diff --git a/src/controller/config_repl.c b/src/controller/config_repl.c
index a079574f..7ddb296f 100644
--- a/src/controller/config_repl.c
+++ b/src/controller/config_repl.c
@@ -20,8 +20,10 @@
 
 #include "byteorder.h"
 #include "clusterconfig.h"
+#include "cluster.h"
 #include "ha.h"
 #include "utils.h"
+#include "wobj.h"
 #include "xce/cluster_def.h"
 
 /* ── config load helpers (shared with myconf.c logic) ─────── */
@@ -536,21 +538,46 @@ int load_primary_config_for_test(cluster_t *c)
 
 void create_lost_and_found(cluster_t *c)
 {
-    /*
-     * Ensure the synthetic "lost_and_found" queue exists before
-     * persist_recover() runs.  Jobs whose queue was removed by a config
-     * upgrade are re-queued here so they survive the WAL replay.
-     *
-     * Phase 2 concern: the full kvmgr queue-insertion API requires a
-     * complete config context that is not yet available at the point this
-     * function is called (pre-recovery).  Leave as a documented no-op stub;
-     * the core config-replication feature is fully functional without it.
-     * Track lost-and-found job count via c->lost_and_found_job_count.
-     */
-    (void)c;
-    WARN("create_lost_and_found: synthetic queue insertion deferred to Phase 2"
-         " -- lost-and-found jobs will not be preserved across config upgrades"
-         " until that phase is complete");
+    if (!c->qmgr || !c->workermgr)
+        return;
+
+#ifndef XCE_TESTING
+    /* key_find, create_queue, and makeWorker require librtti + queue.c which
+     * are not linked into the unit test binary.  The !qmgr guard above means
+     * this block is unreachable in tests regardless. */
+
+    /* Synthetic queue — receives jobs whose queue was removed by a config
+     * upgrade. Created before persist_recover() so WAL replay can route
+     * unknown queue IDs here instead of failing. */
+    {
+        void *existing = NULL;
+        if (key_find(c->qmgr, (void *)"lost_and_found", &existing) <= 0) {
+            xce_queue_t lf = {0};
+            lf.queue = "lost_and_found";
+            queue_t *q = create_queue(c, &lf);
+            if (q)
+                INFO("Created synthetic 'lost_and_found' queue");
+            else
+                ERROR("Failed to create synthetic 'lost_and_found' queue");
+        }
+    }
+
+    /* Synthetic host — receives jobs whose host was removed by a config
+     * upgrade. Uses makeWorker directly; no hostconfig entry is required
+     * for this sentinel host. */
+    {
+        void *existing = NULL;
+        if (key_find(c->workermgr, (void *)"lost_and_found", &existing) <= 0) {
+            xce_worker_t lf_host = {0};
+            lf_host.name = "lost_and_found";
+            worker_t *w = makeWorker(c->workermgr, &lf_host);
+            if (w)
+                INFO("Created synthetic 'lost_and_found' host");
+            else
+                ERROR("Failed to create synthetic 'lost_and_found' host");
+        }
+    }
+#endif /* XCE_TESTING */
 }
 
 /* ── handle_config_request ──────────────────────── */