diff --git a/apps/rush/bin/rush-pnpm b/apps/rush/bin/rush-pnpm
old mode 100644
new mode 100755
diff --git a/common/changes/@microsoft/rush/dotenv_2025-03-10-22-13.json b/common/changes/@microsoft/rush/dotenv_2025-03-10-22-13.json
new file mode 100644
index 00000000000..a0ee5311fd7
--- /dev/null
+++ b/common/changes/@microsoft/rush/dotenv_2025-03-10-22-13.json
@@ -0,0 +1,10 @@
+{
+  "changes": [
+    {
+      "packageName": "@microsoft/rush",
+      "comment": "Add support for setting environment variables via `<repo-root>/.env` and `~/.rush-user/.env` files.",
+      "type": "none"
+    }
+  ],
+  "packageName": "@microsoft/rush"
+}
\ No newline at end of file
diff --git a/common/config/rush/nonbrowser-approved-packages.json b/common/config/rush/nonbrowser-approved-packages.json
index 1bc39a45f06..9f344afc501 100644
--- a/common/config/rush/nonbrowser-approved-packages.json
+++ b/common/config/rush/nonbrowser-approved-packages.json
@@ -562,6 +562,10 @@
       "name": "doc-plugin-rush-stack",
       "allowedCategories": [ "libraries" ]
     },
+    {
+      "name": "dotenv",
+      "allowedCategories": [ "libraries" ]
+    },
     {
       "name": "eslint",
       "allowedCategories": [ "libraries", "tests", "vscode-extensions" ]
diff --git a/common/config/subspaces/build-tests-subspace/pnpm-lock.yaml b/common/config/subspaces/build-tests-subspace/pnpm-lock.yaml
index 4c2b9671427..be3df89044e 100644
--- a/common/config/subspaces/build-tests-subspace/pnpm-lock.yaml
+++ b/common/config/subspaces/build-tests-subspace/pnpm-lock.yaml
@@ -1406,7 +1406,7 @@ packages:
       fast-glob: 3.3.2
       is-glob: 4.0.3
       minimatch: 9.0.5
-      semver: 7.6.3
+      semver: 7.7.2
       ts-api-utils: 2.0.1(typescript@4.9.5)
       typescript: 4.9.5
     transitivePeerDependencies:
@@ -1425,7 +1425,7 @@ packages:
       fast-glob: 3.3.2
       is-glob: 4.0.3
       minimatch: 9.0.5
-      semver: 7.6.3
+      semver: 7.7.2
       ts-api-utils: 2.0.1(typescript@5.8.2)
       typescript: 5.8.2
     transitivePeerDependencies:
@@ -2462,6 +2462,10 @@ packages:
     dependencies:
       is-obj: 2.0.0
 
+  /dotenv@16.4.7:
+    resolution: {integrity: sha512-47qPchRCykZC03FhkYAhrvwU4xDBFIj1QPqaarj6mdM/hgUzfPHcpkHJOn3mJAufFeeAxAzeGsr5X0M4k6fLZQ==}
+    engines: {node: '>=12'}
+
   /dunder-proto@1.0.1:
     resolution: {integrity: sha512-KIN/nDJBQRcXw0MLVhZE9iQHmG68qAVIBg9CqmUYjmQIhgij9U5MFvrqkUL5FbtyyzZuOeOt0zdeRe4UY7ct+A==}
     engines: {node: '>= 0.4'}
@@ -7037,6 +7041,7 @@ packages:
       builtin-modules: 3.1.0
       cli-table: 0.3.11
       dependency-path: 9.2.8
+      dotenv: 16.4.7
       fast-glob: 3.3.2
       figures: 3.0.0
       git-repo-info: 2.1.1
diff --git a/common/config/subspaces/build-tests-subspace/repo-state.json b/common/config/subspaces/build-tests-subspace/repo-state.json
index 6c98abe1563..f78c092824a 100644
--- a/common/config/subspaces/build-tests-subspace/repo-state.json
+++ b/common/config/subspaces/build-tests-subspace/repo-state.json
@@ -1,6 +1,6 @@
 // DO NOT MODIFY THIS FILE MANUALLY BUT DO COMMIT IT. It is generated and used by Rush.
 {
-  "pnpmShrinkwrapHash": "e8913fc783fabd3c2743397b9e8494b7d39dce34",
+  "pnpmShrinkwrapHash": "5025d77ad0239eada0c6cfaf815da697ef809c24",
   "preferredVersionsHash": "550b4cee0bef4e97db6c6aad726df5149d20e7d9",
-  "packageJsonInjectedDependenciesHash": "8f951e62240e50b2601a58e625da39e294a7b50f"
+  "packageJsonInjectedDependenciesHash": "dd0075f3b513d4c2edb0a3192c25650cc1277d66"
 }
diff --git a/common/config/subspaces/default/pnpm-lock.yaml b/common/config/subspaces/default/pnpm-lock.yaml
index 575d03d83f5..6f0051c4816 100644
--- a/common/config/subspaces/default/pnpm-lock.yaml
+++ b/common/config/subspaces/default/pnpm-lock.yaml
@@ -3605,6 +3605,9 @@ importers:
       dependency-path:
         specifier: ~9.2.8
         version: 9.2.8
+      dotenv:
+        specifier: ~16.4.7
+        version: 16.4.7
       fast-glob:
         specifier: ~3.3.1
         version: 3.3.2
@@ -18537,10 +18540,9 @@ packages:
     engines: {node: '>=10'}
     dev: true
 
-  /dotenv@16.4.5:
-    resolution: {integrity: sha512-ZmdL2rui+eB2YwhsWzjInR8LldtZHGDoQ1ugH85ppHKwpUHL7j7rN0Ti9NCnGiQbhaZ11FpR+7ao1dNsmduNUg==}
+  /dotenv@16.4.7:
+    resolution: {integrity: sha512-47qPchRCykZC03FhkYAhrvwU4xDBFIj1QPqaarj6mdM/hgUzfPHcpkHJOn3mJAufFeeAxAzeGsr5X0M4k6fLZQ==}
     engines: {node: '>=12'}
-    dev: true
 
   /dotenv@8.6.0:
     resolution: {integrity: sha512-IrPdXQsk2BbzvCBGBOTmmSH5SodmqZNt4ERAZDmW4CT+tL8VtvinqywuANaFu4bOMWki16nqf0e4oC0QIaDr/g==}
@@ -23741,7 +23743,7 @@ packages:
         optional: true
     dependencies:
       chalk: 4.1.2
-      dotenv: 16.4.5
+      dotenv: 16.4.7
       kysely: 0.21.6
       micromatch: 4.0.5
       minimist: 1.2.8
diff --git a/common/config/subspaces/default/repo-state.json b/common/config/subspaces/default/repo-state.json
index 7d1c539babc..b98a571ba09 100644
--- a/common/config/subspaces/default/repo-state.json
+++ b/common/config/subspaces/default/repo-state.json
@@ -1,5 +1,5 @@
 // DO NOT MODIFY THIS FILE MANUALLY BUT DO COMMIT IT. It is generated and used by Rush.
 {
-  "pnpmShrinkwrapHash": "79f96eccf6ba5dbdba5a8478dc7fa309e2747884",
+  "pnpmShrinkwrapHash": "f115668be4d66c7667ba49d56d3426211048e376",
   "preferredVersionsHash": "550b4cee0bef4e97db6c6aad726df5149d20e7d9"
 }
diff --git a/common/reviews/api/rush-lib.api.md b/common/reviews/api/rush-lib.api.md
index a12154b0277..42c2823ebff 100644
--- a/common/reviews/api/rush-lib.api.md
+++ b/common/reviews/api/rush-lib.api.md
@@ -246,6 +246,7 @@ export class EnvironmentConfiguration {
     // @internal
     static _getRushGlobalFolderOverride(processEnv: IEnvironment): string | undefined;
     static get gitBinaryPath(): string | undefined;
+    static get hasBeenValidated(): boolean;
     // (undocumented)
     static parseBooleanEnvironmentVariable(name: string, value: string | undefined): boolean | undefined;
     static get pnpmStorePathOverride(): string | undefined;
diff --git a/libraries/rush-lib/package.json b/libraries/rush-lib/package.json
index 865b833ed4d..11cdff0a6ef 100644
--- a/libraries/rush-lib/package.json
+++ b/libraries/rush-lib/package.json
@@ -46,6 +46,7 @@
     "builtin-modules": "~3.1.0",
     "cli-table": "~0.3.1",
     "dependency-path": "~9.2.8",
+    "dotenv": "~16.4.7",
     "fast-glob": "~3.3.1",
     "figures": "3.0.0",
     "git-repo-info": "~2.1.0",
@@ -56,6 +57,7 @@
     "js-yaml": "~3.13.1",
     "npm-check": "~6.0.1",
     "npm-package-arg": "~6.1.0",
+    "pnpm-sync-lib": "0.3.2",
     "read-package-tree": "~5.1.5",
     "rxjs": "~6.6.7",
     "semver": "~7.5.4",
@@ -64,8 +66,7 @@
     "tapable": "2.2.1",
     "tar": "~6.2.1",
     "true-case-path": "~2.2.1",
-    "uuid": "~8.3.2",
-    "pnpm-sync-lib": "0.3.2"
+    "uuid": "~8.3.2"
   },
   "devDependencies": {
     "@pnpm/lockfile.types": "~1.0.3",
diff --git a/libraries/rush-lib/src/api/EnvironmentConfiguration.ts b/libraries/rush-lib/src/api/EnvironmentConfiguration.ts
index da883ddff60..47738daefcc 100644
--- a/libraries/rush-lib/src/api/EnvironmentConfiguration.ts
+++ b/libraries/rush-lib/src/api/EnvironmentConfiguration.ts
@@ -260,6 +260,13 @@ export class EnvironmentConfiguration {
 
   private static _tarBinaryPath: string | undefined;
 
+  /**
+   * If true, the environment configuration has been validated and initialized.
+   */
+  public static get hasBeenValidated(): boolean {
+    return EnvironmentConfiguration._hasBeenValidated;
+  }
+
   /**
    * An override for the common/temp folder path.
    */
diff --git a/libraries/rush-lib/src/api/RushUserConfiguration.ts b/libraries/rush-lib/src/api/RushUserConfiguration.ts
index a81c4080ed7..656bbd86480 100644
--- a/libraries/rush-lib/src/api/RushUserConfiguration.ts
+++ b/libraries/rush-lib/src/api/RushUserConfiguration.ts
@@ -52,10 +52,6 @@ export class RushUserConfiguration {
 
   public static getRushUserFolderPath(): string {
     const homeFolderPath: string = Utilities.getHomeFolder();
-    const rushUserSettingsFilePath: string = path.join(
-      homeFolderPath,
-      RushConstants.rushUserConfigurationFolderName
-    );
-    return rushUserSettingsFilePath;
+    return `${homeFolderPath}/${RushConstants.rushUserConfigurationFolderName}`;
   }
 }
diff --git a/libraries/rush-lib/src/cli/RushCommandLineParser.ts b/libraries/rush-lib/src/cli/RushCommandLineParser.ts
index 02c7bcb285a..d21b637f931 100644
--- a/libraries/rush-lib/src/cli/RushCommandLineParser.ts
+++ b/libraries/rush-lib/src/cli/RushCommandLineParser.ts
@@ -27,6 +27,8 @@ import {
 } from '../api/CommandLineConfiguration';
 
 import { AddAction } from './actions/AddAction';
+import { AlertAction } from './actions/AlertAction';
+import { BridgePackageAction } from './actions/BridgePackageAction';
 import { ChangeAction } from './actions/ChangeAction';
 import { CheckAction } from './actions/CheckAction';
 import { DeployAction } from './actions/DeployAction';
@@ -34,7 +36,9 @@ import { InitAction } from './actions/InitAction';
 import { InitAutoinstallerAction } from './actions/InitAutoinstallerAction';
 import { InitDeployAction } from './actions/InitDeployAction';
 import { InstallAction } from './actions/InstallAction';
+import { InstallAutoinstallerAction } from './actions/InstallAutoinstallerAction';
 import { LinkAction } from './actions/LinkAction';
+import { LinkPackageAction } from './actions/LinkPackageAction';
 import { ListAction } from './actions/ListAction';
 import { PublishAction } from './actions/PublishAction';
 import { PurgeAction } from './actions/PurgeAction';
@@ -43,12 +47,12 @@ import { ScanAction } from './actions/ScanAction';
 import { UnlinkAction } from './actions/UnlinkAction';
 import { UpdateAction } from './actions/UpdateAction';
 import { UpdateAutoinstallerAction } from './actions/UpdateAutoinstallerAction';
-import { VersionAction } from './actions/VersionAction';
 import { UpdateCloudCredentialsAction } from './actions/UpdateCloudCredentialsAction';
 import { UpgradeInteractiveAction } from './actions/UpgradeInteractiveAction';
-import { AlertAction } from './actions/AlertAction';
+import { VersionAction } from './actions/VersionAction';
 
 import { GlobalScriptAction } from './scriptActions/GlobalScriptAction';
+import { PhasedScriptAction } from './scriptActions/PhasedScriptAction';
 import type { IBaseScriptActionOptions } from './scriptActions/BaseScriptAction';
 
 import { Telemetry } from '../logic/Telemetry';
@@ -57,13 +61,10 @@ import { NodeJsCompatibility } from '../logic/NodeJsCompatibility';
 import { SetupAction } from './actions/SetupAction';
 import { type ICustomCommandLineConfigurationInfo, PluginManager } from '../pluginFramework/PluginManager';
 import { RushSession } from '../pluginFramework/RushSession';
-import { PhasedScriptAction } from './scriptActions/PhasedScriptAction';
 import type { IBuiltInPluginConfiguration } from '../pluginFramework/PluginLoader/BuiltInPluginLoader';
 import { InitSubspaceAction } from './actions/InitSubspaceAction';
 import { RushAlerts } from '../utilities/RushAlerts';
-import { InstallAutoinstallerAction } from './actions/InstallAutoinstallerAction';
-import { LinkPackageAction } from './actions/LinkPackageAction';
-import { BridgePackageAction } from './actions/BridgePackageAction';
+import { initializeDotEnv } from '../logic/dotenv';
 
 import { measureAsyncFn } from '../utilities/performance';
 
@@ -118,17 +119,24 @@ export class RushCommandLineParser extends CommandLineParser {
       description: 'Hide rush startup information'
     });
 
-    this._terminalProvider = new ConsoleTerminalProvider();
-    this._terminal = new Terminal(this._terminalProvider);
+    const terminalProvider: ConsoleTerminalProvider = new ConsoleTerminalProvider();
+    this._terminalProvider = terminalProvider;
+    const terminal: Terminal = new Terminal(this._terminalProvider);
+    this._terminal = terminal;
     this._rushOptions = this._normalizeOptions(options || {});
+    const { cwd, alreadyReportedNodeTooNewError, builtInPluginConfigurations } = this._rushOptions;
 
+    let rushJsonFilePath: string | undefined;
     try {
-      const rushJsonFilename: string | undefined = RushConfiguration.tryFindRushJsonLocation({
-        startingFolder: this._rushOptions.cwd,
+      rushJsonFilePath = RushConfiguration.tryFindRushJsonLocation({
+        startingFolder: cwd,
         showVerbose: !this._restrictConsoleOutput
       });
-      if (rushJsonFilename) {
-        this.rushConfiguration = RushConfiguration.loadFromConfigurationFile(rushJsonFilename);
+
+      initializeDotEnv(terminal, rushJsonFilePath);
+
+      if (rushJsonFilePath) {
+        this.rushConfiguration = RushConfiguration.loadFromConfigurationFile(rushJsonFilePath);
       }
     } catch (error) {
       this._reportErrorAndSetExitCode(error as Error);
@@ -136,7 +144,7 @@ export class RushCommandLineParser extends CommandLineParser {
 
     NodeJsCompatibility.warnAboutCompatibilityIssues({
       isRushLib: true,
-      alreadyReportedNodeTooNewError: this._rushOptions.alreadyReportedNodeTooNewError,
+      alreadyReportedNodeTooNewError,
       rushConfiguration: this.rushConfiguration
     });
 
@@ -144,13 +152,13 @@ export class RushCommandLineParser extends CommandLineParser {
 
     this.rushSession = new RushSession({
       getIsDebugMode: () => this.isDebug,
-      terminalProvider: this._terminalProvider
+      terminalProvider
     });
     this.pluginManager = new PluginManager({
       rushSession: this.rushSession,
       rushConfiguration: this.rushConfiguration,
-      terminal: this._terminal,
-      builtInPluginConfigurations: this._rushOptions.builtInPluginConfigurations,
+      terminal,
+      builtInPluginConfigurations,
       restrictConsoleOutput: this._restrictConsoleOutput,
       rushGlobalFolder: this.rushGlobalFolder
     });
diff --git a/libraries/rush-lib/src/cli/RushPnpmCommandLineParser.ts b/libraries/rush-lib/src/cli/RushPnpmCommandLineParser.ts
index f054e4bbe00..ffee5ae280d 100644
--- a/libraries/rush-lib/src/cli/RushPnpmCommandLineParser.ts
+++ b/libraries/rush-lib/src/cli/RushPnpmCommandLineParser.ts
@@ -33,6 +33,7 @@ import { Utilities } from '../utilities/Utilities';
 import type { Subspace } from '../api/Subspace';
 import type { PnpmOptionsConfiguration } from '../logic/pnpm/PnpmOptionsConfiguration';
 import { EnvironmentVariableNames } from '../api/EnvironmentConfiguration';
+import { initializeDotEnv } from '../logic/dotenv';
 
 const RUSH_SKIP_CHECKS_PARAMETER: string = '--rush-skip-checks';
 
@@ -78,10 +79,17 @@ export class RushPnpmCommandLineParser {
     this._terminal = terminal;
 
     // Are we in a Rush repo?
-    const rushConfiguration: RushConfiguration | undefined = RushConfiguration.tryLoadFromDefaultLocation({
+    const rushJsonFilePath: string | undefined = RushConfiguration.tryFindRushJsonLocation({
       // showVerbose is false because the logging message may break JSON output
       showVerbose: false
     });
+
+    initializeDotEnv(terminal, rushJsonFilePath);
+
+    const rushConfiguration: RushConfiguration | undefined = rushJsonFilePath
+      ? RushConfiguration.loadFromConfigurationFile(rushJsonFilePath)
+      : undefined;
+
     NodeJsCompatibility.warnAboutCompatibilityIssues({
       isRushLib: true,
       alreadyReportedNodeTooNewError: !!options.alreadyReportedNodeTooNewError,
diff --git a/libraries/rush-lib/src/cli/RushXCommandLine.ts b/libraries/rush-lib/src/cli/RushXCommandLine.ts
index 9ab971c89c9..4542b8dad60 100644
--- a/libraries/rush-lib/src/cli/RushXCommandLine.ts
+++ b/libraries/rush-lib/src/cli/RushXCommandLine.ts
@@ -25,6 +25,7 @@ import { Event } from '../api/EventHooks';
 import { EnvironmentVariableNames } from '../api/EnvironmentConfiguration';
 import { RushConstants } from '../logic/RushConstants';
 import { PnpmSyncUtilities } from '../utilities/PnpmSyncUtilities';
+import { initializeDotEnv } from '../logic/dotenv';
 
 interface IRushXCommandLineArguments {
   /**
@@ -77,18 +78,31 @@ export class RushXCommandLine {
   public static async launchRushXAsync(launcherVersion: string, options: ILaunchOptions): Promise<void> {
     try {
       const rushxArguments: IRushXCommandLineArguments = RushXCommandLine._parseCommandLineArguments();
-      const rushConfiguration: RushConfiguration | undefined = RushConfiguration.tryLoadFromDefaultLocation({
+      const rushJsonFilePath: string | undefined = RushConfiguration.tryFindRushJsonLocation({
         showVerbose: false
       });
+      const { isDebug, help, ignoreHooks } = rushxArguments;
+
+      const terminalProvider: ITerminalProvider = new ConsoleTerminalProvider({
+        debugEnabled: isDebug,
+        verboseEnabled: isDebug
+      });
+      const terminal: ITerminal = new Terminal(terminalProvider);
+
+      initializeDotEnv(terminal, rushJsonFilePath);
+
+      const rushConfiguration: RushConfiguration | undefined = rushJsonFilePath
+        ? RushConfiguration.loadFromConfigurationFile(rushJsonFilePath)
+        : undefined;
       const eventHooksManager: EventHooksManager | undefined = rushConfiguration
         ? new EventHooksManager(rushConfiguration)
         : undefined;
 
       const suppressHooks: boolean = process.env[EnvironmentVariableNames._RUSH_RECURSIVE_RUSHX_CALL] === '1';
-      const attemptHooks: boolean = !suppressHooks && !rushxArguments.help;
+      const attemptHooks: boolean = !suppressHooks && !help;
       if (attemptHooks) {
         try {
-          eventHooksManager?.handle(Event.preRushx, rushxArguments.isDebug, rushxArguments.ignoreHooks);
+          eventHooksManager?.handle(Event.preRushx, isDebug, ignoreHooks);
         } catch (error) {
           // eslint-disable-next-line no-console
           console.error(Colorize.red('PreRushx hook error: ' + (error as Error).message));
@@ -98,10 +112,10 @@ export class RushXCommandLine {
       // promise exception), so we start with the assumption that the exit code is 1
       // and set it to 0 only on success.
       process.exitCode = 1;
-      await RushXCommandLine._launchRushXInternalAsync(rushxArguments, rushConfiguration, options);
+      await RushXCommandLine._launchRushXInternalAsync(terminal, rushxArguments, rushConfiguration, options);
       if (attemptHooks) {
         try {
-          eventHooksManager?.handle(Event.postRushx, rushxArguments.isDebug, rushxArguments.ignoreHooks);
+          eventHooksManager?.handle(Event.postRushx, isDebug, ignoreHooks);
         } catch (error) {
           // eslint-disable-next-line no-console
           console.error(Colorize.red('PostRushx hook error: ' + (error as Error).message));
@@ -122,6 +136,7 @@ export class RushXCommandLine {
   }
 
   private static async _launchRushXInternalAsync(
+    terminal: ITerminal,
     rushxArguments: IRushXCommandLineArguments,
     rushConfiguration: RushConfiguration | undefined,
     options: ILaunchOptions
@@ -218,12 +233,6 @@ export class RushXCommandLine {
       }
     });
 
-    const terminalProvider: ITerminalProvider = new ConsoleTerminalProvider({
-      debugEnabled: rushxArguments.isDebug,
-      verboseEnabled: rushxArguments.isDebug
-    });
-    const terminal: ITerminal = new Terminal(terminalProvider);
-
     if (rushConfiguration?.isPnpm && rushConfiguration?.experimentsConfiguration) {
       const { configuration: experiments } = rushConfiguration?.experimentsConfiguration;
 
diff --git a/libraries/rush-lib/src/cli/actions/test/AddAction.test.ts b/libraries/rush-lib/src/cli/actions/test/AddAction.test.ts
index f6878621cc8..e41934ed1f0 100644
--- a/libraries/rush-lib/src/cli/actions/test/AddAction.test.ts
+++ b/libraries/rush-lib/src/cli/actions/test/AddAction.test.ts
@@ -3,11 +3,13 @@
 
 import '../../test/mockRushCommandLineParser';
 
+import { LockFile } from '@rushstack/node-core-library';
+
 import { PackageJsonUpdater } from '../../../logic/PackageJsonUpdater';
 import type { IPackageJsonUpdaterRushAddOptions } from '../../../logic/PackageJsonUpdaterTypes';
 import { RushCommandLineParser } from '../../RushCommandLineParser';
 import { AddAction } from '../AddAction';
-import { LockFile } from '@rushstack/node-core-library';
+import { EnvironmentConfiguration } from '../../../api/EnvironmentConfiguration';
 
 describe(AddAction.name, () => {
   describe('basic "rush add" tests', () => {
@@ -32,6 +34,7 @@ describe(AddAction.name, () => {
       jest.clearAllMocks();
       process.exitCode = oldExitCode;
       process.argv = oldArgs;
+      EnvironmentConfiguration.reset();
     });
 
     describe("'add' action", () => {
diff --git a/libraries/rush-lib/src/cli/actions/test/RemoveAction.test.ts b/libraries/rush-lib/src/cli/actions/test/RemoveAction.test.ts
index 8fe5535db79..f6a32ac87b4 100644
--- a/libraries/rush-lib/src/cli/actions/test/RemoveAction.test.ts
+++ b/libraries/rush-lib/src/cli/actions/test/RemoveAction.test.ts
@@ -3,13 +3,15 @@
 
 import '../../test/mockRushCommandLineParser';
 
+import { LockFile } from '@rushstack/node-core-library';
+
 import { PackageJsonUpdater } from '../../../logic/PackageJsonUpdater';
 import type { IPackageJsonUpdaterRushRemoveOptions } from '../../../logic/PackageJsonUpdaterTypes';
 import { RushCommandLineParser } from '../../RushCommandLineParser';
 import { RemoveAction } from '../RemoveAction';
 import { VersionMismatchFinderProject } from '../../../logic/versionMismatch/VersionMismatchFinderProject';
 import { DependencyType } from '../../../api/PackageJsonEditor';
-import { LockFile } from '@rushstack/node-core-library';
+import { EnvironmentConfiguration } from '../../../api/EnvironmentConfiguration';
 
 describe(RemoveAction.name, () => {
   describe('basic "rush remove" tests', () => {
@@ -36,6 +38,7 @@ describe(RemoveAction.name, () => {
       jest.clearAllMocks();
       process.exitCode = oldExitCode;
       process.argv = oldArgs;
+      EnvironmentConfiguration.reset();
     });
 
     describe("'remove' action", () => {
diff --git a/libraries/rush-lib/src/cli/test/CommandLineHelp.test.ts b/libraries/rush-lib/src/cli/test/CommandLineHelp.test.ts
index 401fa92d07e..78ce4ee8557 100644
--- a/libraries/rush-lib/src/cli/test/CommandLineHelp.test.ts
+++ b/libraries/rush-lib/src/cli/test/CommandLineHelp.test.ts
@@ -4,6 +4,7 @@
 import { AnsiEscape } from '@rushstack/terminal';
 
 import { RushCommandLineParser } from '../RushCommandLineParser';
+import { EnvironmentConfiguration } from '../../api/EnvironmentConfiguration';
 
 describe('CommandLineHelp', () => {
   let oldCwd: string | undefined;
@@ -33,6 +34,8 @@ describe('CommandLineHelp', () => {
     if (oldCwd) {
       process.chdir(oldCwd);
     }
+
+    EnvironmentConfiguration.reset();
   });
 
   it('prints the global help', () => {
diff --git a/libraries/rush-lib/src/cli/test/RushCommandLineParser.test.ts b/libraries/rush-lib/src/cli/test/RushCommandLineParser.test.ts
index 6219af51d54..a8122091dd1 100644
--- a/libraries/rush-lib/src/cli/test/RushCommandLineParser.test.ts
+++ b/libraries/rush-lib/src/cli/test/RushCommandLineParser.test.ts
@@ -32,6 +32,7 @@ import type { IDetailedRepoState } from '@rushstack/package-deps-hash';
 import { Autoinstaller } from '../../logic/Autoinstaller';
 import type { ITelemetryData } from '../../logic/Telemetry';
 import { getCommandLineParserInstanceAsync } from './TestUtils';
+import { EnvironmentConfiguration } from '../../api/EnvironmentConfiguration';
 
 function pathEquals(actual: string, expected: string): void {
   expect(Path.convertToSlashes(actual)).toEqual(Path.convertToSlashes(expected));
@@ -45,6 +46,7 @@ describe('RushCommandLineParser', () => {
   describe('execute', () => {
     afterEach(() => {
       jest.clearAllMocks();
+      EnvironmentConfiguration.reset();
     });
 
     describe('in basic repo', () => {
diff --git a/libraries/rush-lib/src/cli/test/RushPluginCommandLineParameters.test.ts b/libraries/rush-lib/src/cli/test/RushPluginCommandLineParameters.test.ts
index a48e06de2be..c8141d11cd9 100644
--- a/libraries/rush-lib/src/cli/test/RushPluginCommandLineParameters.test.ts
+++ b/libraries/rush-lib/src/cli/test/RushPluginCommandLineParameters.test.ts
@@ -7,6 +7,7 @@ import path from 'path';
 import { FileSystem, LockFile } from '@rushstack/node-core-library';
 import { RushCommandLineParser } from '../RushCommandLineParser';
 import { Autoinstaller } from '../../logic/Autoinstaller';
+import { EnvironmentConfiguration } from '../../api/EnvironmentConfiguration';
 
 describe('PluginCommandLineParameters', () => {
   let originCWD: string | undefined;
@@ -61,6 +62,8 @@ describe('PluginCommandLineParameters', () => {
       originCWD = undefined;
       process.argv = _argv;
     }
+
+    EnvironmentConfiguration.reset();
   });
 
   afterAll(() => {
diff --git a/libraries/rush-lib/src/cli/test/RushXCommandLine.test.ts b/libraries/rush-lib/src/cli/test/RushXCommandLine.test.ts
index 35e2c2b5c1e..0bb398c4698 100644
--- a/libraries/rush-lib/src/cli/test/RushXCommandLine.test.ts
+++ b/libraries/rush-lib/src/cli/test/RushXCommandLine.test.ts
@@ -1,6 +1,10 @@
 // Copyright (c) Microsoft Corporation. All rights reserved. Licensed under the MIT license.
 // See LICENSE in the project root for license information.
 
+jest.mock('../../logic/dotenv', () => ({
+  initializeDotEnv: () => {}
+}));
+
 import { PackageJsonLookup } from '@rushstack/node-core-library';
 
 import { Utilities } from '../../utilities/Utilities';
@@ -61,7 +65,8 @@ describe(RushXCommandLine.name, () => {
         return projects.find((project) => project.projectFolder === path);
       }
     } as RushConfiguration;
-    jest.spyOn(RushConfiguration, 'tryLoadFromDefaultLocation').mockReturnValue(rushConfiguration);
+    jest.spyOn(RushConfiguration, 'tryFindRushJsonLocation').mockReturnValue('/Users/jdoe/bigrepo');
+    jest.spyOn(RushConfiguration, 'loadFromConfigurationFile').mockReturnValue(rushConfiguration);
 
     // Mock command execution
     executeLifecycleCommandMock = jest.spyOn(Utilities, 'executeLifecycleCommand');
diff --git a/libraries/rush-lib/src/logic/dotenv.ts b/libraries/rush-lib/src/logic/dotenv.ts
new file mode 100644
index 00000000000..cee2f677f28
--- /dev/null
+++ b/libraries/rush-lib/src/logic/dotenv.ts
@@ -0,0 +1,28 @@
+// Copyright (c) Microsoft Corporation. All rights reserved. Licensed under the MIT license.
+// See LICENSE in the project root for license information.
+
+import path from 'node:path';
+import dotenv from 'dotenv';
+import type { ITerminal } from '@rushstack/terminal';
+
+import { RushUserConfiguration } from '../api/RushUserConfiguration';
+import { EnvironmentConfiguration } from '../api/EnvironmentConfiguration';
+
+export function initializeDotEnv(terminal: ITerminal, rushJsonFilePath: string | undefined): void {
+  if (EnvironmentConfiguration.hasBeenValidated) {
+    throw terminal.writeWarningLine(
+      `The ${EnvironmentConfiguration.name} was initialized before .env files were loaded. Rush environment ` +
+        'variables may have unexpected values.'
+    );
+  }
+
+  if (rushJsonFilePath) {
+    const rushJsonFolder: string = path.dirname(rushJsonFilePath);
+    dotenv.config({ path: `${rushJsonFolder}/.env` });
+  }
+
+  const rushUserFolder: string = RushUserConfiguration.getRushUserFolderPath();
+  dotenv.config({ path: `${rushUserFolder}/.env` });
+
+  // TODO: Consider adding support for repo-specific `.rush-user` `.env` files.
+}
diff --git a/libraries/rush-lib/src/logic/test/CredentialCache.test.ts b/libraries/rush-lib/src/logic/test/CredentialCache.test.ts
index fe7e92fae97..46ce1bf6ccd 100644
--- a/libraries/rush-lib/src/logic/test/CredentialCache.test.ts
+++ b/libraries/rush-lib/src/logic/test/CredentialCache.test.ts
@@ -5,7 +5,7 @@ import { LockFile, Async, FileSystem } from '@rushstack/node-core-library';
 import { RushUserConfiguration } from '../../api/RushUserConfiguration';
 import { CredentialCache, type ICredentialCacheOptions } from '../CredentialCache';
 
-const FAKE_RUSH_USER_FOLDER: string = '~/.rush-user';
+const FAKE_RUSH_USER_FOLDER: string = 'temp/.rush-user';
 
 interface IPathsTestCase extends Required<Pick<ICredentialCacheOptions, 'cacheFilePath'>> {
   testCaseName: string;
diff --git a/libraries/rush-lib/src/utilities/Utilities.ts b/libraries/rush-lib/src/utilities/Utilities.ts
index d521640b543..14436e687fc 100644
--- a/libraries/rush-lib/src/utilities/Utilities.ts
+++ b/libraries/rush-lib/src/utilities/Utilities.ts
@@ -155,20 +155,28 @@ interface ICreateEnvironmentForRushCommandOptions {
 export class Utilities {
   public static syncNpmrc: typeof syncNpmrc = syncNpmrc;
 
+  private static _homeFolder: string | undefined;
+
   /**
    * Get the user's home directory. On windows this looks something like "C:\users\username\" and on UNIX
    * this looks something like "/home/username/"
    */
   public static getHomeFolder(): string {
-    const unresolvedUserFolder: string | undefined =
-      process.env[process.platform === 'win32' ? 'USERPROFILE' : 'HOME'];
-    const dirError: string = "Unable to determine the current user's home directory";
-    if (unresolvedUserFolder === undefined) {
-      throw new Error(dirError);
-    }
-    const homeFolder: string = path.resolve(unresolvedUserFolder);
-    if (!FileSystem.exists(homeFolder)) {
-      throw new Error(dirError);
+    let homeFolder: string | undefined = Utilities._homeFolder;
+    if (!homeFolder) {
+      const unresolvedUserFolder: string | undefined =
+        process.env[process.platform === 'win32' ? 'USERPROFILE' : 'HOME'];
+      const dirError: string = "Unable to determine the current user's home directory";
+      if (unresolvedUserFolder === undefined) {
+        throw new Error(dirError);
+      }
+
+      homeFolder = path.resolve(unresolvedUserFolder);
+      if (!FileSystem.exists(homeFolder)) {
+        throw new Error(dirError);
+      }
+
+      Utilities._homeFolder = homeFolder;
     }
 
     return homeFolder;