diff --git a/.changesets/11587.md b/.changesets/11587.md
new file mode 100644
index 000000000000..b84c5b369503
--- /dev/null
+++ b/.changesets/11587.md
@@ -0,0 +1,36 @@
+- fix `NODE_OPTIONS` env forwarding (#11587) by @cometkim
+
+This change updates how we pass through any `NODE_OPTIONS` when you run the API side development server with `yarn rw dev`. Previously there may have been issues like unescaped spaces in paths which would have produced errors like:
+
+```
+api | node:events:497
+api |       throw er; // Unhandled 'error' event
+api |       ^
+api |
+api | Error: spawn space.js --enable-source-maps ENOENT
+api |     at ChildProcess._handle.onexit (node:internal/child_process:286:19)
+api |     at onErrorNT (node:internal/child_process:484:16)
+api |     at process.processTicksAndRejections (node:internal/process/task_queues:82:21)
+api | Emitted 'error' event on ChildProcess instance at:
+api |     at ChildProcess._handle.onexit (node:internal/child_process:292:12)
+api |     at onErrorNT (node:internal/child_process:484:16)
+api |     at process.processTicksAndRejections (node:internal/process/task_queues:82:21) {
+api |   errno: -2,
+api |   code: 'ENOENT',
+api |   syscall: 'spawn space.js --enable-source-maps',
+api |   path: 'space.js --enable-source-maps',
+api |   spawnargs: [
+api |     'yarn',
+api |     'nodemon',
+api |     '--quiet',
+api |     '--watch',
+api |     '/Users/jgmw/Development/redwood/rw-test/node_options_fix/redwood.toml',
+api |     '--exec',
+api |     'yarn rw-api-server-watch       --port 8911       --debug-port 18911       | rw-log-formatter'
+api |   ]
+api | }
+api |
+api | Node.js v20.17.0
+```
+
+Now these sort of error should no longer occur.
diff --git a/packages/cli/src/commands/__tests__/dev.test.js b/packages/cli/src/commands/__tests__/dev.test.js
index bed9dfcf7fb3..ad5b0c3e571a 100644
--- a/packages/cli/src/commands/__tests__/dev.test.js
+++ b/packages/cli/src/commands/__tests__/dev.test.js
@@ -121,8 +121,10 @@ describe('yarn rw dev', () => {
         // test environments (vite sets this in their vite-ecosystem-ci tests)
         .replace(/--max-old-space-size=\d+\s/, ''),
     ).toEqual(
-      'yarn cross-env NODE_ENV=development NODE_OPTIONS="--enable-source-maps" yarn nodemon --quiet --watch "/mocked/project/redwood.toml" --exec "yarn rw-api-server-watch --port 8911 --debug-port 18911 | rw-log-formatter"',
+      'yarn nodemon --quiet --watch "/mocked/project/redwood.toml" --exec "yarn rw-api-server-watch --port 8911 --debug-port 18911 | rw-log-formatter"',
     )
+    expect(apiCommand.env.NODE_ENV).toEqual('development')
+    expect(apiCommand.env.NODE_OPTIONS).toContain('--enable-source-maps')
 
     expect(generateCommand.command).toEqual('yarn rw-gen-watch')
   })
@@ -166,8 +168,10 @@ describe('yarn rw dev', () => {
         // test environments (vite sets this in their vite-ecosystem-ci tests)
         .replace(/--max-old-space-size=\d+\s/, ''),
     ).toEqual(
-      'yarn cross-env NODE_ENV=development NODE_OPTIONS="--enable-source-maps" yarn nodemon --quiet --watch "/mocked/project/redwood.toml" --exec "yarn rw-api-server-watch --port 8911 --debug-port 18911 | rw-log-formatter"',
+      'yarn nodemon --quiet --watch "/mocked/project/redwood.toml" --exec "yarn rw-api-server-watch --port 8911 --debug-port 18911 | rw-log-formatter"',
     )
+    expect(apiCommand.env.NODE_ENV).toEqual('development')
+    expect(apiCommand.env.NODE_OPTIONS).toContain('--enable-source-maps')
 
     expect(generateCommand.command).toEqual('yarn rw-gen-watch')
   })
diff --git a/packages/cli/src/commands/devHandler.js b/packages/cli/src/commands/devHandler.js
index 90f31950a23a..3934460ef2f4 100644
--- a/packages/cli/src/commands/devHandler.js
+++ b/packages/cli/src/commands/devHandler.js
@@ -179,15 +179,18 @@ export const handler = async ({
     api: {
       name: 'api',
       command: [
-        `yarn cross-env NODE_ENV=development NODE_OPTIONS="${getDevNodeOptions()}"`,
-        '  yarn nodemon',
-        '    --quiet',
-        `    --watch "${redwoodConfigPath}"`,
-        '    --exec "yarn rw-api-server-watch',
-        `      --port ${apiAvailablePort}`,
-        `      ${getApiDebugFlag()}`,
-        '      | rw-log-formatter"',
+        'yarn nodemon',
+        '  --quiet',
+        `  --watch "${redwoodConfigPath}"`,
+        '  --exec "yarn rw-api-server-watch',
+        `    --port ${apiAvailablePort}`,
+        `    ${getApiDebugFlag()}`,
+        '    | rw-log-formatter"',
       ].join(' '),
+      env: {
+        NODE_ENV: 'development',
+        NODE_OPTIONS: getDevNodeOptions(),
+      },
       prefixColor: 'cyan',
       runWhen: () => fs.existsSync(rwjsPaths.api.src),
     },