diff --git a/lib/graph/Module.js b/lib/graph/Module.js
index 9609a49d4..d0de6e5ae 100644
--- a/lib/graph/Module.js
+++ b/lib/graph/Module.js
@@ -27,6 +27,16 @@ function clone(obj) {
  * @alias @ui5/project/graph/Module
  */
 class Module {
+	/**
+	 * Regular expression to identify environment variables in strings.
+	 * Environment variables have to be prefixed with "env:", e.g. "env:Path".
+	 *
+	 * @private
+	 * @static
+	 * @readonly
+	 */
+	static _ENVIRONMENT_VARIABLE_REGEX = /env:\S+/g;
+
 	/**
 	 * @param {object} parameters Module parameters
 	 * @param {string} parameters.id Unique ID for the module
@@ -339,6 +349,25 @@ class Module {
 			return configs;
 		}
 
+		try {
+			for (const config of configs) {
+				if (config.customConfiguration !== undefined) {
+					this._normalizeConfigValue(config, "customConfiguration");
+				}
+				if (config.builder?.customTasks !== undefined) {
+					this._normalizeConfigValue(config.builder, "customTasks");
+				}
+				if (config.server?.customMiddleware !== undefined) {
+					this._normalizeConfigValue(config.server, "customMiddleware");
+				}
+			}
+		} catch (err) {
+			throw new Error(
+				"Failed to parse configuration for project " +
+				`${this.getId()} at '${configPath}'\nError: ${err.message}`
+			);
+		}
+
 		// Validate found configurations with schema
 		// Validation is done again in the Specification class. But here we can reference the YAML file
 		// which adds helpful information like the line number
@@ -406,6 +435,45 @@ class Module {
 		return config;
 	}
 
+	/**
+	 * Normalizes the config value at object[key]. If the config value is an object / array,
+	 * this method will descend depth-first on its properties / elements. If the config value is a string
+	 * and contains any environment variables, they will be filled in at this point.
+	 *
+	 * @private
+	 * @param {(object|any[])} object An object or array
+	 * @param {(string|number)} key A key of the object or an index of the array
+	 */
+	_normalizeConfigValue(object, key) {
+		let value = object[key];
+		switch (typeof value) {
+		case "string": {
+			value = value.replace(Module._ENVIRONMENT_VARIABLE_REGEX, (substring) => {
+				const envVarName = substring.slice(4);
+				if (process.env[envVarName] === undefined) {
+					throw new Error(`The environment variable '${envVarName}' is not defined`);
+				}
+				return process.env[envVarName];
+			});
+			object[key] = value;
+			break;
+		}
+		case "object": {
+			if (value === null) break;
+			if (Array.isArray(value)) {
+				for (let i = 0; i < value.length; i++) {
+					this._normalizeConfigValue(value, i);
+				}
+			} else {
+				for (const key of Object.keys(value)) {
+					this._normalizeConfigValue(value, key);
+				}
+			}
+			break;
+		}
+		}
+	}
+
 	/**
 	* Resource Access
 	*/
diff --git a/test/fixtures/application.a/ui5-test-env.yaml b/test/fixtures/application.a/ui5-test-env.yaml
new file mode 100644
index 000000000..51ac6924d
--- /dev/null
+++ b/test/fixtures/application.a/ui5-test-env.yaml
@@ -0,0 +1,25 @@
+---
+specVersion: "3.0"
+type: application
+metadata:
+  name: application.a
+customConfiguration:
+  stringWithEnvVar: env:testEnvVarForString
+  objectWithEnvVar:
+    someKey: env:testEnvVarForObject
+  arrayWithEnvVar:
+    - a
+    - env:testEnvVarForArray
+    - c
+builder:
+  customTasks:
+    - name: foo
+      afterTask: replaceVersion
+      configuration:
+        builderWithEnvVar: env:testEnvVarForBuilder
+server:
+  customMiddleware:
+    - name: bar
+      afterMiddleware: compression
+      configuration:
+        serverWithEnvVar: env:testEnvVarForServer
diff --git a/test/lib/graph/Module.js b/test/lib/graph/Module.js
index c87aac185..d9a5824dd 100644
--- a/test/lib/graph/Module.js
+++ b/test/lib/graph/Module.js
@@ -408,6 +408,77 @@ test("Legacy patches are applied", async (t) => {
 			.map(testLegacyLibrary));
 });
 
+test.serial("Environment variables in configuration", async (t) => {
+	const testEnvVars = [
+		"testEnvVarForString",
+		"testEnvVarForObject",
+		"testEnvVarForArray",
+		"testEnvVarForBuilder",
+		"testEnvVarForServer",
+	].map((testEnvVar, index) => {
+		const wrapper = {
+			name: testEnvVar,
+			oldValue: process.env[testEnvVar],
+			newValue: `testValue${index}`,
+		};
+		process.env[testEnvVar] = wrapper.newValue;
+		return wrapper;
+	});
+	try {
+		const ui5Module = new Module({
+			id: "application.a.id",
+			version: "1.0.0",
+			modulePath: applicationAPath,
+			configPath: "ui5-test-env.yaml",
+		});
+		const {project} = await ui5Module.getSpecifications();
+		t.deepEqual(
+			project.getCustomConfiguration(),
+			{
+				stringWithEnvVar: testEnvVars[0].newValue,
+				objectWithEnvVar: {
+					someKey: testEnvVars[1].newValue,
+				},
+				arrayWithEnvVar: ["a", testEnvVars[2].newValue, "c"],
+			},
+			"Environment variables in custom configuration are filled in"
+		);
+		t.deepEqual(
+			project.getCustomTasks()?.[0]?.configuration,
+			{
+				builderWithEnvVar: testEnvVars[3].newValue,
+			},
+			"Environment variable in builder custom tasks is filled in"
+		);
+		t.deepEqual(
+			project.getCustomMiddleware()?.[0]?.configuration,
+			{
+				serverWithEnvVar: testEnvVars[4].newValue,
+			},
+			"Environment variable in server custom middleware is filled in"
+		);
+	} finally {
+		// Reset all env vars back to their value previous to testing
+		testEnvVars.forEach((wrapper) => {
+			if (wrapper.oldValue === undefined) {
+				delete process.env[wrapper.name];
+			} else {
+				process.env[wrapper.name] = wrapper.oldValue;
+			}
+		});
+	}
+});
+
+test.serial("Undefined environment variables in configuration", async (t) => {
+	const ui5Module = new Module({
+		id: "application.a.id",
+		version: "1.0.0",
+		modulePath: applicationAPath,
+		configPath: "ui5-test-env.yaml",
+	});
+	await t.throwsAsync(() => ui5Module.getSpecifications());
+});
+
 test("Invalid configuration in file", async (t) => {
 	const ui5Module = new Module({
 		id: "application.a.id",