diff --git a/dvc/commands/dataset.py b/dvc/commands/dataset.py
index 32f1dd3a8..0ab245f2e 100644
--- a/dvc/commands/dataset.py
+++ b/dvc/commands/dataset.py
@@ -67,8 +67,9 @@ class CmdDatasetUpdate(CmdBase):
         from dvc.commands.checkout import log_changes
         from dvc.ui import ui
 
+        action = "Updating"
         if not dataset.lock:
-            return CmdDatasetAdd.display(name, new, "Updating")
+            return CmdDatasetAdd.display(name, new, action)
         if dataset == new:
             ui.write("[yellow]Nothing to update[/]", styled=True)
             return
@@ -78,6 +79,9 @@ class CmdDatasetUpdate(CmdBase):
         v: Optional[tuple[str, str]] = None
         if dataset.type == "dvcx":
             assert new.type == "dvcx"
+            if new.lock.version < dataset.lock.version:
+                action = "Downgrading"
+
             v = (f"v{dataset.lock.version}", f"v{new.lock.version}")
         if dataset.type == "dvc":
             assert new.type == "dvc"
@@ -92,7 +96,7 @@ class CmdDatasetUpdate(CmdBase):
         else:
             part = ui.rich_text(dataset.spec.url, "repr.url")
         changes = ui.rich_text.assemble("(", part, ")")
-        ui.write("Updating", ui.rich_text(name, "cyan"), changes, styled=True)
+        ui.write(action, ui.rich_text(name, "cyan"), changes, styled=True)
         if dataset.type == "url":
             assert new.type == "url"
             stats = diff_files(dataset.lock.files, new.lock.files)
@@ -104,9 +108,17 @@ class CmdDatasetUpdate(CmdBase):
         from dvc.repo.datasets import DatasetNotFoundError
         from dvc.ui import ui
 
+        version = None
+        if self.args.rev:
+            try:
+                version = int(self.args.rev.lstrip("v"))
+            except ValueError:
+                version = self.args.rev
+
+        d = vars(self.args) | {"version": version}
         with self.repo.scm_context:
             try:
-                dataset, new = self.repo.datasets.update(**vars(self.args))
+                dataset, new = self.repo.datasets.update(**d)
             except DatasetNotFoundError:
                 logger.exception("")
                 if matches := get_close_matches(self.args.name, self.repo.datasets):
@@ -183,9 +195,15 @@ dvc+https://github.com/iterative/example-get-started.git""",
     ds_update_parser = ds_subparsers.add_parser(
         "update",
         parents=[parent_parser],
-        description=append_doc_link(dataset_update_help, "dataset/add"),
+        description=append_doc_link(dataset_update_help, "dataset/update"),
         formatter_class=formatter.RawDescriptionHelpFormatter,
         help=dataset_update_help,
     )
     ds_update_parser.add_argument("name", help="Name of the dataset to update")
+    ds_update_parser.add_argument(
+        "--rev",
+        nargs="?",
+        help="DVCX dataset version or Git revision (e.g. SHA, branch, tag)",
+        metavar="<version>",
+    )
     ds_update_parser.set_defaults(func=CmdDatasetUpdate)
diff --git a/dvc/repo/datasets.py b/dvc/repo/datasets.py
index 1131d5d94..b3af559a3 100644
--- a/dvc/repo/datasets.py
+++ b/dvc/repo/datasets.py
@@ -64,9 +64,8 @@ def _get_dataset_info(
 ) -> "DatasetVersion":
     record = record or _get_dataset_record(name)
     assert record
-    v = version or record.latest_version
-    assert v
-    assert v >= 1
+    v = record.latest_version if version is None else version
+    assert v is not None
     return record.get_version(v)
 
 
@@ -208,7 +207,7 @@ class DVCXDataset:
         **kwargs,
     ) -> "Self":
         name, _version = self.name_version
-        version = version or _version
+        version = version if version is not None else _version
         version_info = _get_dataset_info(name, record=record, version=version)
         lock = DVCXDatasetLock(
             **self.spec.to_dict(),
@@ -400,6 +399,18 @@ class Datasets(Mapping[str, Dataset]):
 
     def update(self, name, **kwargs) -> tuple[Dataset, Dataset]:
         dataset = self[name]
+        version = kwargs.get("version")
+
+        if dataset.type == "url" and (version or kwargs.get("rev")):
+            raise ValueError("cannot update version/revision for a url")
+        if dataset.type == "dvcx" and version is not None:
+            if not isinstance(version, int):
+                raise TypeError(
+                    f"dvcx version has to be an integer, got {type(version).__name__!r}"
+                )
+            if version < 1:
+                raise ValueError(f"dvcx version should be >=1, got {version}")
+
         new = dataset.update(self.repo, **kwargs)
 
         self.dump(new, old=dataset)
diff --git a/tests/unit/command/test_dataset.py b/tests/unit/command/test_dataset.py
index 776b1c521..616d91345 100644
--- a/tests/unit/command/test_dataset.py
+++ b/tests/unit/command/test_dataset.py
@@ -73,6 +73,16 @@ def test_add_already_exists(dvc, caplog, mocker):
                 "updated": "Updating mydataset (v1 -> v2)\n",
             },
         ),
+        (
+            {"name": "mydataset", "url": "dvcx://dataset", "type": "dvcx"},
+            {"rev_lock": "0" * 40, "version": 2, "created_at": datetime.now()},
+            {"version": 1},
+            {
+                "missing": "Updating mydataset (dvcx://dataset @ v1)\n",
+                "unchanged": "Nothing to update\n",
+                "updated": "Downgrading mydataset (v2 -> v1)\n",
+            },
+        ),
         (
             {"name": "mydataset", "url": "s3://bucket/path", "type": "url"},
             {