diff --git a/compute_tools/src/spec.rs b/compute_tools/src/spec.rs
index 4006062fc2..5643634633 100644
--- a/compute_tools/src/spec.rs
+++ b/compute_tools/src/spec.rs
@@ -743,21 +743,24 @@ pub fn handle_extension_neon(client: &mut Client) -> Result<()> {
     // which may happen in two cases:
     // - extension was just installed
     // - extension was already installed and is up to date
-    // DISABLED due to compute node unpinning epic
-    // let query = "ALTER EXTENSION neon UPDATE";
-    // info!("update neon extension version with query: {}", query);
-    // client.simple_query(query)?;
+    let query = "ALTER EXTENSION neon UPDATE";
+    info!("update neon extension version with query: {}", query);
+    if let Err(e) = client.simple_query(query) {
+        error!(
+            "failed to upgrade neon extension during `handle_extension_neon`: {}",
+            e
+        );
+    }
 
     Ok(())
 }
 
 #[instrument(skip_all)]
-pub fn handle_neon_extension_upgrade(_client: &mut Client) -> Result<()> {
-    info!("handle neon extension upgrade (not really)");
-    // DISABLED due to compute node unpinning epic
-    // let query = "ALTER EXTENSION neon UPDATE";
-    // info!("update neon extension version with query: {}", query);
-    // client.simple_query(query)?;
+pub fn handle_neon_extension_upgrade(client: &mut Client) -> Result<()> {
+    info!("handle neon extension upgrade");
+    let query = "ALTER EXTENSION neon UPDATE";
+    info!("update neon extension version with query: {}", query);
+    client.simple_query(query)?;
 
     Ok(())
 }
diff --git a/test_runner/regress/test_neon_extension.py b/test_runner/regress/test_neon_extension.py
index e31e1cab51..39b4865026 100644
--- a/test_runner/regress/test_neon_extension.py
+++ b/test_runner/regress/test_neon_extension.py
@@ -1,3 +1,4 @@
+import time
 from contextlib import closing
 
 from fixtures.log_helper import log
@@ -43,6 +44,12 @@ def test_neon_extension_compatibility(neon_env_builder: NeonEnvBuilder):
 
     with closing(endpoint_main.connect()) as conn:
         with conn.cursor() as cur:
+            cur.execute("SELECT extversion from pg_extension where extname='neon'")
+            # IMPORTANT:
+            # If the version has changed, the test should be updated.
+            # Ensure that the default version is also updated in the neon.control file
+            assert cur.fetchone() == ("1.3",)
+            cur.execute("SELECT * from neon.NEON_STAT_FILE_CACHE")
             all_versions = ["1.3", "1.2", "1.1", "1.0"]
             current_version = "1.3"
             for idx, begin_version in enumerate(all_versions):
@@ -60,3 +67,30 @@ def test_neon_extension_compatibility(neon_env_builder: NeonEnvBuilder):
                     cur.execute(
                         f"ALTER EXTENSION neon UPDATE TO '{begin_version}'; -- {target_version}->{begin_version}"
                     )
+
+
+# Verify that the neon extension can be auto-upgraded to the latest version.
+def test_neon_extension_auto_upgrade(neon_env_builder: NeonEnvBuilder):
+    env = neon_env_builder.init_start()
+    env.neon_cli.create_branch("test_neon_extension_auto_upgrade")
+
+    endpoint_main = env.endpoints.create("test_neon_extension_auto_upgrade")
+    # don't skip pg_catalog updates - it runs CREATE EXTENSION neon
+    endpoint_main.respec(skip_pg_catalog_updates=False)
+    endpoint_main.start()
+
+    with closing(endpoint_main.connect()) as conn:
+        with conn.cursor() as cur:
+            cur.execute("ALTER EXTENSION neon UPDATE TO '1.0';")
+            cur.execute("SELECT extversion from pg_extension where extname='neon'")
+            assert cur.fetchone() == ("1.0",)  # Ensure the extension gets downgraded
+
+    endpoint_main.stop()
+    time.sleep(1)
+    endpoint_main.start()
+    time.sleep(1)
+
+    with closing(endpoint_main.connect()) as conn:
+        with conn.cursor() as cur:
+            cur.execute("SELECT extversion from pg_extension where extname='neon'")
+            assert cur.fetchone() != ("1.0",)  # Ensure the extension gets upgraded