2 files changed, 199 insertions, 2 deletions

diff --git a/packages/cli/src/config/settings.test.ts b/packages/cli/src/config/settings.test.ts
index c6943dbe..350c5d33 100644
--- a/packages/cli/src/config/settings.test.ts
+++ b/packages/cli/src/config/settings.test.ts
@@ -322,6 +322,166 @@ describe('Settings Loading and Merging', () => {
 
       consoleErrorSpy.mockRestore();
     });
+
+    it('should resolve environment variables in user settings', () => {
+      process.env.TEST_API_KEY = 'user_api_key_from_env';
+      const userSettingsContent = {
+        apiKey: '$TEST_API_KEY',
+        someUrl: 'https://test.com/${TEST_API_KEY}',
+      };
+      (mockFsExistsSync as Mock).mockImplementation(
+        (p: fs.PathLike) => p === USER_SETTINGS_PATH,
+      );
+      (fs.readFileSync as Mock).mockImplementation(
+        (p: fs.PathOrFileDescriptor) => {
+          if (p === USER_SETTINGS_PATH)
+            return JSON.stringify(userSettingsContent);
+          return '{}';
+        },
+      );
+
+      const settings = loadSettings(MOCK_WORKSPACE_DIR);
+      expect(settings.user.settings.apiKey).toBe('user_api_key_from_env');
+      expect(settings.user.settings.someUrl).toBe(
+        'https://test.com/user_api_key_from_env',
+      );
+      expect(settings.merged.apiKey).toBe('user_api_key_from_env');
+      delete process.env.TEST_API_KEY;
+    });
+
+    it('should resolve environment variables in workspace settings', () => {
+      process.env.WORKSPACE_ENDPOINT = 'workspace_endpoint_from_env';
+      const workspaceSettingsContent = {
+        endpoint: '${WORKSPACE_ENDPOINT}/api',
+        nested: { value: '$WORKSPACE_ENDPOINT' },
+      };
+      (mockFsExistsSync as Mock).mockImplementation(
+        (p: fs.PathLike) => p === MOCK_WORKSPACE_SETTINGS_PATH,
+      );
+      (fs.readFileSync as Mock).mockImplementation(
+        (p: fs.PathOrFileDescriptor) => {
+          if (p === MOCK_WORKSPACE_SETTINGS_PATH)
+            return JSON.stringify(workspaceSettingsContent);
+          return '{}';
+        },
+      );
+
+      const settings = loadSettings(MOCK_WORKSPACE_DIR);
+      expect(settings.workspace.settings.endpoint).toBe(
+        'workspace_endpoint_from_env/api',
+      );
+      expect(settings.workspace.settings.nested.value).toBe(
+        'workspace_endpoint_from_env',
+      );
+      expect(settings.merged.endpoint).toBe('workspace_endpoint_from_env/api');
+      delete process.env.WORKSPACE_ENDPOINT;
+    });
+
+    it('should prioritize workspace env variables over user env variables if keys clash after resolution', () => {
+      const userSettingsContent = { configValue: '$SHARED_VAR' };
+      const workspaceSettingsContent = { configValue: '$SHARED_VAR' };
+
+      (mockFsExistsSync as Mock).mockReturnValue(true);
+      const originalSharedVar = process.env.SHARED_VAR;
+      // Temporarily delete to ensure a clean slate for the test's specific manipulations
+      delete process.env.SHARED_VAR;
+
+      (fs.readFileSync as Mock).mockImplementation(
+        (p: fs.PathOrFileDescriptor) => {
+          if (p === USER_SETTINGS_PATH) {
+            process.env.SHARED_VAR = 'user_value_for_user_read'; // Set for user settings read
+            return JSON.stringify(userSettingsContent);
+          }
+          if (p === MOCK_WORKSPACE_SETTINGS_PATH) {
+            process.env.SHARED_VAR = 'workspace_value_for_workspace_read'; // Set for workspace settings read
+            return JSON.stringify(workspaceSettingsContent);
+          }
+          return '{}';
+        },
+      );
+
+      const settings = loadSettings(MOCK_WORKSPACE_DIR);
+
+      expect(settings.user.settings.configValue).toBe(
+        'user_value_for_user_read',
+      );
+      expect(settings.workspace.settings.configValue).toBe(
+        'workspace_value_for_workspace_read',
+      );
+      // Merged should take workspace's resolved value
+      expect(settings.merged.configValue).toBe(
+        'workspace_value_for_workspace_read',
+      );
+
+      // Restore original environment variable state
+      if (originalSharedVar !== undefined) {
+        process.env.SHARED_VAR = originalSharedVar;
+      } else {
+        delete process.env.SHARED_VAR; // Ensure it's deleted if it wasn't there before
+      }
+    });
+
+    it('should leave unresolved environment variables as is', () => {
+      const userSettingsContent = { apiKey: '$UNDEFINED_VAR' };
+      (mockFsExistsSync as Mock).mockImplementation(
+        (p: fs.PathLike) => p === USER_SETTINGS_PATH,
+      );
+      (fs.readFileSync as Mock).mockImplementation(
+        (p: fs.PathOrFileDescriptor) => {
+          if (p === USER_SETTINGS_PATH)
+            return JSON.stringify(userSettingsContent);
+          return '{}';
+        },
+      );
+
+      const settings = loadSettings(MOCK_WORKSPACE_DIR);
+      expect(settings.user.settings.apiKey).toBe('$UNDEFINED_VAR');
+      expect(settings.merged.apiKey).toBe('$UNDEFINED_VAR');
+    });
+
+    it('should resolve multiple environment variables in a single string', () => {
+      process.env.VAR_A = 'valueA';
+      process.env.VAR_B = 'valueB';
+      const userSettingsContent = { path: '/path/$VAR_A/${VAR_B}/end' };
+      (mockFsExistsSync as Mock).mockImplementation(
+        (p: fs.PathLike) => p === USER_SETTINGS_PATH,
+      );
+      (fs.readFileSync as Mock).mockImplementation(
+        (p: fs.PathOrFileDescriptor) => {
+          if (p === USER_SETTINGS_PATH)
+            return JSON.stringify(userSettingsContent);
+          return '{}';
+        },
+      );
+      const settings = loadSettings(MOCK_WORKSPACE_DIR);
+      expect(settings.user.settings.path).toBe('/path/valueA/valueB/end');
+      delete process.env.VAR_A;
+      delete process.env.VAR_B;
+    });
+
+    it('should resolve environment variables in arrays', () => {
+      process.env.ITEM_1 = 'item1_env';
+      process.env.ITEM_2 = 'item2_env';
+      const userSettingsContent = { list: ['$ITEM_1', '${ITEM_2}', 'literal'] };
+      (mockFsExistsSync as Mock).mockImplementation(
+        (p: fs.PathLike) => p === USER_SETTINGS_PATH,
+      );
+      (fs.readFileSync as Mock).mockImplementation(
+        (p: fs.PathOrFileDescriptor) => {
+          if (p === USER_SETTINGS_PATH)
+            return JSON.stringify(userSettingsContent);
+          return '{}';
+        },
+      );
+      const settings = loadSettings(MOCK_WORKSPACE_DIR);
+      expect(settings.user.settings.list).toEqual([
+        'item1_env',
+        'item2_env',
+        'literal',
+      ]);
+      delete process.env.ITEM_1;
+      delete process.env.ITEM_2;
+    });
   });
 
   describe('LoadedSettings class', () => {
diff --git a/packages/cli/src/config/settings.ts b/packages/cli/src/config/settings.ts
index db5dabb6..8205a018 100644
--- a/packages/cli/src/config/settings.ts
+++ b/packages/cli/src/config/settings.ts
@@ -98,6 +98,39 @@ export class LoadedSettings {
   }
 }
 
+function resolveEnvVarsInString(value: string): string {
+  const envVarRegex = /\$(?:(\w+)|{([^}]+)})/g; // Find $VAR_NAME or ${VAR_NAME}
+  return value.replace(envVarRegex, (match, varName1, varName2) => {
+    const varName = varName1 || varName2;
+    if (process && process.env && typeof process.env[varName] === 'string') {
+      return process.env[varName]!;
+    }
+    return match;
+  });
+}
+
+function resolveEnvVarsInObject<T>(obj: T): T {
+  if (typeof obj === 'string') {
+    return resolveEnvVarsInString(obj) as unknown as T;
+  }
+
+  if (Array.isArray(obj)) {
+    return obj.map((item) => resolveEnvVarsInObject(item)) as unknown as T;
+  }
+
+  if (obj && typeof obj === 'object') {
+    const newObj = { ...obj } as T;
+    for (const key in newObj) {
+      if (Object.prototype.hasOwnProperty.call(newObj, key)) {
+        newObj[key] = resolveEnvVarsInObject(newObj[key]);
+      }
+    }
+    return newObj;
+  }
+
+  return obj;
+}
+
 /**
  * Loads settings from user and workspace directories.
  * Project settings override user settings.
@@ -110,7 +143,10 @@ export function loadSettings(workspaceDir: string): LoadedSettings {
   try {
     if (fs.existsSync(USER_SETTINGS_PATH)) {
       const userContent = fs.readFileSync(USER_SETTINGS_PATH, 'utf-8');
-      userSettings = JSON.parse(stripJsonComments(userContent)) as Settings;
+      const parsedUserSettings = JSON.parse(
+        stripJsonComments(userContent),
+      ) as Settings;
+      userSettings = resolveEnvVarsInObject(parsedUserSettings);
       // Support legacy theme names
       if (userSettings.theme && userSettings.theme === 'VS') {
         userSettings.theme = DefaultLight.name;
@@ -132,9 +168,10 @@ export function loadSettings(workspaceDir: string): LoadedSettings {
   try {
     if (fs.existsSync(workspaceSettingsPath)) {
       const projectContent = fs.readFileSync(workspaceSettingsPath, 'utf-8');
-      workspaceSettings = JSON.parse(
+      const parsedWorkspaceSettings = JSON.parse(
         stripJsonComments(projectContent),
       ) as Settings;
+      workspaceSettings = resolveEnvVarsInObject(parsedWorkspaceSettings);
       if (workspaceSettings.theme && workspaceSettings.theme === 'VS') {
         workspaceSettings.theme = DefaultLight.name;
       } else if (