diff --git a/tests/engine/test_arg_utils.py b/tests/engine/test_arg_utils.py
index 1d1926068d28..c282bf002304 100644
--- a/tests/engine/test_arg_utils.py
+++ b/tests/engine/test_arg_utils.py
@@ -5,7 +5,7 @@ import json
 from argparse import ArgumentError
 from contextlib import nullcontext
 from dataclasses import dataclass, field
-from typing import Annotated, Literal, Optional
+from typing import Annotated, Literal, Optional, Union
 
 import pytest
 
@@ -136,6 +136,8 @@ class DummyConfig:
     """List with variable length"""
     list_literal: list[Literal[1, 2]] = field(default_factory=list)
     """List with literal choices"""
+    list_union: list[Union[str, type[object]]] = field(default_factory=list)
+    """List with union type"""
     literal_literal: Literal[Literal[1], Literal[2]] = 1
     """Literal of literals with default 1"""
     json_tip: dict = field(default_factory=dict)
@@ -187,6 +189,9 @@ def test_get_kwargs():
     assert kwargs["list_literal"]["type"] is int
     assert kwargs["list_literal"]["nargs"] == "+"
     assert kwargs["list_literal"]["choices"] == [1, 2]
+    # lists with unions should become str type.
+    # If not, we cannot know which type to use for parsing
+    assert kwargs["list_union"]["type"] is str
     # literals of literals should have merged choices
     assert kwargs["literal_literal"]["choices"] == [1, 2]
     # dict should have json tip in help
diff --git a/vllm/engine/arg_utils.py b/vllm/engine/arg_utils.py
index efa077a88270..f938f19b9046 100644
--- a/vllm/engine/arg_utils.py
+++ b/vllm/engine/arg_utils.py
@@ -217,10 +217,12 @@ Additionally, list elements can be passed individually using `+`:
         elif contains_type(type_hints, list):
             type_hint = get_type(type_hints, list)
             types = get_args(type_hint)
-            assert len(types) == 1, (
-                "List type must have exactly one type. Got "
-                f"{type_hint} with types {types}")
-            kwargs[name]["type"] = types[0]
+            list_type = types[0]
+            if get_origin(list_type) is Union:
+                msg = "List type must contain str if it is a Union."
+                assert str in get_args(list_type), msg
+                list_type = str
+            kwargs[name]["type"] = list_type
             kwargs[name]["nargs"] = "+"
         elif contains_type(type_hints, int):
             kwargs[name]["type"] = int