diff --git a/pkg/e2e/compose_environment_test.go b/pkg/e2e/compose_environment_test.go
index 62d6c9ebc5e..640b9a61529 100644
--- a/pkg/e2e/compose_environment_test.go
+++ b/pkg/e2e/compose_environment_test.go
@@ -205,6 +205,24 @@ func TestEnvInterpolation(t *testing.T) {
 	})
 }
 
+func TestEnvSelfReference(t *testing.T) {
+	c := NewParallelCLI(t)
+
+	t.Run("self-referencing variables expand within env file", func(t *testing.T) {
+		res := c.RunDockerComposeCmd(t, "-f", "./fixtures/environment/env-self-reference/compose.yaml", "config")
+		res.Assert(t, icmd.Expected{Out: `FULL_IMAGE: gcr.io/myproject/myapp:latest`})
+		res.Assert(t, icmd.Expected{Out: `BASE_URL: gcr.io/myproject/subpath`})
+	})
+
+	t.Run("OS env overrides base variable and cascades through references", func(t *testing.T) {
+		cmd := c.NewDockerComposeCmd(t, "-f", "./fixtures/environment/env-self-reference/compose.yaml", "config")
+		cmd.Env = append(cmd.Env, "REGISTRY_URL=override.io")
+		res := icmd.RunCmd(cmd)
+		res.Assert(t, icmd.Expected{Out: `FULL_IMAGE: override.io/myapp:latest`})
+		res.Assert(t, icmd.Expected{Out: `BASE_URL: override.io/subpath`})
+	})
+}
+
 func TestCommentsInEnvFile(t *testing.T) {
 	c := NewParallelCLI(t)
 
diff --git a/pkg/e2e/fixtures/environment/env-self-reference/.env b/pkg/e2e/fixtures/environment/env-self-reference/.env
new file mode 100644
index 00000000000..3dedb325cb1
--- /dev/null
+++ b/pkg/e2e/fixtures/environment/env-self-reference/.env
@@ -0,0 +1,4 @@
+REGISTRY_URL=gcr.io/myproject
+IMAGE_NAME=myapp
+FULL_IMAGE=${REGISTRY_URL}/${IMAGE_NAME}:latest
+BASE_URL=${REGISTRY_URL}/subpath
diff --git a/pkg/e2e/fixtures/environment/env-self-reference/compose.yaml b/pkg/e2e/fixtures/environment/env-self-reference/compose.yaml
new file mode 100644
index 00000000000..ec8a4e418dc
--- /dev/null
+++ b/pkg/e2e/fixtures/environment/env-self-reference/compose.yaml
@@ -0,0 +1,7 @@
+services:
+  test:
+    image: bash
+    environment:
+      FULL_IMAGE: ${FULL_IMAGE}
+      BASE_URL: ${BASE_URL}
+    command: echo "ok"