diff --git a/README.md b/README.md
index 796166ec..964e11ca 100644
--- a/README.md
+++ b/README.md
@@ -308,6 +308,71 @@ Just like with the `docker compose` CLI, you can use the global `--file | -f` co
 
 In addition to the project compose files, an optional Preevy-specific Compose file can be used. Preevy attempts to load files named `compose.preevy.yaml`, `compose.preevy.yml`, `docker-compose.preevy.yaml` or `docker-compose.preevy.yml`. If one of these exists, it is loaded BEFORE the project composes file(s). The name of the Preevy-specific compose file can be overridden by specifying the argument `--system-compose-file`.
 
+### Environment Variables
+
+Preevy supports all Docker Compose environment variable features. You can pass environment variables to your preview environments in multiple ways:
+
+#### Setting environment variables in Compose files
+
+You can set environment variables directly in your `docker-compose.yml` or `compose.yml` files using standard Docker Compose syntax:
+
+```yaml
+services:
+  web:
+    environment:
+      # Assign a fixed value to MY_ENV_VAR
+      - MY_ENV_VAR=production
+      
+      # Load the value of EXTERNAL_ENV_VAR from the host environment
+      # and assign it to MY_ENV_VAR in the container
+      - MY_ENV_VAR=${EXTERNAL_ENV_VAR}
+      
+      # Pass MY_ENV_VAR directly from the host environment to the container
+      # (equivalent to MY_ENV_VAR=${MY_ENV_VAR} if MY_ENV_VAR exists in the host environment)
+      - MY_ENV_VAR
+      
+      # Set MY_ENV_VAR to the value from the host if it exists, 
+      # otherwise use "production" as a default value in the container
+      - MY_ENV_VAR=${MY_ENV_VAR:-production}
+```
+
+#### Using .env files
+
+Docker Compose supports loading environment variables from `.env` files. Preevy supports this feature:
+
+```yaml
+services:
+  web:
+    env_file:
+      - .env              # Base environment variables
+      - .env.override     # Override specific values
+      - ${ENV_NAME}.env   # Environment-specific variables (e.g., dev.env, prod.env)
+```
+
+#### Passing environment variables from the host
+
+When running `preevy up`, environment variables from your local machine (or CI environment) are automatically available for Docker Compose interpolation. This means you can:
+
+1. Set environment variables in your terminal:
+   ```bash
+   export DATABASE_URL=postgres://user:pass@host:5432/db
+   export API_KEY=your-secret-key
+   preevy up
+   ```
+
+2. Set environment variables in your CI environment and they will be automatically passed through to your preview environment.
+
+3. Use environment variables in GitHub Actions:
+   ```yaml
+   - name: Deploy preview environment
+     uses: livecycle/preevy-up-action@v2.4.0
+     env:
+       DATABASE_URL: ${{ secrets.DATABASE_URL }}
+       API_KEY: ${{ secrets.API_KEY }}
+   ```
+
+For more details, see the [Docker Compose environment variables documentation](https://docs.docker.com/compose/how-tos/environment-variables/set-environment-variables/).
+
 ### `x-preevy`: Preevy-specific configuration in the Compose file(s)
 
 A `x-preevy` top-level element can be added to the Compose file(s).
diff --git a/packages/cli/docs/up.md b/packages/cli/docs/up.md
index c384498b..e42e19a3 100644
--- a/packages/cli/docs/up.md
+++ b/packages/cli/docs/up.md
@@ -122,6 +122,33 @@ LIGHTSAIL DRIVER FLAGS
 DESCRIPTION
   Bring up a preview environment
 
+ENVIRONMENT VARIABLES
+  Preevy supports all Docker Compose environment variable features:
+  
+  • Environment variables set in your shell are automatically available to Docker Compose
+  • Use .env files to define environment variables
+  • Set environment variables directly in your compose files
+  
+  Examples:
+  
+  1. Pass environment variables from your shell:
+     $ export DATABASE_URL=postgres://localhost/mydb
+     $ preevy up
+  
+  2. Use environment variable substitution in compose files:
+     services:
+       web:
+         environment:
+           - DATABASE_URL=${DATABASE_URL}
+           - NODE_ENV=${NODE_ENV:-production}
+  
+  3. Use .env files:
+     services:
+       web:
+         env_file:
+           - .env
+           - .env.production
+
 FLAG DESCRIPTIONS
   --id=<value>  Environment id
 
diff --git a/site/docs/cli-reference/up.md b/site/docs/cli-reference/up.md
index c384498b..e42e19a3 100644
--- a/site/docs/cli-reference/up.md
+++ b/site/docs/cli-reference/up.md
@@ -122,6 +122,33 @@ LIGHTSAIL DRIVER FLAGS
 DESCRIPTION
   Bring up a preview environment
 
+ENVIRONMENT VARIABLES
+  Preevy supports all Docker Compose environment variable features:
+  
+  • Environment variables set in your shell are automatically available to Docker Compose
+  • Use .env files to define environment variables
+  • Set environment variables directly in your compose files
+  
+  Examples:
+  
+  1. Pass environment variables from your shell:
+     $ export DATABASE_URL=postgres://localhost/mydb
+     $ preevy up
+  
+  2. Use environment variable substitution in compose files:
+     services:
+       web:
+         environment:
+           - DATABASE_URL=${DATABASE_URL}
+           - NODE_ENV=${NODE_ENV:-production}
+  
+  3. Use .env files:
+     services:
+       web:
+         env_file:
+           - .env
+           - .env.production
+
 FLAG DESCRIPTIONS
   --id=<value>  Environment id
 
diff --git a/site/docs/recipes/environment-variables.md b/site/docs/recipes/environment-variables.md
new file mode 100644
index 00000000..f648e058
--- /dev/null
+++ b/site/docs/recipes/environment-variables.md
@@ -0,0 +1,279 @@
+---
+title: "Environment Variables"
+sidebar_position: 4
+---
+
+## Overview
+
+Preevy fully supports Docker Compose environment variable features, allowing you to pass configuration and secrets to your preview environments in multiple ways. This guide covers all the methods available for managing environment variables in your Preevy preview environments.
+
+## Setting environment variables in Compose files
+
+The most common way to set environment variables is directly in your `docker-compose.yml` or `compose.yml` files using standard Docker Compose syntax:
+
+```yaml
+services:
+  web:
+    image: node:18
+    environment:
+      # Assign a fixed value
+      - NODE_ENV=production
+      
+      # Load value from host environment variable
+      - DATABASE_URL=${DATABASE_URL}
+      
+      # Pass variable directly from host (if it exists)
+      - API_KEY
+      
+      # Use default value if host variable is not set
+      - PORT=${PORT:-3000}
+      - DEBUG=${DEBUG:-false}
+```
+
+## Using .env files
+
+Docker Compose supports loading environment variables from `.env` files, and Preevy fully supports this feature:
+
+### Single .env file
+
+```yaml
+services:
+  web:
+    env_file:
+      - .env
+```
+
+### Multiple .env files
+
+```yaml
+services:
+  web:
+    env_file:
+      - .env              # Base environment variables
+      - .env.override     # Override specific values
+      - ${ENV_NAME}.env   # Environment-specific (e.g., dev.env, prod.env)
+```
+
+### Example .env file
+
+```bash
+# .env
+NODE_ENV=production
+DATABASE_URL=postgres://user:password@localhost:5432/myapp
+API_SECRET=your-secret-key-here
+DEBUG=true
+```
+
+## Passing environment variables from the host
+
+When running `preevy up`, environment variables from your local machine (or CI environment) are automatically available for Docker Compose interpolation.
+
+### From your terminal
+
+```bash
+# Set environment variables and run Preevy
+export DATABASE_URL=postgres://user:pass@host:5432/db
+export API_KEY=your-secret-key
+export NODE_ENV=production
+
+preevy up
+```
+
+### In your CI environment
+
+Environment variables set in your CI environment are automatically passed through:
+
+#### GitHub Actions
+
+```yaml
+name: Deploy Preevy environment
+
+on:
+  pull_request:
+    types: [opened, reopened, synchronize]
+
+jobs:
+  deploy:
+    runs-on: ubuntu-latest
+    steps:
+      - uses: actions/checkout@v3
+      
+      - uses: livecycle/preevy-up-action@v2.4.0
+        env:
+          DATABASE_URL: ${{ secrets.DATABASE_URL }}
+          API_KEY: ${{ secrets.API_KEY }}
+          NODE_ENV: production
+```
+
+#### Other CI systems
+
+Most CI systems allow you to set environment variables that will be available to Preevy:
+
+```bash
+# Environment variables are automatically available
+preevy up
+```
+
+## Environment-specific configurations
+
+You can create different configurations for different environments:
+
+### Using environment-specific .env files
+
+```yaml
+services:
+  web:
+    env_file:
+      - .env.${ENVIRONMENT:-development}
+```
+
+Then set the `ENVIRONMENT` variable:
+
+```bash
+# For staging
+export ENVIRONMENT=staging
+preevy up
+
+# For production
+export ENVIRONMENT=production
+preevy up
+```
+
+### Using conditional values in Compose files
+
+```yaml
+services:
+  web:
+    environment:
+      - NODE_ENV=${NODE_ENV:-development}
+      - LOG_LEVEL=${LOG_LEVEL:-info}
+      - DATABASE_URL=${DATABASE_URL:-sqlite://localhost/dev.db}
+  
+  database:
+    image: ${DB_IMAGE:-postgres:13}
+    environment:
+      - POSTGRES_DB=${POSTGRES_DB:-myapp_dev}
+      - POSTGRES_USER=${POSTGRES_USER:-dev_user}
+```
+
+## Best practices
+
+### 1. Use default values for development
+
+Always provide sensible defaults for local development:
+
+```yaml
+environment:
+  - API_URL=${API_URL:-http://localhost:3000}
+  - DATABASE_URL=${DATABASE_URL:-sqlite://localhost/dev.db}
+```
+
+### 2. Keep secrets out of compose files
+
+Never hardcode secrets in your compose files. Always use environment variables:
+
+```yaml
+# ❌ Don't do this
+environment:
+  - API_SECRET=hardcoded-secret
+
+# ✅ Do this
+environment:
+  - API_SECRET=${API_SECRET}
+```
+
+### 3. Document required environment variables
+
+Create a `.env.example` file to document required variables:
+
+```bash
+# .env.example
+DATABASE_URL=postgres://user:password@host:5432/database
+API_SECRET=your-secret-key-here
+NODE_ENV=development
+DEBUG=false
+```
+
+### 4. Use environment-specific configurations
+
+For different environments, use different approaches:
+
+```yaml
+# Development: use .env file with defaults
+env_file:
+  - .env
+
+# Staging/Production: use host environment variables
+environment:
+  - DATABASE_URL=${DATABASE_URL}
+  - API_SECRET=${API_SECRET}
+```
+
+## Troubleshooting
+
+### Environment variables not being interpolated
+
+If environment variables aren't being substituted, check:
+
+1. **Variable naming**: Environment variable names are case-sensitive
+2. **Syntax**: Use `${VARIABLE_NAME}` or `${VARIABLE_NAME:-default}`
+3. **Quoting**: Avoid quotes around variable references in YAML
+
+```yaml
+# ❌ Incorrect
+environment:
+  - "DATABASE_URL='${DATABASE_URL}'"
+
+# ✅ Correct
+environment:
+  - DATABASE_URL=${DATABASE_URL}
+```
+
+### Variables not available in containers
+
+If environment variables are set in your compose file but not available in containers:
+
+1. Check your service definition syntax
+2. Ensure the compose file is valid YAML
+3. Verify environment variables are set in your host environment
+
+### Debugging environment variables
+
+Use `docker-compose config` to see the resolved configuration:
+
+```bash
+# See the resolved compose configuration with interpolated variables
+export NODE_ENV=production
+docker-compose config
+```
+
+## Advanced usage
+
+### Using environment variables in build context
+
+Environment variables can also be used during the build process:
+
+```yaml
+services:
+  web:
+    build:
+      context: .
+      args:
+        - NODE_ENV=${NODE_ENV:-production}
+        - BUILD_VERSION=${BUILD_VERSION}
+```
+
+### Dynamic service configuration
+
+```yaml
+services:
+  web:
+    image: ${WEB_IMAGE:-node:18}
+    ports:
+      - "${WEB_PORT:-3000}:3000"
+    environment:
+      - NODE_ENV=${NODE_ENV:-development}
+      - PORT=3000
+```
+
+For more information about Docker Compose environment variable features, see the [official Docker Compose documentation](https://docs.docker.com/compose/how-tos/environment-variables/set-environment-variables/).
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