diff --git a/packages/nextjs/rollup.npm.config.js b/packages/nextjs/rollup.npm.config.js
index b5083370fe3d..267bd5503e6e 100644
--- a/packages/nextjs/rollup.npm.config.js
+++ b/packages/nextjs/rollup.npm.config.js
@@ -14,7 +14,11 @@ export default [
   ),
   ...makeNPMConfigVariants(
     makeBaseNPMConfig({
-      entrypoints: ['src/config/templates/prefixLoaderTemplate.ts', 'src/config/templates/proxyLoaderTemplate.ts'],
+      entrypoints: [
+        'src/config/templates/prefixLoaderTemplate.ts',
+        'src/config/templates/pageProxyLoaderTemplate.ts',
+        'src/config/templates/apiProxyLoaderTemplate.ts',
+      ],
 
       packageSpecificConfig: {
         plugins: [plugins.makeRemoveMultiLineCommentsPlugin()],
diff --git a/packages/nextjs/src/config/loaders/proxyLoader.ts b/packages/nextjs/src/config/loaders/proxyLoader.ts
index f0cf96b11651..1c10bff39d01 100644
--- a/packages/nextjs/src/config/loaders/proxyLoader.ts
+++ b/packages/nextjs/src/config/loaders/proxyLoader.ts
@@ -33,12 +33,6 @@ export default async function proxyLoader(this: LoaderThis<LoaderOptions>, userC
     // homepage), sub back in the root route
     .replace(/^$/, '/');
 
-  // TODO: For the moment we skip API routes. Those will need to be handled slightly differently because of the manual
-  // wrapping we've already been having people do using `withSentry`.
-  if (parameterizedRoute.startsWith('api')) {
-    return userCode;
-  }
-
   // We don't want to wrap twice (or infinitely), so in the proxy we add this query string onto references to the
   // wrapped file, so that we know that it's already been processed. (Adding this query string is also necessary to
   // convince webpack that it's a different file than the one it's in the middle of loading now, so that the originals
@@ -47,7 +41,10 @@ export default async function proxyLoader(this: LoaderThis<LoaderOptions>, userC
     return userCode;
   }
 
-  const templatePath = path.resolve(__dirname, '../templates/proxyLoaderTemplate.js');
+  const templateFile = parameterizedRoute.startsWith('/api')
+    ? 'apiProxyLoaderTemplate.js'
+    : 'pageProxyLoaderTemplate.js';
+  const templatePath = path.resolve(__dirname, `../templates/${templateFile}`);
   let templateCode = fs.readFileSync(templatePath).toString();
   // Make sure the template is included when runing `webpack watch`
   this.addDependency(templatePath);
diff --git a/packages/nextjs/src/config/templates/apiProxyLoaderTemplate.ts b/packages/nextjs/src/config/templates/apiProxyLoaderTemplate.ts
new file mode 100644
index 000000000000..59d49856fb7b
--- /dev/null
+++ b/packages/nextjs/src/config/templates/apiProxyLoaderTemplate.ts
@@ -0,0 +1,47 @@
+/**
+ * This file is a template for the code which will be substituted when our webpack loader handles API files in the
+ * `pages/` directory.
+ *
+ * We use `__RESOURCE_PATH__` as a placeholder for the path to the file being wrapped. Because it's not a real package,
+ * this causes both TS and ESLint to complain, hence the pragma comments below.
+ */
+
+// @ts-ignore See above
+// eslint-disable-next-line import/no-unresolved
+import * as origModule from '__RESOURCE_PATH__';
+import * as Sentry from '@sentry/nextjs';
+import type { PageConfig } from 'next';
+
+// We import this from `withSentry` rather than directly from `next` because our version can work simultaneously with
+// multiple versions of next. See note in `withSentry` for more.
+import type { NextApiHandler } from '../../utils/withSentry';
+
+type NextApiModule = {
+  default: NextApiHandler;
+  config?: PageConfig;
+};
+
+const userApiModule = origModule as NextApiModule;
+
+const maybeWrappedHandler = userApiModule.default;
+const origConfig = userApiModule.config || {};
+
+// Setting `externalResolver` to `true` prevents nextjs from throwing a warning in dev about API routes resolving
+// without sending a response. It's a false positive (a response is sent, but only after we flush our send queue), and
+// we throw a warning of our own to tell folks that, but it's better if we just don't have to deal with it in the first
+// place.
+export const config = {
+  ...origConfig,
+  api: {
+    ...origConfig.api,
+    externalResolver: true,
+  },
+};
+
+export default Sentry.withSentryAPI(maybeWrappedHandler, '__ROUTE__');
+
+// Re-export anything exported by the page module we're wrapping. When processing this code, Rollup is smart enough to
+// not include anything whose name matchs something we've explicitly exported above.
+// @ts-ignore See above
+// eslint-disable-next-line import/no-unresolved
+export * from '__RESOURCE_PATH__';
diff --git a/packages/nextjs/src/config/templates/proxyLoaderTemplate.ts b/packages/nextjs/src/config/templates/pageProxyLoaderTemplate.ts
similarity index 100%
rename from packages/nextjs/src/config/templates/proxyLoaderTemplate.ts
rename to packages/nextjs/src/config/templates/pageProxyLoaderTemplate.ts
diff --git a/packages/nextjs/src/config/wrappers/index.ts b/packages/nextjs/src/config/wrappers/index.ts
index d675812fbd99..9f710d1f5104 100644
--- a/packages/nextjs/src/config/wrappers/index.ts
+++ b/packages/nextjs/src/config/wrappers/index.ts
@@ -4,3 +4,4 @@ export { withSentryServerSideAppGetInitialProps } from './withSentryServerSideAp
 export { withSentryServerSideDocumentGetInitialProps } from './withSentryServerSideDocumentGetInitialProps';
 export { withSentryServerSideErrorGetInitialProps } from './withSentryServerSideErrorGetInitialProps';
 export { withSentryGetServerSideProps } from './withSentryGetServerSideProps';
+export { withSentryAPI } from './withSentryAPI';
diff --git a/packages/nextjs/src/config/wrappers/withSentryAPI.ts b/packages/nextjs/src/config/wrappers/withSentryAPI.ts
new file mode 100644
index 000000000000..1dd095b90697
--- /dev/null
+++ b/packages/nextjs/src/config/wrappers/withSentryAPI.ts
@@ -0,0 +1,39 @@
+import { formatAsCode, nextLogger } from '../../utils/nextLogger';
+// We import these types from `withSentry` rather than directly from `next` because our version can work simultaneously
+// with multiple versions of next. See note in `withSentry` for more.
+import type { NextApiHandler, WrappedNextApiHandler } from '../../utils/withSentry';
+import { withSentry } from '../../utils/withSentry';
+
+/**
+ * Wrap the given API route handler for tracing and error capturing. Thin wrapper around `withSentry`, which only
+ * applies it if it hasn't already been applied.
+ *
+ * @param maybeWrappedHandler The handler exported from the user's API page route file, which may or may not already be
+ * wrapped with `withSentry`
+ * @param parameterizedRoute The page's route, passed in via the proxy loader
+ * @returns The wrapped handler
+ */
+export function withSentryAPI(
+  maybeWrappedHandler: NextApiHandler | WrappedNextApiHandler,
+  parameterizedRoute: string,
+): WrappedNextApiHandler {
+  // Log a warning if the user is still manually wrapping their route in `withSentry`. Doesn't work in cases where
+  // there's been an intermediate wrapper (like `withSentryAPI(someOtherWrapper(withSentry(handler)))`) but should catch
+  // most cases. Only runs once per route. (Note: Such double-wrapping isn't harmful, but we'll eventually deprecate and remove `withSentry`, so
+  // best to get people to stop using it.)
+  if (maybeWrappedHandler.name === 'sentryWrappedHandler') {
+    const [_sentryNextjs_, _autoWrapOption_, _withSentry_, _route_] = [
+      '@sentry/nextjs',
+      'autoInstrumentServerFunctions',
+      'withSentry',
+      parameterizedRoute,
+    ].map(phrase => formatAsCode(phrase));
+
+    nextLogger.info(
+      `${_sentryNextjs_} is running with the ${_autoWrapOption_} flag set, which means API routes no longer need to ` +
+        `be manually wrapped with ${_withSentry_}. Detected manual wrapping in ${_route_}.`,
+    );
+  }
+
+  return withSentry(maybeWrappedHandler, parameterizedRoute);
+}
diff --git a/packages/nextjs/src/index.server.ts b/packages/nextjs/src/index.server.ts
index cc1c314a5eda..28442999b2aa 100644
--- a/packages/nextjs/src/index.server.ts
+++ b/packages/nextjs/src/index.server.ts
@@ -134,6 +134,7 @@ export {
   withSentryServerSideAppGetInitialProps,
   withSentryServerSideDocumentGetInitialProps,
   withSentryServerSideErrorGetInitialProps,
+  withSentryAPI,
 } from './config/wrappers';
 export { withSentry } from './utils/withSentry';
 
diff --git a/packages/nextjs/src/utils/nextLogger.ts b/packages/nextjs/src/utils/nextLogger.ts
new file mode 100644
index 000000000000..14d701d6edb7
--- /dev/null
+++ b/packages/nextjs/src/utils/nextLogger.ts
@@ -0,0 +1,31 @@
+/* eslint-disable no-console */
+import * as chalk from 'chalk';
+
+// This is nextjs's own logging formatting, vendored since it's not exported. See
+// https://github.com/vercel/next.js/blob/c3ceeb03abb1b262032bd96457e224497d3bbcef/packages/next/build/output/log.ts#L3-L11
+// and
+// https://github.com/vercel/next.js/blob/de7aa2d6e486c40b8be95a1327639cbed75a8782/packages/next/lib/eslint/runLintCheck.ts#L321-L323.
+
+const prefixes = {
+  wait: `${chalk.cyan('wait')}  -`,
+  error: `${chalk.red('error')} -`,
+  warn: `${chalk.yellow('warn')}  -`,
+  ready: `${chalk.green('ready')} -`,
+  info: `${chalk.cyan('info')}  -`,
+  event: `${chalk.magenta('event')} -`,
+  trace: `${chalk.magenta('trace')} -`,
+};
+
+export const formatAsCode = (str: string): string => chalk.bold.cyan(str);
+
+export const nextLogger: {
+  [key: string]: (...message: unknown[]) => void;
+} = {
+  wait: (...message) => console.log(prefixes.wait, ...message),
+  error: (...message) => console.error(prefixes.error, ...message),
+  warn: (...message) => console.warn(prefixes.warn, ...message),
+  ready: (...message) => console.log(prefixes.ready, ...message),
+  info: (...message) => console.log(prefixes.info, ...message),
+  event: (...message) => console.log(prefixes.event, ...message),
+  trace: (...message) => console.log(prefixes.trace, ...message),
+};
diff --git a/packages/nextjs/src/utils/withSentry.ts b/packages/nextjs/src/utils/withSentry.ts
index 65cadd78ed89..bd094d58d8c8 100644
--- a/packages/nextjs/src/utils/withSentry.ts
+++ b/packages/nextjs/src/utils/withSentry.ts
@@ -28,17 +28,32 @@ import { NextApiRequest, NextApiResponse } from 'next';
 // the test app would refer to the other version of the type (from the test app's `node_modules`). By using a custom
 // version of the type compatible with both the old and new official versions, we can use any Next version we want in
 // a test app without worrying about type errors.
-type NextApiHandler = (req: NextApiRequest, res: NextApiResponse) => void | Promise<void> | unknown | Promise<unknown>;
+export type NextApiHandler = (
+  req: NextApiRequest,
+  res: NextApiResponse,
+) => void | Promise<void> | unknown | Promise<unknown>;
 export type WrappedNextApiHandler = (req: NextApiRequest, res: NextApiResponse) => Promise<void> | Promise<unknown>;
 
+type AugmentedNextApiRequest = NextApiRequest & {
+  __withSentry_applied__?: boolean;
+};
+
 export type AugmentedNextApiResponse = NextApiResponse & {
   __sentryTransaction?: Transaction;
 };
 
 // eslint-disable-next-line @typescript-eslint/explicit-module-boundary-types
-export const withSentry = (origHandler: NextApiHandler): WrappedNextApiHandler => {
+export const withSentry = (origHandler: NextApiHandler, parameterizedRoute?: string): WrappedNextApiHandler => {
   // eslint-disable-next-line @typescript-eslint/explicit-module-boundary-types
-  return async (req, res) => {
+  return async function sentryWrappedHandler(req: AugmentedNextApiRequest, res: NextApiResponse) {
+    // We're now auto-wrapping API route handlers using `withSentryAPI` (which uses `withSentry` under the hood), but
+    // users still may have their routes manually wrapped with `withSentry`. This check makes `sentryWrappedHandler`
+    // idempotent so that those cases don't break anything.
+    if (req.__withSentry_applied__) {
+      return origHandler(req, res);
+    }
+    req.__withSentry_applied__ = true;
+
     // first order of business: monkeypatch `res.end()` so that it will wait for us to send events to sentry before it
     // fires (if we don't do this, the lambda will close too early and events will be either delayed or lost)
     // eslint-disable-next-line @typescript-eslint/unbound-method
@@ -69,17 +84,23 @@ export const withSentry = (origHandler: NextApiHandler): WrappedNextApiHandler =
           const baggageHeader = req.headers && req.headers.baggage;
           const dynamicSamplingContext = baggageHeaderToDynamicSamplingContext(baggageHeader);
 
-          const url = `${req.url}`;
-          // pull off query string, if any
-          let reqPath = stripUrlQueryAndFragment(url);
-          // Replace with placeholder
-          if (req.query) {
-            // TODO get this from next if possible, to avoid accidentally replacing non-dynamic parts of the path if
-            // they happen to match the values of any of the dynamic parts
-            for (const [key, value] of Object.entries(req.query)) {
-              reqPath = reqPath.replace(`${value}`, `[${key}]`);
+          // prefer the parameterized route, if we have it (which we will if we've auto-wrapped the route handler)
+          let reqPath = parameterizedRoute;
+
+          // If not, fake it by just replacing parameter values with their names, hoping that none of them match either
+          // each other or any hard-coded parts of the path
+          if (!reqPath) {
+            const url = `${req.url}`;
+            // pull off query string, if any
+            reqPath = stripUrlQueryAndFragment(url);
+            // Replace with placeholder
+            if (req.query) {
+              for (const [key, value] of Object.entries(req.query)) {
+                reqPath = reqPath.replace(`${value}`, `[${key}]`);
+              }
             }
           }
+
           const reqMethod = `${(req.method || 'GET').toUpperCase()} `;
 
           const transaction = startTransaction(
diff --git a/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/[...pathParts].ts b/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/[...pathParts].ts
new file mode 100644
index 000000000000..3307b12037d5
--- /dev/null
+++ b/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/[...pathParts].ts
@@ -0,0 +1,7 @@
+import { NextApiRequest, NextApiResponse } from 'next';
+
+const handler = async (_req: NextApiRequest, res: NextApiResponse): Promise<void> => {
+  res.status(200).json({});
+};
+
+export default handler;
diff --git a/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/[animal].ts b/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/[animal].ts
new file mode 100644
index 000000000000..3307b12037d5
--- /dev/null
+++ b/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/[animal].ts
@@ -0,0 +1,7 @@
+import { NextApiRequest, NextApiResponse } from 'next';
+
+const handler = async (_req: NextApiRequest, res: NextApiResponse): Promise<void> => {
+  res.status(200).json({});
+};
+
+export default handler;
diff --git a/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/noParams.ts b/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/noParams.ts
new file mode 100644
index 000000000000..3307b12037d5
--- /dev/null
+++ b/packages/nextjs/test/integration/pages/api/withSentryAPI/unwrapped/noParams.ts
@@ -0,0 +1,7 @@
+import { NextApiRequest, NextApiResponse } from 'next';
+
+const handler = async (_req: NextApiRequest, res: NextApiResponse): Promise<void> => {
+  res.status(200).json({});
+};
+
+export default handler;
diff --git a/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/[...pathParts].ts b/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/[...pathParts].ts
new file mode 100644
index 000000000000..e048d9d27c0f
--- /dev/null
+++ b/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/[...pathParts].ts
@@ -0,0 +1,8 @@
+import { withSentry } from '@sentry/nextjs';
+import { NextApiRequest, NextApiResponse } from 'next';
+
+const handler = async (_req: NextApiRequest, res: NextApiResponse): Promise<void> => {
+  res.status(200).json({});
+};
+
+export default withSentry(handler);
diff --git a/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/[animal].ts b/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/[animal].ts
new file mode 100644
index 000000000000..e048d9d27c0f
--- /dev/null
+++ b/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/[animal].ts
@@ -0,0 +1,8 @@
+import { withSentry } from '@sentry/nextjs';
+import { NextApiRequest, NextApiResponse } from 'next';
+
+const handler = async (_req: NextApiRequest, res: NextApiResponse): Promise<void> => {
+  res.status(200).json({});
+};
+
+export default withSentry(handler);
diff --git a/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/noParams.ts b/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/noParams.ts
new file mode 100644
index 000000000000..e048d9d27c0f
--- /dev/null
+++ b/packages/nextjs/test/integration/pages/api/withSentryAPI/wrapped/noParams.ts
@@ -0,0 +1,8 @@
+import { withSentry } from '@sentry/nextjs';
+import { NextApiRequest, NextApiResponse } from 'next';
+
+const handler = async (_req: NextApiRequest, res: NextApiResponse): Promise<void> => {
+  res.status(200).json({});
+};
+
+export default withSentry(handler);
diff --git a/packages/nextjs/test/integration/test/server/tracingWithSentryAPI.js b/packages/nextjs/test/integration/test/server/tracingWithSentryAPI.js
new file mode 100644
index 000000000000..a9ceebc835c6
--- /dev/null
+++ b/packages/nextjs/test/integration/test/server/tracingWithSentryAPI.js
@@ -0,0 +1,54 @@
+const assert = require('assert');
+
+const { sleep } = require('../utils/common');
+const { getAsync, interceptTracingRequest } = require('../utils/server');
+
+module.exports = async ({ url: urlBase, argv }) => {
+  const urls = {
+    // testName: [url, route]
+    unwrappedNoParamURL: [`/api/withSentryAPI/unwrapped/noParams`, '/api/withSentryAPI/unwrapped/noParams'],
+    unwrappedDynamicURL: [`/api/withSentryAPI/unwrapped/dog`, '/api/withSentryAPI/unwrapped/[animal]'],
+    unwrappedCatchAllURL: [`/api/withSentryAPI/unwrapped/dog/facts`, '/api/withSentryAPI/unwrapped/[...pathParts]'],
+    wrappedNoParamURL: [`/api/withSentryAPI/wrapped/noParams`, '/api/withSentryAPI/wrapped/noParams'],
+    wrappedDynamicURL: [`/api/withSentryAPI/wrapped/dog`, '/api/withSentryAPI/wrapped/[animal]'],
+    wrappedCatchAllURL: [`/api/withSentryAPI/wrapped/dog/facts`, '/api/withSentryAPI/wrapped/[...pathParts]'],
+  };
+
+  const interceptedRequests = {};
+
+  Object.entries(urls).forEach(([testName, [url, route]]) => {
+    interceptedRequests[testName] = interceptTracingRequest(
+      {
+        contexts: {
+          trace: {
+            op: 'http.server',
+            status: 'ok',
+            tags: { 'http.status_code': '200' },
+          },
+        },
+        transaction: `GET ${route}`,
+        type: 'transaction',
+        request: {
+          url: `${urlBase}${url}`,
+        },
+      },
+      argv,
+      testName,
+    );
+  });
+
+  // Wait until all requests have completed
+  await Promise.all(Object.values(urls).map(([url]) => getAsync(`${urlBase}${url}`)));
+
+  await sleep(250);
+
+  const failingTests = Object.entries(interceptedRequests).reduce(
+    (failures, [testName, request]) => (!request.isDone() ? failures.concat(testName) : failures),
+    [],
+  );
+
+  assert.ok(
+    failingTests.length === 0,
+    `Did not intercept transaction request for the following tests: ${failingTests.join(', ')}.`,
+  );
+};