diff --git a/e2e/nx-misc/src/extras.test.ts b/e2e/nx-misc/src/extras.test.ts
index 1297adbf6985e..5949da61785af 100644
--- a/e2e/nx-misc/src/extras.test.ts
+++ b/e2e/nx-misc/src/extras.test.ts
@@ -273,4 +273,51 @@ describe('Extra Nx Misc Tests', () => {
       expect(output).not.toContain('Installed');
     });
   });
+
+  describe('Env File', () => {
+    it('should have the right env', () => {
+      const appName = uniq('app');
+      runCLI(
+        `generate @nx/react:app ${appName} --style=css --bundler=webpack --no-interactive`
+      );
+      updateFile(
+        '.env',
+        `FIRSTNAME="firstname"
+  LASTNAME="lastname"
+  NX_USERNAME=$FIRSTNAME $LASTNAME`
+      );
+      updateFile(
+        `apps/${appName}/src/app/app.tsx`,
+        `
+      import NxWelcome from './nx-welcome';
+  
+      export function App() {
+        return (
+          <>
+            <NxWelcome title={process.env.NX_USERNAME} />
+          </>
+        );
+      }
+  
+      export default App;
+    `
+      );
+      updateFile(
+        `apps/${appName}/src/app/app.spec.tsx`,
+        `import { render } from '@testing-library/react';
+  
+    import App from './app';
+    
+    describe('App', () => {
+      it('should have a greeting as the title', () => {
+        const { getByText } = render(<App />);
+        expect(getByText(/Welcome firstname lastname/gi)).toBeTruthy();
+      });
+    });
+  `
+      );
+      const unitTestsOutput = runCLI(`test ${appName}`);
+      expect(unitTestsOutput).toContain('Successfully ran target test');
+    });
+  });
 });
diff --git a/package.json b/package.json
index 2dd062390260a..0a921f1c800d6 100644
--- a/package.json
+++ b/package.json
@@ -158,6 +158,7 @@
     "czg": "^1.4.0",
     "detect-port": "^1.5.1",
     "dotenv": "~16.3.1",
+    "dotenv-expand": "^10.0.0",
     "ejs": "^3.1.7",
     "enhanced-resolve": "^5.8.3",
     "esbuild": "^0.17.5",
diff --git a/packages/nx/bin/nx.ts b/packages/nx/bin/nx.ts
index 6851730d816cf..8755ad02ae3b1 100644
--- a/packages/nx/bin/nx.ts
+++ b/packages/nx/bin/nx.ts
@@ -5,6 +5,7 @@ import {
 } from '../src/utils/find-workspace-root';
 import * as chalk from 'chalk';
 import { config as loadDotEnvFile } from 'dotenv';
+import { expand } from 'dotenv-expand';
 import { initLocal } from './init-local';
 import { output } from '../src/utils/output';
 import {
@@ -109,9 +110,10 @@ function main() {
  */
 function loadDotEnvFiles() {
   for (const file of ['.local.env', '.env.local', '.env']) {
-    loadDotEnvFile({
+    const myEnv = loadDotEnvFile({
       path: file,
     });
+    expand(myEnv);
   }
 }
 
diff --git a/packages/nx/package.json b/packages/nx/package.json
index ba3402bc61d3d..df38a9d3d9862 100644
--- a/packages/nx/package.json
+++ b/packages/nx/package.json
@@ -42,6 +42,7 @@
     "cli-spinners": "2.6.1",
     "cliui": "^7.0.2",
     "dotenv": "~16.3.1",
+    "dotenv-expand": "~10.0.0",
     "enquirer": "~2.3.6",
     "fast-glob": "3.2.7",
     "figures": "3.2.0",
diff --git a/packages/nx/src/tasks-runner/forked-process-task-runner.ts b/packages/nx/src/tasks-runner/forked-process-task-runner.ts
index f91a0631fe790..22a90dab04907 100644
--- a/packages/nx/src/tasks-runner/forked-process-task-runner.ts
+++ b/packages/nx/src/tasks-runner/forked-process-task-runner.ts
@@ -1,5 +1,6 @@
 import { readFileSync, writeFileSync } from 'fs';
 import { config as loadDotEnvFile } from 'dotenv';
+import { expand } from 'dotenv-expand';
 import { ChildProcess, fork, Serializable } from 'child_process';
 import * as chalk from 'chalk';
 import * as logTransformer from 'strong-log-transformer';
@@ -443,12 +444,19 @@ export class ForkedProcessTaskRunner {
     ];
 
     for (const file of dotEnvFiles) {
-      loadDotEnvFile({
+      const myEnv = loadDotEnvFile({
         path: file,
         processEnv: environmentVariables,
         // Do not override existing env variables as we load
         override: false,
       });
+      environmentVariables = {
+        ...expand({
+          ...myEnv,
+          ignoreProcessEnv: true, // Do not override existing env variables as we load
+        }).parsed,
+        ...environmentVariables,
+      };
     }
 
     return environmentVariables;
diff --git a/pnpm-lock.yaml b/pnpm-lock.yaml
index c2d5bd34c08b1..f376b8ceae722 100644
--- a/pnpm-lock.yaml
+++ b/pnpm-lock.yaml
@@ -549,6 +549,9 @@ devDependencies:
   dotenv:
     specifier: ~16.3.1
     version: 16.3.1
+  dotenv-expand:
+    specifier: ^10.0.0
+    version: 10.0.0
   ejs:
     specifier: ^3.1.7
     version: 3.1.8
diff --git a/tools/documentation/create-embeddings/src/main.mts b/tools/documentation/create-embeddings/src/main.mts
index 6b91be01c0b9b..f4e379ac17dbc 100644
--- a/tools/documentation/create-embeddings/src/main.mts
+++ b/tools/documentation/create-embeddings/src/main.mts
@@ -2,7 +2,8 @@
 // https://github.com/supabase-community/nextjs-openai-doc-search/blob/main/lib/generate-embeddings.ts
 
 import { createClient } from '@supabase/supabase-js';
-import * as dotenv from 'dotenv';
+import { config as loadDotEnvFile } from 'dotenv';
+import { expand } from 'dotenv-expand';
 import { readFile } from 'fs/promises';
 import 'openai';
 import { Configuration, OpenAIApi } from 'openai';
@@ -24,7 +25,8 @@ import manifestsTags from '../../../../docs/generated/manifests/tags.json' asser
 
 let identityMap = {};
 
-dotenv.config();
+const myEnv = loadDotEnvFile();
+expand(myEnv);
 
 type ProcessedMdx = {
   checksum: string;