diff --git a/actions/setup/js/interpolate_prompt.cjs b/actions/setup/js/interpolate_prompt.cjs
index 0002a805876..2097febc8a3 100644
--- a/actions/setup/js/interpolate_prompt.cjs
+++ b/actions/setup/js/interpolate_prompt.cjs
@@ -56,9 +56,20 @@ function renderMarkdownTemplate(markdown) {
   core.info(`[renderMarkdownTemplate] Starting template rendering`);
   core.info(`[renderMarkdownTemplate] Input length: ${markdown.length} characters`);
 
+  // Preserve fenced code blocks to avoid processing {{#if}} markers inside them
+  const _codeBlocks = [];
+  const _FENCE_PH = "\x00FENCE\x00";
+  const _stripped = markdown.replace(/`{3,}[^\n]*\n[\s\S]*?\n`{3,}[ \t]*/g, m => {
+    _codeBlocks.push(m);
+    return `${_FENCE_PH}${_codeBlocks.length - 1}${_FENCE_PH}`;
+  });
+  if (_codeBlocks.length > 0) {
+    core.info(`[renderMarkdownTemplate] Preserved ${_codeBlocks.length} fenced code block(s) from template processing`);
+  }
+
   // Count conditionals before processing
-  const blockConditionals = (markdown.match(/(\n?)([ \t]*{{#if\s+([^}]*)}}[ \t]*\n)([\s\S]*?)([ \t]*{{\/if}}[ \t]*)(\n?)/g) || []).length;
-  const inlineConditionals = (markdown.match(/{{#if\s+([^}]*)}}([\s\S]*?){{\/if}}/g) || []).length - blockConditionals;
+  const blockConditionals = (_stripped.match(/(\n?)([ \t]*{{#if\s+([^}]*)}}[ \t]*\n)([\s\S]*?)([ \t]*{{\/if}}[ \t]*)(\n?)/g) || []).length;
+  const inlineConditionals = (_stripped.match(/{{#if\s+([^}]*)}}([\s\S]*?){{\/if}}/g) || []).length - blockConditionals;
 
   core.info(`[renderMarkdownTemplate] Found ${blockConditionals} block conditional(s) and ${inlineConditionals} inline conditional(s)`);
 
@@ -68,7 +79,7 @@ function renderMarkdownTemplate(markdown) {
 
   // First pass: Handle blocks where tags are on their own lines
   // Captures: (leading newline)(opening tag line)(condition)(body)(closing tag line)(trailing newline)
-  let result = markdown.replace(/(\n?)([ \t]*{{#if\s+([^}]*)}}[ \t]*\n)([\s\S]*?)([ \t]*{{\/if}}[ \t]*)(\n?)/g, (match, leadNL, openLine, cond, body, closeLine, trailNL) => {
+  let result = _stripped.replace(/(\n?)([ \t]*{{#if\s+([^}]*)}}[ \t]*\n)([\s\S]*?)([ \t]*{{\/if}}[ \t]*)(\n?)/g, (match, leadNL, openLine, cond, body, closeLine, trailNL) => {
     blockCount++;
     const condTrimmed = cond.trim();
     const truthyResult = isTruthy(cond);
@@ -126,6 +137,18 @@ function renderMarkdownTemplate(markdown) {
     core.info(`[renderMarkdownTemplate] Cleaned up ${excessiveLines} excessive blank line sequence(s)`);
     core.info(`[renderMarkdownTemplate] Length change from cleanup: ${beforeCleanup} -> ${result.length} characters`);
   }
+  // Restore fenced code blocks
+  if (_codeBlocks.length > 0) {
+    result = result.replace(/\x00FENCE\x00(\d+)\x00FENCE\x00/g, (_, i) => _codeBlocks[+i]);
+  }
+
+  // Runtime assertion: number of fence markers must be the same before and after processing
+  const _inputFenceCount = (markdown.match(/`{3,}/g) || []).length;
+  const _outputFenceCount = (result.match(/`{3,}/g) || []).length;
+  if (_inputFenceCount !== _outputFenceCount) {
+    core.warning(`[renderMarkdownTemplate] Fence count mismatch: input had ${_inputFenceCount} fence marker(s), output has ${_outputFenceCount}`);
+  }
+
   core.info(`[renderMarkdownTemplate] Final output length: ${result.length} characters`);
 
   return result;
diff --git a/actions/setup/js/interpolate_prompt.test.cjs b/actions/setup/js/interpolate_prompt.test.cjs
index ef08d8fd2c3..fa9cb02ea1f 100644
--- a/actions/setup/js/interpolate_prompt.test.cjs
+++ b/actions/setup/js/interpolate_prompt.test.cjs
@@ -6,7 +6,7 @@ import { fileURLToPath } from "url";
 const { ERR_CONFIG } = require("./error_codes.cjs");
 const __filename = fileURLToPath(import.meta.url),
   __dirname = path.dirname(__filename),
-  core = { info: vi.fn(), setFailed: vi.fn() };
+  core = { info: vi.fn(), warning: vi.fn(), setFailed: vi.fn() };
 global.core = core;
 const interpolatePromptScript = fs.readFileSync(path.join(__dirname, "interpolate_prompt.cjs"), "utf8"),
   { isTruthy } = require("./is_truthy.cjs"),
diff --git a/actions/setup/js/interpolate_prompt_additional.test.cjs b/actions/setup/js/interpolate_prompt_additional.test.cjs
index 8e39517db28..069efecadb8 100644
--- a/actions/setup/js/interpolate_prompt_additional.test.cjs
+++ b/actions/setup/js/interpolate_prompt_additional.test.cjs
@@ -4,7 +4,7 @@ import path from "path";
 import { fileURLToPath } from "url";
 const __filename = fileURLToPath(import.meta.url),
   __dirname = path.dirname(__filename),
-  core = { info: vi.fn(), setFailed: vi.fn() };
+  core = { info: vi.fn(), warning: vi.fn(), setFailed: vi.fn() };
 global.core = core;
 const { isTruthy } = require("./is_truthy.cjs"),
   interpolatePromptScript = fs.readFileSync(path.join(__dirname, "interpolate_prompt.cjs"), "utf8"),
@@ -200,5 +200,37 @@ describe("renderMarkdownTemplate - Additional Edge Cases", () => {
           const output = renderMarkdownTemplate("{{#if false}}\nContent\n{{/if}}Line after");
           expect(output).toBe("Line after");
         }));
+    }),
+    describe("fenced code blocks", () => {
+      (it("should preserve {{#if false}} markers inside a fenced code block (regression)", () => {
+        const input = "```js\n{{#if false}}\nHidden\n{{/if}}\n```";
+        const output = renderMarkdownTemplate(input);
+        expect(output).toBe(input);
+      }),
+        it("should preserve {{#if true}} markers inside a fenced code block", () => {
+          const input = "```js\n{{#if true}}\nVisible\n{{/if}}\n```";
+          const output = renderMarkdownTemplate(input);
+          expect(output).toBe(input);
+        }),
+        it("should process conditionals outside fenced blocks while preserving inside", () => {
+          const input = "{{#if false}}\nRemove this\n{{/if}}\n```js\n{{#if false}}\nKeep this\n{{/if}}\n```";
+          const output = renderMarkdownTemplate(input);
+          expect(output).toBe("```js\n{{#if false}}\nKeep this\n{{/if}}\n```");
+        }),
+        it("should preserve fence count (no fence markers lost or gained)", () => {
+          const input = "```js\n{{#if false}}\nHidden\n{{/if}}\n```";
+          const output = renderMarkdownTemplate(input);
+          expect((output.match(/`{3,}/g) || []).length).toBe((input.match(/`{3,}/g) || []).length);
+        }),
+        it("should preserve multiple fenced code blocks unchanged", () => {
+          const input = "```js\ncode 1\n```\n\n```py\ncode 2\n```";
+          const output = renderMarkdownTemplate(input);
+          expect(output).toBe(input);
+        }),
+        it("should handle fenced blocks adjacent to conditionals", () => {
+          const input = "{{#if true}}\nKeep\n{{/if}}\n```python\nprint('hello')\n```";
+          const output = renderMarkdownTemplate(input);
+          expect(output).toBe("Keep\n```python\nprint('hello')\n```");
+        }));
     }));
 });
diff --git a/actions/setup/js/render_template.cjs b/actions/setup/js/render_template.cjs
index d9f65a06fc2..8f3813ea584 100644
--- a/actions/setup/js/render_template.cjs
+++ b/actions/setup/js/render_template.cjs
@@ -24,9 +24,20 @@ function renderMarkdownTemplate(markdown) {
   core.info(`[renderMarkdownTemplate] Starting template rendering`);
   core.info(`[renderMarkdownTemplate] Input length: ${markdown.length} characters`);
 
+  // Preserve fenced code blocks to avoid processing {{#if}} markers inside them
+  const _codeBlocks = [];
+  const _FENCE_PH = "\x00FENCE\x00";
+  const _stripped = markdown.replace(/`{3,}[^\n]*\n[\s\S]*?\n`{3,}[ \t]*/g, m => {
+    _codeBlocks.push(m);
+    return `${_FENCE_PH}${_codeBlocks.length - 1}${_FENCE_PH}`;
+  });
+  if (_codeBlocks.length > 0) {
+    core.info(`[renderMarkdownTemplate] Preserved ${_codeBlocks.length} fenced code block(s) from template processing`);
+  }
+
   // Count conditionals before processing
-  const blockConditionals = (markdown.match(/(\n?)([ \t]*{{#if\s+(.*?)\s*}}[ \t]*\n)([\s\S]*?)([ \t]*{{\/if}}[ \t]*)(\n?)/g) || []).length;
-  const inlineConditionals = (markdown.match(/{{#if\s+(.*?)\s*}}([\s\S]*?){{\/if}}/g) || []).length - blockConditionals;
+  const blockConditionals = (_stripped.match(/(\n?)([ \t]*{{#if\s+(.*?)\s*}}[ \t]*\n)([\s\S]*?)([ \t]*{{\/if}}[ \t]*)(\n?)/g) || []).length;
+  const inlineConditionals = (_stripped.match(/{{#if\s+(.*?)\s*}}([\s\S]*?){{\/if}}/g) || []).length - blockConditionals;
 
   core.info(`[renderMarkdownTemplate] Found ${blockConditionals} block conditional(s) and ${inlineConditionals} inline conditional(s)`);
 
@@ -37,7 +48,7 @@ function renderMarkdownTemplate(markdown) {
   // First pass: Handle blocks where tags are on their own lines
   // Captures: (leading newline)(opening tag line)(condition)(body)(closing tag line)(trailing newline)
   // Uses .*? (non-greedy) with \s* to handle expressions with or without trailing spaces
-  let result = markdown.replace(/(\n?)([ \t]*{{#if\s+(.*?)\s*}}[ \t]*\n)([\s\S]*?)([ \t]*{{\/if}}[ \t]*)(\n?)/g, (match, leadNL, openLine, cond, body) => {
+  let result = _stripped.replace(/(\n?)([ \t]*{{#if\s+(.*?)\s*}}[ \t]*\n)([\s\S]*?)([ \t]*{{\/if}}[ \t]*)(\n?)/g, (match, leadNL, openLine, cond, body) => {
     blockCount++;
     const truthyResult = isTruthy(cond);
 
@@ -82,6 +93,18 @@ function renderMarkdownTemplate(markdown) {
   // Clean up excessive blank lines (more than one blank line = 2 newlines)
   result = result.replace(/\n{3,}/g, "\n\n");
 
+  // Restore fenced code blocks
+  if (_codeBlocks.length > 0) {
+    result = result.replace(/\x00FENCE\x00(\d+)\x00FENCE\x00/g, (_, i) => _codeBlocks[+i]);
+  }
+
+  // Runtime assertion: number of fence markers must be the same before and after processing
+  const _inputFenceCount = (markdown.match(/`{3,}/g) || []).length;
+  const _outputFenceCount = (result.match(/`{3,}/g) || []).length;
+  if (_inputFenceCount !== _outputFenceCount) {
+    core.warning(`[renderMarkdownTemplate] Fence count mismatch: input had ${_inputFenceCount} fence marker(s), output has ${_outputFenceCount}`);
+  }
+
   core.info(`[renderMarkdownTemplate] Final output length: ${result.length} characters`);
 
   return result;
diff --git a/actions/setup/js/render_template.test.cjs b/actions/setup/js/render_template.test.cjs
index 08140c40386..fbd9ae1fe57 100644
--- a/actions/setup/js/render_template.test.cjs
+++ b/actions/setup/js/render_template.test.cjs
@@ -86,4 +86,36 @@ describe("renderMarkdownTemplate", () => {
       const output = renderMarkdownTemplate("  {{#if true}}\n  Content\n  {{/if}}\nNext line");
       expect(output).toBe("  Content\nNext line");
     }));
+  describe("fenced code blocks", () => {
+    it("should preserve {{#if false}} markers inside a fenced code block (regression)", () => {
+      const input = "```js\n{{#if false}}\nHidden\n{{/if}}\n```";
+      const output = renderMarkdownTemplate(input);
+      expect(output).toBe(input);
+    });
+    it("should preserve {{#if true}} markers inside a fenced code block", () => {
+      const input = "```js\n{{#if true}}\nVisible\n{{/if}}\n```";
+      const output = renderMarkdownTemplate(input);
+      expect(output).toBe(input);
+    });
+    it("should process conditionals outside fenced blocks while preserving inside", () => {
+      const input = "{{#if false}}\nRemove this\n{{/if}}\n```js\n{{#if false}}\nKeep this\n{{/if}}\n```";
+      const output = renderMarkdownTemplate(input);
+      expect(output).toBe("```js\n{{#if false}}\nKeep this\n{{/if}}\n```");
+    });
+    it("should preserve fence count (no fence markers lost or gained)", () => {
+      const input = "```js\n{{#if false}}\nHidden\n{{/if}}\n```";
+      const output = renderMarkdownTemplate(input);
+      expect((output.match(/`{3,}/g) || []).length).toBe((input.match(/`{3,}/g) || []).length);
+    });
+    it("should preserve multiple fenced code blocks unchanged", () => {
+      const input = "```js\ncode 1\n```\n\n```py\ncode 2\n```";
+      const output = renderMarkdownTemplate(input);
+      expect(output).toBe(input);
+    });
+    it("should handle fenced blocks with language tag and conditional outside", () => {
+      const input = "{{#if true}}\nKeep\n{{/if}}\n```python\nprint('hello')\n```";
+      const output = renderMarkdownTemplate(input);
+      expect(output).toBe("Keep\n```python\nprint('hello')\n```");
+    });
+  });
 });