diff --git a/src/hooks/command_error.js b/src/hooks/command_error.js
new file mode 100644
index 0000000..74072d1
--- /dev/null
+++ b/src/hooks/command_error.js
@@ -0,0 +1,55 @@
+/*
+ * Copyright 2024 Adobe Inc. All rights reserved.
+ * This file is licensed to you under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License. You may obtain a copy
+ * of the License at http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software distributed under
+ * the License is distributed on an "AS IS" BASIS, WITHOUT WARRANTIES OR REPRESENTATIONS
+ * OF ANY KIND, either express or implied. See the License for the specific language
+ * governing permissions and limitations under the License.
+ */
+
+const fs = require('fs')
+const path = require('path')
+const chalk = require('chalk')
+
+/**
+ * Hook that runs when a command error occurs.
+ * Provides helpful error messages when authentication/project errors occur.
+ *
+ * @param {object} options the hook options
+ * @param {string} options.message the error message
+ */
+async function hook (options) {
+  const { message } = options
+
+  // Check if the error is authentication-related
+  const authErrors = [
+    'An AUTH key must be specified',
+    'AUTH key must be specified',
+    'authentication',
+    'not authenticated'
+  ]
+
+  const isAuthError = authErrors.some(error => 
+    message && message.toLowerCase().includes(error.toLowerCase())
+  )
+
+  if (isAuthError) {
+    // Check if we're in an App Builder project directory
+    const appConfigPath = path.join(process.cwd(), 'app.config.yaml')
+    const hasAppConfig = fs.existsSync(appConfigPath)
+
+    if (!hasAppConfig) {
+      // Provide a helpful error message
+      console.error(chalk.red('\n❌ You are not in an App Builder project directory.\n'))
+      console.error(chalk.yellow('To fix this:'))
+      console.error(chalk.yellow('  1. Navigate to an existing App Builder project directory, or'))
+      console.error(chalk.yellow('  2. Create a new App Builder project with: ') + chalk.cyan('aio app init'))
+      console.error(chalk.yellow('\nFor more information, visit: https://developer.adobe.com/app-builder/docs/\n'))
+    }
+  }
+}
+
+module.exports = hook
diff --git a/test/hooks/command_error.test.js b/test/hooks/command_error.test.js
new file mode 100644
index 0000000..d37fad2
--- /dev/null
+++ b/test/hooks/command_error.test.js
@@ -0,0 +1,114 @@
+/*
+ * Copyright 2024 Adobe Inc. All rights reserved.
+ * This file is licensed to you under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License. You may obtain a copy
+ * of the License at http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software distributed under
+ * the License is distributed on an "AS IS" BASIS, WITHOUT WARRANTIES OR REPRESENTATIONS
+ * OF ANY KIND, either express or implied. See the License for the specific language
+ * governing permissions and limitations under the License.
+ */
+
+const hook = require('../../src/hooks/command_error')
+const fs = require('fs')
+const path = require('path')
+
+jest.mock('fs')
+
+describe('command_error hook', () => {
+  let consoleErrorSpy
+
+  beforeEach(() => {
+    consoleErrorSpy = jest.spyOn(console, 'error').mockImplementation()
+    jest.clearAllMocks()
+  })
+
+  afterEach(() => {
+    consoleErrorSpy.mockRestore()
+  })
+
+  describe('authentication errors', () => {
+    test('shows helpful message when auth error occurs outside App Builder project', async () => {
+      fs.existsSync.mockReturnValue(false)
+
+      await hook({ message: 'An AUTH key must be specified' })
+
+      expect(fs.existsSync).toHaveBeenCalledWith(path.join(process.cwd(), 'app.config.yaml'))
+      expect(consoleErrorSpy).toHaveBeenCalledWith(expect.stringContaining('You are not in an App Builder project directory'))
+      expect(consoleErrorSpy).toHaveBeenCalledWith(expect.stringContaining('To fix this:'))
+      expect(consoleErrorSpy).toHaveBeenCalledWith(expect.stringContaining('aio app init'))
+    })
+
+    test('shows helpful message for "AUTH key must be specified" error', async () => {
+      fs.existsSync.mockReturnValue(false)
+
+      await hook({ message: 'AUTH key must be specified' })
+
+      expect(consoleErrorSpy).toHaveBeenCalledWith(expect.stringContaining('You are not in an App Builder project directory'))
+    })
+
+    test('shows helpful message for "authentication" error', async () => {
+      fs.existsSync.mockReturnValue(false)
+
+      await hook({ message: 'authentication failed' })
+
+      expect(consoleErrorSpy).toHaveBeenCalledWith(expect.stringContaining('You are not in an App Builder project directory'))
+    })
+
+    test('shows helpful message for "not authenticated" error', async () => {
+      fs.existsSync.mockReturnValue(false)
+
+      await hook({ message: 'not authenticated' })
+
+      expect(consoleErrorSpy).toHaveBeenCalledWith(expect.stringContaining('You are not in an App Builder project directory'))
+    })
+
+    test('does not show message when auth error occurs inside App Builder project', async () => {
+      fs.existsSync.mockReturnValue(true)
+
+      await hook({ message: 'An AUTH key must be specified' })
+
+      expect(fs.existsSync).toHaveBeenCalledWith(path.join(process.cwd(), 'app.config.yaml'))
+      expect(consoleErrorSpy).not.toHaveBeenCalled()
+    })
+
+    test('handles case-insensitive auth error matching', async () => {
+      fs.existsSync.mockReturnValue(false)
+
+      await hook({ message: 'an auth KEY must be SPECIFIED' })
+
+      expect(consoleErrorSpy).toHaveBeenCalledWith(expect.stringContaining('You are not in an App Builder project directory'))
+    })
+  })
+
+  describe('non-authentication errors', () => {
+    test('does not show message for non-auth errors', async () => {
+      await hook({ message: 'Some other error occurred' })
+
+      expect(fs.existsSync).not.toHaveBeenCalled()
+      expect(consoleErrorSpy).not.toHaveBeenCalled()
+    })
+
+    test('handles undefined message', async () => {
+      await hook({ message: undefined })
+
+      expect(fs.existsSync).not.toHaveBeenCalled()
+      expect(consoleErrorSpy).not.toHaveBeenCalled()
+    })
+
+    test('handles null message', async () => {
+      await hook({ message: null })
+
+      expect(fs.existsSync).not.toHaveBeenCalled()
+      expect(consoleErrorSpy).not.toHaveBeenCalled()
+    })
+
+    test('handles empty message', async () => {
+      await hook({ message: '' })
+
+      expect(fs.existsSync).not.toHaveBeenCalled()
+      expect(consoleErrorSpy).not.toHaveBeenCalled()
+    })
+  })
+})