diff --git a/lib/internal/main/watch_mode.js b/lib/internal/main/watch_mode.js
index 6e2528e64737c7..60639efb45482d 100644
--- a/lib/internal/main/watch_mode.js
+++ b/lib/internal/main/watch_mode.js
@@ -33,7 +33,7 @@ markBootstrapComplete();
 // TODO(MoLow): Make kill signal configurable
 const kKillSignal = 'SIGTERM';
 const kShouldFilterModules = getOptionValue('--watch-path').length === 0;
-const kEnvFile = getOptionValue('--env-file');
+const kEnvFile = getOptionValue('--env-file') || getOptionValue('--env-file-if-exists');
 const kWatchedPaths = ArrayPrototypeMap(getOptionValue('--watch-path'), (path) => resolve(path));
 const kPreserveOutput = getOptionValue('--watch-preserve-output');
 const kCommand = ArrayPrototypeSlice(process.argv, 1);
diff --git a/test/sequential/test-watch-mode.mjs b/test/sequential/test-watch-mode.mjs
index 39bc7223dffdfc..324cdd10b3b4ef 100644
--- a/test/sequential/test-watch-mode.mjs
+++ b/test/sequential/test-watch-mode.mjs
@@ -242,6 +242,32 @@ describe('watch mode', { concurrency: !process.env.TEST_PARALLEL, timeout: 60_00
     }
   });
 
+  it('should load new env variables when --env-file-if-exists changes', async () => {
+    const envKey = `TEST_ENV_${Date.now()}`;
+    const envKey2 = `TEST_ENV_2_${Date.now()}`;
+    const jsFile = createTmpFile(`console.log('ENV: ' + process.env.${envKey} + '\\n' + 'ENV2: ' + process.env.${envKey2});`);
+    const envFile = createTmpFile(`${envKey}=value1`, '.env');
+    const { done, restart } = runInBackground({ args: ['--watch', `--env-file-if-exists=${envFile}`, jsFile] });
+
+    try {
+      await restart();
+      writeFileSync(envFile, `${envKey}=value1\n${envKey2}=newValue`);
+
+      // Second restart, after env change
+      const { stderr, stdout } = await restart();
+
+      assert.strictEqual(stderr, '');
+      assert.deepStrictEqual(stdout, [
+        `Restarting ${inspect(jsFile)}`,
+        'ENV: value1',
+        'ENV2: newValue',
+        `Completed running ${inspect(jsFile)}`,
+      ]);
+    } finally {
+      await done();
+    }
+  });
+
   it('should watch changes to a failing file', async () => {
     const file = createTmpFile('throw new Error("fails");');
     const { stderr, stdout } = await runWriteSucceed({