diff --git a/src/app/qgslabelengineconfigdialog.cpp b/src/app/qgslabelengineconfigdialog.cpp
index fbb7af4bde9..917d8f3507d 100644
--- a/src/app/qgslabelengineconfigdialog.cpp
+++ b/src/app/qgslabelengineconfigdialog.cpp
@@ -43,7 +43,7 @@ QgsLabelEngineConfigDialog::QgsLabelEngineConfigDialog( QWidget *parent )
   mTextRenderFormatComboBox->addItem( tr( "Always Render Labels as Text" ), QgsRenderContext::TextFormatAlwaysText );
 
   mPlacementVersionComboBox->addItem( tr( "Version 1" ), QgsLabelingEngineSettings::PlacementEngineVersion1 );
-  mPlacementVersionComboBox->addItem( tr( "Version 2 (Experimental)" ), QgsLabelingEngineSettings::PlacementEngineVersion2 );
+  mPlacementVersionComboBox->addItem( tr( "Version 2 (Recommended)" ), QgsLabelingEngineSettings::PlacementEngineVersion2 );
 
   mPreviousEngineVersion = engineSettings.placementVersion();
   mPlacementVersionComboBox->setCurrentIndex( mPlacementVersionComboBox->findData( mPreviousEngineVersion ) );
diff --git a/src/core/pal/pal.h b/src/core/pal/pal.h
index 088b60fd5a1..6467f8a47e3 100644
--- a/src/core/pal/pal.h
+++ b/src/core/pal/pal.h
@@ -261,7 +261,7 @@ namespace pal
        */
       bool mShowPartialLabels = true;
 
-      QgsLabelingEngineSettings::PlacementEngineVersion mPlacementVersion = QgsLabelingEngineSettings::PlacementEngineVersion1;
+      QgsLabelingEngineSettings::PlacementEngineVersion mPlacementVersion = QgsLabelingEngineSettings::PlacementEngineVersion2;
 
       //! Callback that may be called from PAL to check whether the job has not been canceled in meanwhile
       FnIsCanceled fnIsCanceled = nullptr;
diff --git a/src/core/qgslabelingenginesettings.h b/src/core/qgslabelingenginesettings.h
index 7a0d90a8003..0b265a422b2 100644
--- a/src/core/qgslabelingenginesettings.h
+++ b/src/core/qgslabelingenginesettings.h
@@ -66,7 +66,7 @@ class CORE_EXPORT QgsLabelingEngineSettings
     enum PlacementEngineVersion
     {
       PlacementEngineVersion1, //!< Version 1, matches placement from QGIS <= 3.10.1
-      PlacementEngineVersion2, //!< Version 2 (currently experimental)
+      PlacementEngineVersion2, //!< Version 2 (default for new projects since QGIS 3.12)
     };
 
     QgsLabelingEngineSettings();
@@ -173,7 +173,7 @@ class CORE_EXPORT QgsLabelingEngineSettings
 
     QColor mUnplacedLabelColor = QColor( 255, 0, 0 );
 
-    PlacementEngineVersion mPlacementVersion = PlacementEngineVersion1;
+    PlacementEngineVersion mPlacementVersion = PlacementEngineVersion2;
 
     QgsRenderContext::TextRenderFormat mDefaultTextRenderFormat = QgsRenderContext::TextFormatAlwaysOutlines;
 
diff --git a/tests/src/core/testqgslabelingengine.cpp b/tests/src/core/testqgslabelingengine.cpp
index 5d430a12ae8..c4cb0f7eca7 100644
--- a/tests/src/core/testqgslabelingengine.cpp
+++ b/tests/src/core/testqgslabelingengine.cpp
@@ -135,16 +135,16 @@ void TestQgsLabelingEngine::testEngineSettings()
   // getters/setters
   QgsLabelingEngineSettings settings;
 
-  // default for new projects should be placement engine v1 (for now!)
-  QCOMPARE( settings.placementVersion(), QgsLabelingEngineSettings::PlacementEngineVersion1 );
+  // default for new projects should be placement engine v2
+  QCOMPARE( settings.placementVersion(), QgsLabelingEngineSettings::PlacementEngineVersion2 );
 
   settings.setDefaultTextRenderFormat( QgsRenderContext::TextFormatAlwaysText );
   QCOMPARE( settings.defaultTextRenderFormat(), QgsRenderContext::TextFormatAlwaysText );
   settings.setDefaultTextRenderFormat( QgsRenderContext::TextFormatAlwaysOutlines );
   QCOMPARE( settings.defaultTextRenderFormat(), QgsRenderContext::TextFormatAlwaysOutlines );
 
-  settings.setPlacementVersion( QgsLabelingEngineSettings::PlacementEngineVersion2 );
-  QCOMPARE( settings.placementVersion(), QgsLabelingEngineSettings::PlacementEngineVersion2 );
+  settings.setPlacementVersion( QgsLabelingEngineSettings::PlacementEngineVersion1 );
+  QCOMPARE( settings.placementVersion(), QgsLabelingEngineSettings::PlacementEngineVersion1 );
 
   settings.setFlag( QgsLabelingEngineSettings::DrawUnplacedLabels, true );
   QVERIFY( settings.testFlag( QgsLabelingEngineSettings::DrawUnplacedLabels ) );
@@ -159,7 +159,7 @@ void TestQgsLabelingEngine::testEngineSettings()
   settings.setDefaultTextRenderFormat( QgsRenderContext::TextFormatAlwaysText );
   settings.setFlag( QgsLabelingEngineSettings::DrawUnplacedLabels, true );
   settings.setUnplacedLabelColor( QColor( 0, 255, 0 ) );
-  settings.setPlacementVersion( QgsLabelingEngineSettings::PlacementEngineVersion2 );
+  settings.setPlacementVersion( QgsLabelingEngineSettings::PlacementEngineVersion1 );
   settings.writeSettingsToProject( &p );
   QgsLabelingEngineSettings settings2;
   settings2.readSettingsFromProject( &p );
@@ -173,7 +173,7 @@ void TestQgsLabelingEngine::testEngineSettings()
   settings2.readSettingsFromProject( &p );
   QCOMPARE( settings2.defaultTextRenderFormat(), QgsRenderContext::TextFormatAlwaysOutlines );
   QVERIFY( !settings2.testFlag( QgsLabelingEngineSettings::DrawUnplacedLabels ) );
-  QCOMPARE( settings2.placementVersion(), QgsLabelingEngineSettings::PlacementEngineVersion2 );
+  QCOMPARE( settings2.placementVersion(), QgsLabelingEngineSettings::PlacementEngineVersion1 );
 
   // test that older setting is still respected as a fallback
   QgsProject p2;