diff --git a/internal/config/config.go b/internal/config/config.go
index d4fae5fa65..ca83a30cf1 100644
--- a/internal/config/config.go
+++ b/internal/config/config.go
@@ -120,8 +120,12 @@ func Load(configFile string, overrides []string, overrideFiles []string) ([]byte
 // regex looking for ${...} notation strings
 var envRegex = regexp.MustCompile(`(?U:\${.*})`)
 
-// subEnvVars will look for any environment variables in the passed in string
+// SubEnvVars will look for any environment variables in the passed in string
 // with the syntax of ${VAR_NAME} and replace that string with ENV[VAR_NAME]
+func SubEnvVars(s string) string {
+	return subEnvVars(s)
+}
+
 func subEnvVars(s string) string {
 	updatedConfig := envRegex.ReplaceAllStringFunc(s, func(s string) string {
 		// Trim off the '${' and '}'
diff --git a/v1/plugins/discovery/discovery.go b/v1/plugins/discovery/discovery.go
index 68883e519c..15ea34d428 100644
--- a/v1/plugins/discovery/discovery.go
+++ b/v1/plugins/discovery/discovery.go
@@ -573,7 +573,8 @@ func evaluateBundle(ctx context.Context, id string, info *ast.Term, b *bundleApi
 		return nil, err
 	}
 
-	return config.ParseConfig(bs, id)
+	processedConf := cfg.SubEnvVars(string(bs))
+	return config.ParseConfig([]byte(processedConf), id)
 }
 
 type pluginSet struct {
diff --git a/v1/plugins/discovery/discovery_test.go b/v1/plugins/discovery/discovery_test.go
index 60dded35c3..d150b5216d 100644
--- a/v1/plugins/discovery/discovery_test.go
+++ b/v1/plugins/discovery/discovery_test.go
@@ -189,6 +189,69 @@ func TestProcessBundle(t *testing.T) {
 
 }
 
+func TestEnvVarSubstitution(t *testing.T) {
+
+	ctx := context.Background()
+
+	manager, err := plugins.New([]byte(`{
+		"services": {
+			"default": {
+				"url": "http://localhost:8181"
+			}
+		},
+		"discovery": {"name": "config"}
+	}`), "test-id", inmem.New())
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	t.Setenv("ENV1", "test1")
+	initialBundle := makeDataBundle(1, `
+		{
+			"config": {
+				"bundle": {"name": "${ENV1}"},
+				"status": {},
+				"decision_logs": {}
+			}
+		}
+	`)
+
+	disco, err := New(manager)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	ps, err := disco.processBundle(ctx, initialBundle)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	if len(ps.Start) != 3 || len(ps.Reconfig) != 0 {
+		t.Fatalf("Expected exactly three start events but got %v", ps)
+	}
+
+	actualConfig, err := manager.Config.ActiveConfig()
+	if err != nil {
+		t.Fatal(err)
+	}
+	assertConfig(t, actualConfig, fmt.Sprintf(`{
+	"bundle": {
+		"name": "test1"
+	},
+	"decision_logs": {},
+	"default_authorization_decision": "/system/authz/allow",
+	"default_decision": "/system/main",
+	"discovery": {
+		"name": "config"
+	},
+	"labels": {
+		"id": "test-id",
+		"version": %v
+	},
+	"status": {}
+}`, version.Version))
+}
+
 func TestProcessBundleV1Compatible(t *testing.T) {
 	ctx := context.Background()
 	popts := ast.ParserOptions{RegoVersion: ast.RegoV1}