diff --git a/CHANGES.md b/CHANGES.md
index 74209bb7499c..89eb775b238b 100644
--- a/CHANGES.md
+++ b/CHANGES.md
@@ -68,7 +68,7 @@
 
 ## New Features / Improvements
 
-* X feature added (Java/Python) ([#X](https://github.com/apache/beam/issues/X)).
+* (Java) Enabled state tag encoding v2 by default for new Dataflow Streaming Engine jobs. It can be disabled by passing `--experiments=disable_streaming_engine_state_tag_encoding_v2` or `--updateCompatibilityVersion=2.74.0` pipeline option. Note that the tag encoding version cannot change during a job update. Jobs using tag encoding v2 (enabled by default for new jobs on 2.75.0+) cannot be downgraded to Beam versions prior to 2.73.0, as only versions 2.73.0 and later support tag encoding v2. ([#38705](https://github.com/apache/beam/issues/38705)).
 
 ## Breaking Changes
 
diff --git a/runners/google-cloud-dataflow-java/src/main/java/org/apache/beam/runners/dataflow/DataflowRunner.java b/runners/google-cloud-dataflow-java/src/main/java/org/apache/beam/runners/dataflow/DataflowRunner.java
index d04afb351e44..4864f2cf4537 100644
--- a/runners/google-cloud-dataflow-java/src/main/java/org/apache/beam/runners/dataflow/DataflowRunner.java
+++ b/runners/google-cloud-dataflow-java/src/main/java/org/apache/beam/runners/dataflow/DataflowRunner.java
@@ -101,6 +101,7 @@
 import org.apache.beam.sdk.options.PipelineOptions;
 import org.apache.beam.sdk.options.PipelineOptionsValidator;
 import org.apache.beam.sdk.options.SdkHarnessOptions;
+import org.apache.beam.sdk.options.StreamingOptions;
 import org.apache.beam.sdk.options.ValueProvider.NestedValueProvider;
 import org.apache.beam.sdk.runners.AppliedPTransform;
 import org.apache.beam.sdk.runners.PTransformOverride;
@@ -1310,6 +1311,11 @@ public DataflowPipelineJob run(Pipeline pipeline) {
         // Experiment marking that the harness supports tag encoding v2
         // Backend will enable tag encoding v2 only if the harness supports it.
         experiments.add("streaming_engine_state_tag_encoding_v2_supported");
+        // Experiment requesting tag encoding v2 on new jobs starting with 2.75.0. During job
+        // updates old job's tag encoding version is carried over by the backend.
+        if (!StreamingOptions.updateCompatibilityVersionLessThan(options, "2.75.0")) {
+          experiments.add("enable_streaming_engine_state_tag_encoding_v2");
+        }
         options.setExperiments(ImmutableList.copyOf(experiments));
       }
 
diff --git a/runners/google-cloud-dataflow-java/src/test/java/org/apache/beam/runners/dataflow/DataflowRunnerTest.java b/runners/google-cloud-dataflow-java/src/test/java/org/apache/beam/runners/dataflow/DataflowRunnerTest.java
index 122c4aeee34f..073b30f928dc 100644
--- a/runners/google-cloud-dataflow-java/src/test/java/org/apache/beam/runners/dataflow/DataflowRunnerTest.java
+++ b/runners/google-cloud-dataflow-java/src/test/java/org/apache/beam/runners/dataflow/DataflowRunnerTest.java
@@ -2923,4 +2923,48 @@ public void processElement(
     PAssert.that(output).containsInAnyOrder("value:UPDATE_BEFORE");
     pipeline.run();
   }
+
+  @Test
+  public void testStreamingStateTagEncodingV2PreCompatibility() throws Exception {
+    DataflowPipelineOptions options = buildPipelineOptions();
+    options.as(StreamingOptions.class).setStreaming(true);
+    options.as(StreamingOptions.class).setUpdateCompatibilityVersion("2.74.0");
+    Pipeline p = Pipeline.create(options);
+
+    p.run();
+
+    List<String> experiments = options.getExperiments();
+    assertNotNull(experiments);
+    assertTrue(experiments.contains("streaming_engine_state_tag_encoding_v2_supported"));
+    assertFalse(experiments.contains("enable_streaming_engine_state_tag_encoding_v2"));
+  }
+
+  @Test
+  public void testStreamingStateTagEncodingV2PostCompatibility() throws Exception {
+    DataflowPipelineOptions options = buildPipelineOptions();
+    options.as(StreamingOptions.class).setStreaming(true);
+    options.as(StreamingOptions.class).setUpdateCompatibilityVersion("2.75.0");
+    Pipeline p = Pipeline.create(options);
+
+    p.run();
+
+    List<String> experiments = options.getExperiments();
+    assertNotNull(experiments);
+    assertTrue(experiments.contains("streaming_engine_state_tag_encoding_v2_supported"));
+    assertTrue(experiments.contains("enable_streaming_engine_state_tag_encoding_v2"));
+  }
+
+  @Test
+  public void testStreamingStateTagEncodingV2NoCompatibility() throws Exception {
+    DataflowPipelineOptions options = buildPipelineOptions();
+    options.as(StreamingOptions.class).setStreaming(true);
+    Pipeline p = Pipeline.create(options);
+
+    p.run();
+
+    List<String> experiments = options.getExperiments();
+    assertNotNull(experiments);
+    assertTrue(experiments.contains("streaming_engine_state_tag_encoding_v2_supported"));
+    assertTrue(experiments.contains("enable_streaming_engine_state_tag_encoding_v2"));
+  }
 }