diff --git a/src/features/execution/envVarUtils.ts b/src/features/execution/envVarUtils.ts
index 03c1e0ce1..9c9fab929 100644
--- a/src/features/execution/envVarUtils.ts
+++ b/src/features/execution/envVarUtils.ts
@@ -17,7 +17,7 @@ export function mergeEnvVariables(
             Object.keys(base).forEach((baseKey) => {
                 const baseValue = base[baseKey];
                 if (baseValue) {
-                    value = value?.replace(`\${${baseKey}}`, baseValue);
+                    value = value?.split(`\${${baseKey}}`).join(baseValue);
                 }
             });
             env[otherKey] = value;
diff --git a/src/test/features/execution/envVarUtils.unit.test.ts b/src/test/features/execution/envVarUtils.unit.test.ts
new file mode 100644
index 000000000..9bc9ef5cb
--- /dev/null
+++ b/src/test/features/execution/envVarUtils.unit.test.ts
@@ -0,0 +1,13 @@
+import * as assert from 'assert';
+import { mergeEnvVariables } from '../../../features/execution/envVarUtils';
+
+suite('Env Var Utils Tests', () => {
+    test('mergeEnvVariables substitutes every reference to a base variable', () => {
+        const env = mergeEnvVariables(
+            { ROOT: '/home/user', SECRET: 'pa$$word' },
+            { A: '${ROOT}/a:${ROOT}/b', B: '${SECRET}' },
+        );
+        assert.strictEqual(env.A, '/home/user/a:/home/user/b');
+        assert.strictEqual(env.B, 'pa$$word');
+    });
+});