diff --git a/acceptance/bundle/generate/app_not_yet_deployed/output.txt b/acceptance/bundle/generate/app_not_yet_deployed/output.txt
index 2ebe86fd89..b6a68104e5 100644
--- a/acceptance/bundle/generate/app_not_yet_deployed/output.txt
+++ b/acceptance/bundle/generate/app_not_yet_deployed/output.txt
@@ -1,5 +1,5 @@
 
->>> [CLI] apps create my-app
+>>> [CLI] apps create my-app --no-compute --no-wait
 {
   "app_status": {
     "message":"Application is running.",
@@ -7,8 +7,8 @@
   },
   "compute_size":"MEDIUM",
   "compute_status": {
-    "message":"App compute is active.",
-    "state":"ACTIVE"
+    "message":"App compute is stopped.",
+    "state":"STOPPED"
   },
   "id":"1000",
   "name":"my-app",
diff --git a/acceptance/bundle/generate/app_not_yet_deployed/script b/acceptance/bundle/generate/app_not_yet_deployed/script
index f9521c5717..8883d05d15 100644
--- a/acceptance/bundle/generate/app_not_yet_deployed/script
+++ b/acceptance/bundle/generate/app_not_yet_deployed/script
@@ -1,2 +1,2 @@
-trace $CLI apps create my-app
+trace $CLI apps create my-app --no-compute --no-wait
 trace $CLI bundle generate app --existing-app-name my-app --config-dir . --key out
diff --git a/acceptance/bundle/resources/apps/config-drift/out.plan.direct.json b/acceptance/bundle/resources/apps/config-drift/out.plan.direct.json
index fe52fca587..0fe76b5ecf 100644
--- a/acceptance/bundle/resources/apps/config-drift/out.plan.direct.json
+++ b/acceptance/bundle/resources/apps/config-drift/out.plan.direct.json
@@ -1,53 +1,5 @@
+{}
 {
-  "active_deployment": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": {
-      "command": [
-        "streamlit",
-        "run",
-        "dashboard.py"
-      ],
-      "deployment_id": "deploy-[NUMID]",
-      "env_vars": [
-        {
-          "name": "MY_VAR",
-          "value": "changed_value"
-        },
-        {
-          "name": "NEW_VAR",
-          "value": "new_value"
-        }
-      ],
-      "mode": "SNAPSHOT",
-      "source_code_path": "./app",
-      "status": {
-        "message": "Deployment succeeded",
-        "state": "SUCCEEDED"
-      }
-    }
-  },
-  "app_status": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": {
-      "message": "Application is running.",
-      "state": "RUNNING"
-    }
-  },
-  "compute_size": {
-    "action": "skip",
-    "reason": "backend_default",
-    "remote": "MEDIUM"
-  },
-  "compute_status": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": {
-      "message": "App compute is active.",
-      "state": "ACTIVE"
-    }
-  },
   "config.command": {
     "action": "update",
     "old": [
@@ -88,41 +40,6 @@
         "value": "new_value"
       }
     ]
-  },
-  "default_source_code_path": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": "./app"
-  },
-  "id": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": "1000"
-  },
-  "service_principal_client_id": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": "[UUID]"
-  },
-  "service_principal_id": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": [NUMID]
-  },
-  "service_principal_name": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": "app-[UNIQUE_NAME]"
-  },
-  "source_code_path": {
-    "action": "update",
-    "old": "/Workspace/Users/[USERNAME]/.bundle/config-drift-[UNIQUE_NAME]/default/files/app",
-    "new": "/Workspace/Users/[USERNAME]/.bundle/config-drift-[UNIQUE_NAME]/default/files/app",
-    "remote": "./app"
-  },
-  "url": {
-    "action": "skip",
-    "reason": "spec:output_only",
-    "remote": "[UNIQUE_NAME]-123.cloud.databricksapps.com"
   }
 }
+{}
diff --git a/acceptance/bundle/resources/apps/config-drift/out.test.toml b/acceptance/bundle/resources/apps/config-drift/out.test.toml
index 19b2c349a3..54146af564 100644
--- a/acceptance/bundle/resources/apps/config-drift/out.test.toml
+++ b/acceptance/bundle/resources/apps/config-drift/out.test.toml
@@ -1,5 +1,5 @@
 Local = true
-Cloud = true
+Cloud = false
 
 [EnvMatrix]
   DATABRICKS_BUNDLE_ENGINE = ["direct"]
diff --git a/acceptance/bundle/resources/apps/config-drift/output.txt b/acceptance/bundle/resources/apps/config-drift/output.txt
index 6a82393fa9..6ad4310b31 100644
--- a/acceptance/bundle/resources/apps/config-drift/output.txt
+++ b/acceptance/bundle/resources/apps/config-drift/output.txt
@@ -1,12 +1,4 @@
 
-=== First deploy: creates app
->>> [CLI] bundle deploy
-Uploading bundle files to /Workspace/Users/[USERNAME]/.bundle/config-drift-[UNIQUE_NAME]/default/files...
-Deploying resources...
-Updating deployment state...
-Deployment complete!
-
-=== Second deploy: pushes code with config
 >>> [CLI] bundle deploy
 Uploading bundle files to /Workspace/Users/[USERNAME]/.bundle/config-drift-[UNIQUE_NAME]/default/files...
 Deploying resources...
@@ -14,8 +6,9 @@ Updating deployment state...
 Deployment complete!
 
 === Verify no drift after deploy
->>> [CLI] bundle plan
-Plan: 0 to add, 0 to change, 0 to delete, 1 unchanged
+>>> [CLI] bundle plan -o json
+
+>>> [CLI] apps get [UNIQUE_NAME] --output json
 
 === Simulate out-of-band deployment with changed command and env
 === Plan should detect config drift
@@ -32,15 +25,7 @@ Updating deployment state...
 Deployment complete!
 
 === Verify no drift after fix
->>> [CLI] bundle plan
-Plan: 0 to add, 0 to change, 0 to delete, 1 unchanged
-
-=== Simulate out-of-band deployment with git_source added
-=== Plan should detect git_source drift
->>> [CLI] bundle plan
-update apps.myapp
-
-Plan: 0 to add, 1 to change, 0 to delete, 0 unchanged
+>>> [CLI] bundle plan -o json
 
 >>> [CLI] bundle destroy --auto-approve
 The following resources will be deleted:
diff --git a/acceptance/bundle/resources/apps/config-drift/script b/acceptance/bundle/resources/apps/config-drift/script
index e37ac80fde..4728255dc8 100644
--- a/acceptance/bundle/resources/apps/config-drift/script
+++ b/acceptance/bundle/resources/apps/config-drift/script
@@ -6,18 +6,16 @@ cleanup() {
 }
 trap cleanup EXIT
 
-title "First deploy: creates app"
-trace $CLI bundle deploy
-
-title "Second deploy: pushes code with config"
 trace $CLI bundle deploy
 
 title "Verify no drift after deploy"
-trace $CLI bundle plan
+trace $CLI bundle plan -o json | jq '.plan."resources.apps.myapp".changes.config // .plan."resources.apps.myapp".changes' | jq 'del(.[] | select(.action == "skip"))' > out.plan.direct.json
+
+SOURCE_CODE_PATH=$(trace $CLI apps get $UNIQUE_NAME --output json | jq -r '.active_deployment.source_code_path')
 
 title "Simulate out-of-band deployment with changed command and env"
 $CLI apps deploy $UNIQUE_NAME --no-wait --json '{
-    "source_code_path": "./app",
+    "source_code_path": "'$SOURCE_CODE_PATH'",
     "mode": "SNAPSHOT",
     "command": ["streamlit", "run", "dashboard.py"],
     "env_vars": [
@@ -28,22 +26,14 @@ $CLI apps deploy $UNIQUE_NAME --no-wait --json '{
 
 title "Plan should detect config drift"
 trace $CLI bundle plan
-$CLI bundle plan -o json | jq '.plan."resources.apps.myapp".changes.config // .plan."resources.apps.myapp".changes' > out.plan.direct.json
+# Skip entries with action "skip"
+$CLI bundle plan -o json | jq '.plan."resources.apps.myapp".changes.config // .plan."resources.apps.myapp".changes' | jq 'del(.[] | select(.action == "skip"))' >> out.plan.direct.json
 
 title "Redeploy to fix drift"
 trace $CLI bundle deploy
 
 title "Verify no drift after fix"
-trace $CLI bundle plan
+trace $CLI bundle plan -o json | jq '.plan."resources.apps.myapp".changes.config // .plan."resources.apps.myapp".changes' | jq 'del(.[] | select(.action == "skip"))' >> out.plan.direct.json
 
-title "Simulate out-of-band deployment with git_source added"
-$CLI apps deploy $UNIQUE_NAME --no-wait --json '{
-    "source_code_path": "./app",
-    "mode": "SNAPSHOT",
-    "git_source": {"branch": "feature-branch"},
-    "command": ["python", "app.py"],
-    "env_vars": [{"name": "MY_VAR", "value": "original_value"}]
-  }' > /dev/null
-
-title "Plan should detect git_source drift"
-trace $CLI bundle plan
+# TODO: add test for git_source drift when git_source is supported in the Deploy API
+# Currently it fails with the error: Git source reference is required
diff --git a/acceptance/bundle/resources/apps/config-drift/test.toml b/acceptance/bundle/resources/apps/config-drift/test.toml
index b5c148642a..bf01b60b18 100644
--- a/acceptance/bundle/resources/apps/config-drift/test.toml
+++ b/acceptance/bundle/resources/apps/config-drift/test.toml
@@ -1,5 +1,5 @@
 Local = true
-Cloud = true
+Cloud = false # This currently fails on Cloud due to incorrect API behaviour.
 RecordRequests = true
 
 Ignore = [".databricks", "databricks.yml"]
diff --git a/acceptance/bundle/resources/apps/create_already_exists/output.txt b/acceptance/bundle/resources/apps/create_already_exists/output.txt
index 63c0b4a245..bac47c04f9 100644
--- a/acceptance/bundle/resources/apps/create_already_exists/output.txt
+++ b/acceptance/bundle/resources/apps/create_already_exists/output.txt
@@ -1,6 +1,14 @@
 
 >>> [CLI] apps create test-app-already-exists
 {
+  "active_deployment": {
+    "deployment_id":"deploy-[NUMID]",
+    "source_code_path":"/Workspace/Users/[USERNAME]/test-app-already-exists",
+    "status": {
+      "message":"Deployment succeeded",
+      "state":"SUCCEEDED"
+    }
+  },
   "app_status": {
     "message":"Application is running.",
     "state":"RUNNING"
@@ -10,6 +18,7 @@
     "message":"App compute is active.",
     "state":"ACTIVE"
   },
+  "default_source_code_path":"/Workspace/Users/[USERNAME]/test-app-already-exists",
   "id":"1000",
   "name":"test-app-already-exists",
   "service_principal_client_id":"[UUID]",
diff --git a/acceptance/bundle/resources/apps/lifecycle-started/output.txt b/acceptance/bundle/resources/apps/lifecycle-started/output.txt
index 68e56a6814..cfe10a2d65 100644
--- a/acceptance/bundle/resources/apps/lifecycle-started/output.txt
+++ b/acceptance/bundle/resources/apps/lifecycle-started/output.txt
@@ -15,6 +15,14 @@ Deployment complete!
     "name": "[UNIQUE_NAME]"
   }
 }
+{
+  "method": "POST",
+  "path": "/api/2.0/apps/[UNIQUE_NAME]/deployments",
+  "body": {
+    "mode": "SNAPSHOT",
+    "source_code_path": "/Workspace/Users/[USERNAME]/.bundle/lifecycle-started-[UNIQUE_NAME]/default/files/app"
+  }
+}
 
 >>> errcode [CLI] apps get [UNIQUE_NAME]
 "ACTIVE"
diff --git a/acceptance/cmd/workspace/apps/output.txt b/acceptance/cmd/workspace/apps/output.txt
index ada0e6407f..e722afbe86 100644
--- a/acceptance/cmd/workspace/apps/output.txt
+++ b/acceptance/cmd/workspace/apps/output.txt
@@ -2,6 +2,14 @@
 === Apps create with correct input
 >>> [CLI] apps create --json @input.json
 {
+  "active_deployment": {
+    "deployment_id":"deploy-[NUMID]",
+    "source_code_path":"/Workspace/Users/[USERNAME]/test-name",
+    "status": {
+      "message":"Deployment succeeded",
+      "state":"SUCCEEDED"
+    }
+  },
   "app_status": {
     "message":"Application is running.",
     "state":"RUNNING"
@@ -11,6 +19,7 @@
     "message":"App compute is active.",
     "state":"ACTIVE"
   },
+  "default_source_code_path":"/Workspace/Users/[USERNAME]/test-name",
   "description":"My app description.",
   "id":"1000",
   "name":"test-name",
@@ -34,6 +43,14 @@
 === Apps update with correct input
 >>> [CLI] apps update test-name --json @input.json
 {
+  "active_deployment": {
+    "deployment_id":"deploy-[NUMID]",
+    "source_code_path":"/Workspace/Users/[USERNAME]/test-name",
+    "status": {
+      "message":"Deployment succeeded",
+      "state":"SUCCEEDED"
+    }
+  },
   "app_status": {
     "message":"Application is running.",
     "state":"RUNNING"
@@ -43,6 +60,7 @@
     "message":"App compute is active.",
     "state":"ACTIVE"
   },
+  "default_source_code_path":"/Workspace/Users/[USERNAME]/test-name",
   "description":"My app description.",
   "id":"1001",
   "name":"test-name",
diff --git a/bundle/appdeploy/app.go b/bundle/appdeploy/app.go
index 6bea74fac3..4f590be60a 100644
--- a/bundle/appdeploy/app.go
+++ b/bundle/appdeploy/app.go
@@ -20,6 +20,10 @@ func logProgress(ctx context.Context, msg string) {
 
 // BuildDeployment constructs an AppDeployment from the app's source code path, inline config and git source.
 func BuildDeployment(sourcePath string, config *resources.AppConfig, gitSource *sdkapps.GitSource) sdkapps.AppDeployment {
+	// GitRepository is not supported in the Deploy API, only as part of Create, so we need to remove it.
+	if gitSource != nil {
+		gitSource.GitRepository = nil
+	}
 	deployment := sdkapps.AppDeployment{
 		Mode:           sdkapps.AppDeploymentModeSnapshot,
 		SourceCodePath: sourcePath,
diff --git a/bundle/direct/dresources/app.go b/bundle/direct/dresources/app.go
index 76a0881f9e..5f88217061 100644
--- a/bundle/direct/dresources/app.go
+++ b/bundle/direct/dresources/app.go
@@ -199,46 +199,48 @@ func (r *ResourceApp) DoUpdate(ctx context.Context, id string, config *AppState,
 		}
 	}
 
+	return nil, r.manageLifecycle(ctx, id, config, remoteIsStarted(entry))
+}
+
+func (r *ResourceApp) manageLifecycle(ctx context.Context, id string, config *AppState, alreadyStarted bool) error {
 	if config.Lifecycle == nil || config.Lifecycle.Started == nil {
-		return nil, nil
+		return nil
 	}
 
 	desiredStarted := *config.Lifecycle.Started
-	remoteStarted := remoteIsStarted(entry)
-
 	if desiredStarted {
 		// lifecycle.started=true: ensure the app compute is running and deploy the latest code.
-		if !remoteStarted {
+		if !alreadyStarted {
 			startWaiter, err := r.client.Apps.Start(ctx, apps.StartAppRequest{Name: id})
 			if err != nil {
-				return nil, err
+				return err
 			}
 			startedApp, err := startWaiter.Get()
 			if err != nil {
-				return nil, err
+				return err
 			}
 			if err := appdeploy.WaitForDeploymentToComplete(ctx, r.client, startedApp); err != nil {
-				return nil, err
+				return err
 			}
 		}
 		deployment := appdeploy.BuildDeployment(config.SourceCodePath, config.Config, config.GitSource)
 		if err := appdeploy.Deploy(ctx, r.client, id, deployment); err != nil {
-			return nil, err
+			return err
 		}
 	} else {
 		// lifecycle.started=false: ensure the app compute is stopped.
-		if remoteStarted {
+		if alreadyStarted {
 			stopWaiter, err := r.client.Apps.Stop(ctx, apps.StopAppRequest{Name: id})
 			if err != nil {
-				return nil, err
+				return err
 			}
 			if _, err = stopWaiter.Get(); err != nil {
-				return nil, err
+				return err
 			}
 		}
 	}
 
-	return nil, nil
+	return nil
 }
 
 // deployOnlyFields are AppState fields managed via the Deploy API, not the App Update API.
@@ -266,7 +268,7 @@ func hasAppChanges(entry *PlanEntry) bool {
 // OverrideChangeDesc skips source_code_path drift when the remote value is empty.
 // This happens when an app has no deployment yet (DefaultSourceCodePath is unset).
 func (*ResourceApp) OverrideChangeDesc(_ context.Context, path *structpath.PathNode, change *ChangeDesc, remote *AppRemote) error {
-	if path.String() == "source_code_path" && remote.SourceCodePath == "" {
+	if path.String() == "source_code_path" && (remote.SourceCodePath == "" || remote.SourceCodePath == "null") {
 		change.Action = deployplan.Skip
 		change.Reason = "no deployment"
 	}
@@ -320,7 +322,15 @@ func (r *ResourceApp) DoDelete(ctx context.Context, id string) error {
 }
 
 func (r *ResourceApp) WaitAfterCreate(ctx context.Context, config *AppState) (*AppRemote, error) {
-	return r.waitForApp(ctx, r.client, config.Name)
+	remote, err := r.waitForApp(ctx, r.client, config.Name)
+	if err != nil {
+		return nil, err
+	}
+	alreadyStarted := remote.Lifecycle != nil && remote.Lifecycle.Started != nil && *remote.Lifecycle.Started
+	if err := r.manageLifecycle(ctx, config.Name, config, alreadyStarted); err != nil {
+		return nil, err
+	}
+	return remote, nil
 }
 
 // waitForApp waits for the app to reach the target state. The target state is either ACTIVE or STOPPED.
diff --git a/libs/testserver/apps.go b/libs/testserver/apps.go
index e3726c650d..b35632e27a 100644
--- a/libs/testserver/apps.go
+++ b/libs/testserver/apps.go
@@ -221,6 +221,20 @@ func (s *FakeWorkspace) AppsUpsert(req Request, name string) Response {
 			State:   "ACTIVE",
 			Message: "App compute is active.",
 		}
+
+		// Simulate the apps platform side effect: when an app is created, it is deployed with the default source code path.
+		deployment := apps.AppDeployment{
+			SourceCodePath: "/Workspace/Users/tester@databricks.com/" + name,
+		}
+
+		deployment.DeploymentId = fmt.Sprintf("deploy-%d", nextID())
+		deployment.Status = &apps.AppDeploymentStatus{
+			State:   apps.AppDeploymentStateSucceeded,
+			Message: "Deployment succeeded",
+		}
+
+		app.ActiveDeployment = &deployment
+		app.DefaultSourceCodePath = deployment.SourceCodePath
 	}
 
 	app.Url = name + "-123.cloud.databricksapps.com"