diff --git a/cmd/compose/compose.go b/cmd/compose/compose.go
index 2b4bcb638ee..8795451e408 100644
--- a/cmd/compose/compose.go
+++ b/cmd/compose/compose.go
@@ -298,6 +298,10 @@ func (o *ProjectOptions) ToModel(ctx context.Context, dockerCli command.Cli, ser
 		return nil, err
 	}
 
+	if err := checkConfigPathsNotDirectories(options.ConfigPaths, remotes); err != nil {
+		return nil, err
+	}
+
 	if o.Compatibility || utils.StringToBool(options.Environment[ComposeCompatibility]) {
 		api.Separator = "_"
 	}
@@ -305,6 +309,34 @@ func (o *ProjectOptions) ToModel(ctx context.Context, dockerCli command.Cli, ser
 	return options.LoadModel(ctx)
 }
 
+// checkConfigPathsNotDirectories returns an error if any local config path is a
+// directory rather than a file. Remote resource paths and stdin ("-") are skipped.
+//
+// This guards against COMPOSE_FILE being set to a directory (e.g. COMPOSE_FILE=""
+// which filepath.Abs resolves to the working directory).
+func checkConfigPathsNotDirectories(configPaths []string, remoteLoaders []loader.ResourceLoader) error {
+	for _, configPath := range configPaths {
+		if configPath == "-" {
+			continue
+		}
+		isRemote := false
+		for _, r := range remoteLoaders {
+			if r.Accept(configPath) {
+				isRemote = true
+				break
+			}
+		}
+		if isRemote {
+			continue
+		}
+		if info, err := os.Stat(configPath); err == nil && info.IsDir() {
+			return fmt.Errorf("path %q is a directory, not a Compose file; "+
+				"check the COMPOSE_FILE environment variable or the -f flag", configPath)
+		}
+	}
+	return nil
+}
+
 // ToProject loads a Compose project using the LoadProject API.
 // Accepts optional cli.ProjectOptionsFn to control loader behavior.
 func (o *ProjectOptions) ToProject(ctx context.Context, dockerCli command.Cli, backend api.Compose, services []string, po ...cli.ProjectOptionsFn) (*types.Project, tracing.Metrics, error) {
diff --git a/pkg/compose/loader.go b/pkg/compose/loader.go
index 9a0699da7c6..169fd74d515 100644
--- a/pkg/compose/loader.go
+++ b/pkg/compose/loader.go
@@ -19,6 +19,7 @@ package compose
 import (
 	"context"
 	"errors"
+	"fmt"
 	"os"
 	"strings"
 
@@ -31,6 +32,36 @@ import (
 	"github.com/docker/compose/v5/pkg/utils"
 )
 
+// checkConfigPathsForDirectories returns an error if any config path in configPaths
+// is a local directory instead of a file. Remote paths (accepted by remoteLoaders)
+// and the special "-" (stdin) value are skipped.
+//
+// This provides a clear error when COMPOSE_FILE is set to a directory path (e.g.,
+// "COMPOSE_FILE=" resolves to the working directory via filepath.Abs("")).
+func checkConfigPathsForDirectories(configPaths []string, remoteLoaders []loader.ResourceLoader) error {
+	for _, configPath := range configPaths {
+		if configPath == "-" {
+			continue
+		}
+		isRemote := false
+		for _, r := range remoteLoaders {
+			if r.Accept(configPath) {
+				isRemote = true
+				break
+			}
+		}
+		if isRemote {
+			continue
+		}
+		info, err := os.Stat(configPath)
+		if err == nil && info.IsDir() {
+			return fmt.Errorf("path %q is a directory, not a Compose file; "+
+				"check the COMPOSE_FILE environment variable or the -f flag", configPath)
+		}
+	}
+	return nil
+}
+
 // LoadProject implements api.Compose.LoadProject
 // It loads and validates a Compose project from configuration files.
 func (s *composeService) LoadProject(ctx context.Context, options api.ProjectLoadOptions) (*types.Project, error) {
@@ -42,6 +73,10 @@ func (s *composeService) LoadProject(ctx context.Context, options api.ProjectLoa
 		return nil, err
 	}
 
+	if err := checkConfigPathsForDirectories(projectOptions.ConfigPaths, remoteLoaders); err != nil {
+		return nil, err
+	}
+
 	// Register all user-provided listeners (e.g., for metrics collection)
 	for _, listener := range options.LoadListeners {
 		if listener != nil {
diff --git a/pkg/compose/loader_test.go b/pkg/compose/loader_test.go
index 8006d4169d0..9b20322ad11 100644
--- a/pkg/compose/loader_test.go
+++ b/pkg/compose/loader_test.go
@@ -320,3 +320,25 @@ func TestLoadProject_MissingComposeFile(t *testing.T) {
 	require.Error(t, err)
 	assert.Nil(t, project)
 }
+
+func TestLoadProject_DirectoryAsComposeFile(t *testing.T) {
+	// Reproduce the misleading error described in https://github.com/docker/compose/issues/13649:
+	// when COMPOSE_FILE is set to a directory (e.g. COMPOSE_FILE="" resolves to the working
+	// directory via filepath.Abs("")), the error "read <dir>: is a directory" was shown.
+	// The fix should return a clear error message instead.
+	tmpDir := t.TempDir()
+
+	service, err := NewComposeService(nil)
+	require.NoError(t, err)
+
+	project, err := service.LoadProject(t.Context(), api.ProjectLoadOptions{
+		ConfigPaths: []string{tmpDir},
+	})
+
+	require.Error(t, err)
+	assert.Nil(t, project)
+	assert.Contains(t, err.Error(), "is a directory")
+	assert.Contains(t, err.Error(), "Compose file")
+	// Ensure the old opaque error message is NOT present
+	assert.NotContains(t, err.Error(), "read "+tmpDir+": is a directory")
+}