orm_dag = session.get(DagModel, "dag_max_failed_runs_default")
             assert orm_dag.max_consecutive_failed_dag_runs == 6
+
+
+@pytest.mark.db_test
+class TestUpdateDagTags:
+    @pytest.fixture(autouse=True)
+    def setup_teardown(self, session):
+        yield
+        session.query(DagModel).filter(DagModel.dag_id == "test_dag").delete()
+        session.commit()
+
+    @pytest.mark.parametrize(
+        ["initial_tags", "new_tags", "expected_tags"],
+        [
+            (["dangerous"], {"DANGEROUS"}, {"DANGEROUS"}),
+            (["existing"], {"existing", "new"}, {"existing", "new"}),
+            (["tag1", "tag2"], {"tag1"}, {"tag1"}),
+            (["keep", "remove", "lowercase"], {"keep", "LOWERCASE", "new"}, {"keep", "LOWERCASE", "new"}),
+            (["tag1", "tag2"], set(), set()),
+        ],
+    )
+    def test_update_dag_tags(self, testing_dag_bundle, session, initial_tags, new_tags, expected_tags):
+        dag_model = DagModel(dag_id="test_dag", bundle_name="testing")
+        dag_model.tags = [DagTag(name=tag, dag_id="test_dag") for tag in initial_tags]
+        session.add(dag_model)
+        session.commit()
+
+        _update_dag_tags(new_tags, dag_model, session=session)
+        session.commit()
+
+        assert {t.name for t in dag_model.tags} == expected_tags