diff --git a/sdk-extensions/incubator/src/main/java/io/opentelemetry/sdk/extension/incubator/fileconfig/FileConfiguration.java b/sdk-extensions/incubator/src/main/java/io/opentelemetry/sdk/extension/incubator/fileconfig/FileConfiguration.java
index 76cf9cc1fbe..e4004516b73 100644
--- a/sdk-extensions/incubator/src/main/java/io/opentelemetry/sdk/extension/incubator/fileconfig/FileConfiguration.java
+++ b/sdk-extensions/incubator/src/main/java/io/opentelemetry/sdk/extension/incubator/fileconfig/FileConfiguration.java
@@ -49,7 +49,7 @@ public final class FileConfiguration {
 
   private static final Logger logger = Logger.getLogger(FileConfiguration.class.getName());
   private static final Pattern ENV_VARIABLE_REFERENCE =
-      Pattern.compile("\\$\\{([a-zA-Z_][a-zA-Z0-9_]*)(:-([^\n]*))?\\}");
+      Pattern.compile("\\$\\{([a-zA-Z_][a-zA-Z0-9_]*)(:-([^\n}]*))?}");
   private static final ComponentLoader DEFAULT_COMPONENT_LOADER =
       SpiHelper.serviceComponentLoader(FileConfiguration.class.getClassLoader());
 
diff --git a/sdk-extensions/incubator/src/test/java/io/opentelemetry/sdk/extension/incubator/fileconfig/FileConfigurationParseTest.java b/sdk-extensions/incubator/src/test/java/io/opentelemetry/sdk/extension/incubator/fileconfig/FileConfigurationParseTest.java
index b90c154205a..7de63dcb45c 100644
--- a/sdk-extensions/incubator/src/test/java/io/opentelemetry/sdk/extension/incubator/fileconfig/FileConfigurationParseTest.java
+++ b/sdk-extensions/incubator/src/test/java/io/opentelemetry/sdk/extension/incubator/fileconfig/FileConfigurationParseTest.java
@@ -634,6 +634,9 @@ private static java.util.stream.Stream<Arguments> envVarSubstitutionArgs() {
         // Multiple environment variables referenced
         Arguments.of("key1: ${STR_1}${STR_2}\n", mapOf(entry("key1", "value1value2"))),
         Arguments.of("key1: ${STR_1} ${STR_2}\n", mapOf(entry("key1", "value1 value2"))),
+        Arguments.of(
+            "key1: ${STR_1} ${NOT_SET:-default} ${STR_2}\n",
+            mapOf(entry("key1", "value1 default value2"))),
         // Undefined / empty environment variable
         Arguments.of("key1: ${EMPTY_STR}\n", mapOf(entry("key1", null))),
         Arguments.of("key1: ${STR_3}\n", mapOf(entry("key1", null))),