diff --git a/.gitmodules b/.gitmodules
index 935bed8..e1bc1d5 100644
--- a/.gitmodules
+++ b/.gitmodules
@@ -1,4 +1,4 @@
 [submodule "tests/engine_tests/engine-test-data"]
 	path = tests/engine_tests/engine-test-data
 	url = https://github.com/flagsmith/engine-test-data.git
-	branch = v3.11.0
+	branch = v3.12.1
diff --git a/flag_engine/segments/evaluator.py b/flag_engine/segments/evaluator.py
index 9b96efa..57b7150 100644
--- a/flag_engine/segments/evaluator.py
+++ b/flag_engine/segments/evaluator.py
@@ -213,6 +213,7 @@ def evaluate_features(
         return {}
 
     flags: dict[str, FlagResult[FeatureMetadataT]] = {}
+    targeted_feature_names = get_targeted_feature_names(context)
 
     for feature_context in features.values():
         feature_name = feature_context["name"]
@@ -226,12 +227,42 @@ def evaluate_features(
         flags[feature_name] = get_flag_result_from_context(
             context=context,
             feature_context=context["features"][feature_name],
-            reason="DEFAULT",
+            reason=get_fallback_reason(feature_name, targeted_feature_names),
         )
 
     return flags
 
 
+def get_targeted_feature_names(
+    context: _EvaluationContextAnyMeta,
+) -> set[str]:
+    """
+    Get the names of the features overridden by at least one segment.
+    """
+    targeted_feature_names: set[str] = set()
+    segment_contexts = context.get("segments") or {}
+
+    for segment_context in segment_contexts.values():
+        overrides = segment_context.get("overrides") or ()
+        for override in overrides:
+            targeted_feature_names.add(override["name"])
+
+    return targeted_feature_names
+
+
+def get_fallback_reason(
+    feature_name: str,
+    targeted_feature_names: typing.Container[str],
+) -> str:
+    """
+    Get the reason for a flag evaluated to its environment default.
+
+    `DEFAULT` if the feature has targeting rules that did not match,
+    `STATIC` if it has none.
+    """
+    return "DEFAULT" if feature_name in targeted_feature_names else "STATIC"
+
+
 _JSONPATH_PREFIX = "$."
 
 CIRCULAR_DEPENDENCY_REASON = "ERROR; code=CIRCULAR_DEPENDENCY"
@@ -295,7 +326,9 @@ def resolve_feature(self, feature_name: str) -> None:
             self._flags[feature_name] = get_flag_result_from_context(
                 context=self._context,
                 feature_context=feature_context,
-                reason="DEFAULT",
+                reason=get_fallback_reason(
+                    feature_name, self._segment_keys_by_feature_name
+                ),
             )
 
     def matches_segment(self, segment_key: str) -> bool:
diff --git a/tests/engine_tests/engine-test-data b/tests/engine_tests/engine-test-data
index 28363b3..cb06740 160000
--- a/tests/engine_tests/engine-test-data
+++ b/tests/engine_tests/engine-test-data
@@ -1 +1 @@
-Subproject commit 28363b388de2850c7c3f1b6e7a8bdd41d8da433c
+Subproject commit cb067401093766e55c3354c1de7c73d9331334df
diff --git a/tests/unit/test_engine.py b/tests/unit/test_engine.py
index 54da757..88a0f27 100644
--- a/tests/unit/test_engine.py
+++ b/tests/unit/test_engine.py
@@ -24,14 +24,14 @@ def test_get_evaluation_result__no_overrides__returns_expected(
             "feature_1": {
                 "enabled": True,
                 "name": "feature_1",
-                "reason": "DEFAULT",
+                "reason": "STATIC",
                 "value": None,
                 "variant": None,
             },
             "feature_2": {
                 "enabled": False,
                 "name": "feature_2",
-                "reason": "DEFAULT",
+                "reason": "STATIC",
                 "value": None,
                 "variant": None,
             },
@@ -59,7 +59,7 @@ def test_get_evaluation_result__segment_override__returns_expected(
             "feature_2": {
                 "enabled": False,
                 "name": "feature_2",
-                "reason": "DEFAULT",
+                "reason": "STATIC",
                 "value": None,
                 "variant": None,
             },
@@ -115,7 +115,7 @@ def test_get_evaluation_result__identity_override__returns_expected(
             "feature_2": {
                 "enabled": False,
                 "name": "feature_2",
-                "reason": "DEFAULT",
+                "reason": "STATIC",
                 "value": None,
                 "variant": None,
             },
@@ -213,7 +213,7 @@ def test_get_evaluation_result__two_segments_override_same_feature__returns_expe
             "feature_2": {
                 "enabled": False,
                 "name": "feature_2",
-                "reason": "DEFAULT",
+                "reason": "STATIC",
                 "value": None,
                 "variant": None,
             },