Thanks for the Insights @Vivek Vaibhav Shandilya.

The issue was resolved after realizing that environment variables defined in local.settings.json are not picked up inside a Docker container. This file is only used by the Azure Functions Core Tools (func start) during local development — not in Docker runtime.

All required environment variables were added directly to the Dockerfile using ENV, including below.

ENV AzureWebJobsStorage="your-connection-string" \
BlobStorageConnectionString="your-connection-string" \ FUNCTIONS_WORKER_RUNTIME=python \ AzureWebJobsFeatureFlags=EnableWorkerIndexing

Alternatively, you can pass them via the docker run command.

docker run -p 7071:80 \  -e AzureWebJobsStorage="your-connection-string" \  -e BlobStorageConnectionString="your-connection-string" \  -e FUNCTIONS_WORKER_RUNTIME=python \  -e AzureWebJobsFeatureFlags=EnableWorkerIndexing \  my-func