diff --git a/.changeset/mean-adults-argue.md b/.changeset/mean-adults-argue.md
new file mode 100644
index 0000000000..2ba26f165d
--- /dev/null
+++ b/.changeset/mean-adults-argue.md
@@ -0,0 +1,5 @@
+---
+'@backstage/plugin-proxy-backend': minor
+---
+
+The proxy-backend now automatically reloads configuration when app-config.yaml is updated.
diff --git a/plugins/proxy-backend/src/service/router.test.ts b/plugins/proxy-backend/src/service/router.test.ts
index 3bfcc889f4..d3f7718c58 100644
--- a/plugins/proxy-backend/src/service/router.test.ts
+++ b/plugins/proxy-backend/src/service/router.test.ts
@@ -57,6 +57,55 @@ describe('createRouter', () => {
       });
       expect(router).toBeDefined();
     });
+
+    it('should be able to observe the config', async () => {
+      const logger = getVoidLogger();
+
+      // Grab the subscriber function and use mutable config data to mock a config file change
+      let subscriber: () => void;
+      const mutableConfigData: any = {
+        backend: {
+          baseUrl: 'https://example.com:7007',
+          listen: {
+            port: 7007,
+          },
+        },
+        proxy: {
+          '/test': {
+            target: 'https://example.com',
+            headers: {
+              Authorization: 'Bearer supersecret',
+            },
+          },
+        },
+      };
+
+      const mockConfig = Object.assign(new ConfigReader(mutableConfigData), {
+        subscribe: (s: () => void) => {
+          subscriber = s;
+          return { unsubscribe: () => {} };
+        },
+      });
+
+      const discovery = SingleHostDiscovery.fromConfig(mockConfig);
+      const router = await createRouter({
+        config: mockConfig,
+        logger,
+        discovery,
+      });
+      expect(router).toBeDefined();
+
+      expect(router.stack[0].regexp).toEqual(/^\/test\/?(?=\/|$)/i);
+      expect(router.stack[1]).toBeUndefined();
+
+      mutableConfigData.proxy['/test2'] = {
+        target: 'https://example.com',
+      };
+      subscriber!();
+
+      expect(router.stack[0].regexp).toEqual(/^\/test\/?(?=\/|$)/i);
+      expect(router.stack[1].regexp).toEqual(/^\/test2\/?(?=\/|$)/i);
+    });
   });
 
   describe('where buildMiddleware would fail', () => {
diff --git a/plugins/proxy-backend/src/service/router.ts b/plugins/proxy-backend/src/service/router.ts
index ca2c7870d8..3a6323eb2f 100644
--- a/plugins/proxy-backend/src/service/router.ts
+++ b/plugins/proxy-backend/src/service/router.ts
@@ -186,8 +186,34 @@ export async function createRouter(
   const { pathname: pathPrefix } = new URL(externalUrl);
 
   const proxyConfig = options.config.getOptional('proxy') ?? {};
+  configureMiddlewares(options, router, pathPrefix, proxyConfig);
 
-  Object.entries(proxyConfig).forEach(([route, proxyRouteConfig]) => {
+  if (options.config.subscribe) {
+    let currentKey = JSON.stringify(proxyConfig);
+
+    options.config.subscribe(() => {
+      const newProxyConfig = options.config.getOptional('proxy') ?? {};
+      const newKey = JSON.stringify(newProxyConfig);
+
+      if (currentKey !== newKey) {
+        currentKey = newKey;
+
+        router.stack = [];
+        configureMiddlewares(options, router, pathPrefix, newProxyConfig);
+      }
+    });
+  }
+
+  return router;
+}
+
+function configureMiddlewares(
+  options: RouterOptions,
+  router: express.Router,
+  pathPrefix: string,
+  proxyConfig: any,
+) {
+  Object.entries<any>(proxyConfig).forEach(([route, proxyRouteConfig]) => {
     try {
       router.use(
         route,
@@ -201,6 +227,4 @@ export async function createRouter(
       }
     }
   });
-
-  return router;
 }