diff --git a/bin/handbook-manifest.json b/bin/handbook-manifest.json
index 81c9330e..74b5e4ad 100644
--- a/bin/handbook-manifest.json
+++ b/bin/handbook-manifest.json
@@ -377,6 +377,12 @@
         "markdown_source": "https:\/\/github.com\/wp-cli\/handbook\/blob\/main\/references\/internal-api.md",
         "parent": "references"
     },
+    "licensing": {
+        "title": "Licensing",
+        "slug": "licensing",
+        "markdown_source": "https:\/\/github.com\/wp-cli\/handbook\/blob\/main\/contributions\/licensing.md",
+        "parent": "contributions"
+    },
     "philosophy": {
         "title": "Philosophy",
         "slug": "philosophy",
diff --git a/contributions.md b/contributions.md
index 450a8fbc..d69ecb6d 100644
--- a/contributions.md
+++ b/contributions.md
@@ -5,6 +5,7 @@
 * **[WordCamp Contributor Day](https://make.wordpress.org/cli/handbook/contributions/contributor-day/)** - Quick-start guide for WordCamp Contributor Days.
 * **[Ideas](https://github.com/wp-cli/ideas)** - Up-vote existing ideas or submit your own.
 * **[Governance](https://make.wordpress.org/cli/handbook/contributions/governance/)** - Summary of those behind WP-CLI.
+* **[Licensing](https://make.wordpress.org/cli/handbook/contributions/licensing/)** - License requirements for third-party code and dependencies.
 * **[Implementation details](https://make.wordpress.org/cli/handbook/contributions/implementation-details/)** - Catalog of historical design decisions.
 * **[Philosophy](https://make.wordpress.org/cli/handbook/contributions/philosophy/)** - Guidelines which inform project scope, command organization, and behavior.
 * **[Pull requests](https://make.wordpress.org/cli/handbook/contributions/pull-requests/)** - Submit your first bug fix or new feature.
diff --git a/contributions/licensing.md b/contributions/licensing.md
new file mode 100644
index 00000000..72d84391
--- /dev/null
+++ b/contributions/licensing.md
@@ -0,0 +1,46 @@
+# Licensing
+
+WP-CLI is licensed under the [MIT license](https://github.com/wp-cli/wp-cli/blob/master/LICENSE). This document outlines WP-CLI's licensing expectations for third-party code.
+
+## Accepting third-party code into the official repository/organization
+
+All code accepted into repositories under the official [WP-CLI GitHub organization](https://github.com/wp-cli) must be compatible with the MIT license. This ensures that WP-CLI can remain freely usable, modifiable, and distributable by anyone.
+
+## Bundling third-party code
+
+When bundling third-party code directly into a WP-CLI package (i.e., copying code into the repository rather than declaring it as a dependency), the code must:
+
+1. **Be licensed under an MIT-compatible license**
+2. **Include the original license file or header** - The third-party code's license terms must be preserved
+3. **Maintain copyright notices** - Original copyright notices must remain intact
+4. **Be clearly identified** - It should be clear which code is third-party and where it came from
+
+When in doubt about whether to bundle third-party code, consider using it as a dependency through Composer instead.
+
+## Depending on third-party code
+
+Third-party packages declared as dependencies (through Composer or other package managers) must be licensed under MIT-compatible licenses. This applies to both:
+
+* **Direct dependencies** - Packages explicitly listed in `composer.json`
+* **Transitive dependencies** - Dependencies of your dependencies
+
+### Checking dependency licenses
+
+Before adding a new dependency:
+
+1. Check the dependency's `LICENSE` file or `composer.json` for license information
+2. Verify that all of the dependency's own dependencies are also compatible
+3. Use `composer show -t` to view the dependency tree with license information, or install additional tools like `composer/satis` to run `composer licenses` for detailed license auditing
+
+## Why these requirements?
+
+These licensing requirements ensure that:
+
+1. **WP-CLI remains free and open** - Users can use, modify, and distribute WP-CLI without legal concerns
+2. **Commercial use is permitted** - Companies can use and integrate WP-CLI into their products
+3. **No license conflicts** - All code in the WP-CLI ecosystem is legally compatible
+4. **Simplicity for users** - Users don't need to track multiple license requirements
+
+## Questions?
+
+If you have questions about licensing or need clarification on whether a specific license is compatible, please open an issue or contact the [WP-CLI maintainers](https://github.com/orgs/wp-cli/teams/maintainers).