diff --git a/CHANGELOG.md b/CHANGELOG.md
index c172b148ec..5f38346ea2 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -63,7 +63,8 @@ END_UNRELEASED_TEMPLATE
 
 {#v0-0-0-fixed}
 ### Fixed
-* Nothing fixed.
+* (zipapp) Resolve issue passing through compression settings in
+  `py_zippapp_binary` targets. ([#3646](https://github.com/bazel-contrib/rules_python/issues/3646))
 
 {#v0-0-0-added}
 ### Added
diff --git a/python/private/zipapp/py_zipapp_rule.bzl b/python/private/zipapp/py_zipapp_rule.bzl
index a3d7fc2c6a..a6ab485fc4 100644
--- a/python/private/zipapp/py_zipapp_rule.bzl
+++ b/python/private/zipapp/py_zipapp_rule.bzl
@@ -112,7 +112,7 @@ def _create_zip(ctx, py_runtime, py_executable, stage2_bootstrap):
         format = "--legacy-external-runfiles=%s",
     )
     if ctx.attr.compression:
-        zipper_args.add(ctx.attr.compression, "--compression=%s")
+        zipper_args.add(ctx.attr.compression, format = "--compression=%s")
     zipper_args.add("--runfiles-dir=runfiles")
 
     actions_run(
diff --git a/tests/py_zipapp/BUILD.bazel b/tests/py_zipapp/BUILD.bazel
index c236998cc0..708d322f41 100644
--- a/tests/py_zipapp/BUILD.bazel
+++ b/tests/py_zipapp/BUILD.bazel
@@ -38,6 +38,27 @@ py_test(
     target_compatible_with = NOT_WINDOWS,
 )
 
+# Create the app with a supported level of compression
+py_zipapp_binary(
+    name = "venv_zipapp_compressed",
+    binary = ":venv_bin",
+    compression = "4",
+    target_compatible_with = NOT_WINDOWS,
+)
+
+py_test(
+    name = "venv_zipapp_compressed_test",
+    srcs = ["venv_zipapp_test.py"],
+    data = [":venv_zipapp_compressed"],
+    env = {
+        "BZLMOD_ENABLED": str(int(BZLMOD_ENABLED)),
+        "COMPRESSED": "1",
+        "TEST_ZIPAPP": "$(location :venv_zipapp_compressed)",
+    },
+    main = "venv_zipapp_test.py",
+    target_compatible_with = NOT_WINDOWS,
+)
+
 py_binary(
     name = "system_python_bin",
     srcs = ["main.py"],
diff --git a/tests/py_zipapp/venv_zipapp_test.py b/tests/py_zipapp/venv_zipapp_test.py
index 9bb917156f..fec4a544bd 100644
--- a/tests/py_zipapp/venv_zipapp_test.py
+++ b/tests/py_zipapp/venv_zipapp_test.py
@@ -71,6 +71,12 @@ def test_zipapp_structure(self):
         zipapp_path = os.environ["TEST_ZIPAPP"]
 
         with self._open_zipapp(zipapp_path) as zf:
+            info = zf.infolist()[0]
+            if os.getenv("COMPRESSED", "0") == "1":
+                self.assertEqual(info.compress_type, zipfile.ZIP_DEFLATED)
+            else:
+                self.assertEqual(info.compress_type, zipfile.ZIP_STORED)
+
             namelist = zf.namelist()
 
             if self._is_bzlmod_enabled():