diff --git a/src/lib/dev-environment/dev-environment-cli.ts b/src/lib/dev-environment/dev-environment-cli.ts
index 4dab86e875..18658cab73 100644
--- a/src/lib/dev-environment/dev-environment-cli.ts
+++ b/src/lib/dev-environment/dev-environment-cli.ts
@@ -231,7 +231,7 @@ interface LocalComponent {
 
 interface ImageComponent {
 	mode: 'image';
-	tag: string;
+	tag: string | undefined;
 }
 
 export function processComponentOptionInput(
@@ -258,7 +258,7 @@ export function processComponentOptionInput(
 
 	return {
 		mode: 'image',
-		tag: param,
+		tag: param === 'demo' ? undefined : param,
 	};
 }
 
diff --git a/src/lib/dev-environment/dev-environment-core.ts b/src/lib/dev-environment/dev-environment-core.ts
index 5c590baefe..2a6f2d72b9 100644
--- a/src/lib/dev-environment/dev-environment-core.ts
+++ b/src/lib/dev-environment/dev-environment-core.ts
@@ -305,6 +305,11 @@ function parseComponentForInfo( component: ComponentConfig | WordPressConfig ):
 	if ( component.mode === 'local' ) {
 		return component.dir ?? '';
 	}
+
+	if ( component.tag === 'demo' ) {
+		component.tag = undefined;
+	}
+
 	return component.tag ?? '[demo-image]';
 }