diff --git a/cli-plugins/manager/manager.go b/cli-plugins/manager/manager.go
index 48a0db34173d..8ca3354935eb 100644
--- a/cli-plugins/manager/manager.go
+++ b/cli-plugins/manager/manager.go
@@ -41,9 +41,8 @@ func (e errPluginNotFound) Error() string {
 // [ConfigFile.CLIPluginsExtraDirs]: https://pkg.go.dev/github.com/docker/cli@v26.1.4+incompatible/cli/config/configfile#ConfigFile.CLIPluginsExtraDirs
 func getPluginDirs(cfg *configfile.ConfigFile) []string {
 	var pluginDirs []string
-
 	if cfg != nil {
-		pluginDirs = append(pluginDirs, cfg.CLIPluginsExtraDirs...)
+		pluginDirs = append(pluginDirs, expandEnvVars(cfg.CLIPluginsExtraDirs)...)
 	}
 	pluginDir := filepath.Join(config.Dir(), "cli-plugins")
 	pluginDirs = append(pluginDirs, pluginDir)
@@ -51,6 +50,15 @@ func getPluginDirs(cfg *configfile.ConfigFile) []string {
 	return pluginDirs
 }
 
+// Resolve statements like $HOME in plugin directory paths
+func expandEnvVars(pluginDirs []string) []string {
+	var replacedPluginDirs []string
+	for _, dir := range pluginDirs {
+		replacedPluginDirs = append(replacedPluginDirs, os.ExpandEnv(dir))
+	}
+	return replacedPluginDirs
+}
+
 func addPluginCandidatesFromDir(res map[string][]string, d string) {
 	dentries, err := os.ReadDir(d)
 	// Silently ignore any directories which we cannot list (e.g. due to
diff --git a/cli-plugins/manager/manager_test.go b/cli-plugins/manager/manager_test.go
index 16c43b29d338..ae279c69ce0a 100644
--- a/cli-plugins/manager/manager_test.go
+++ b/cli-plugins/manager/manager_test.go
@@ -86,6 +86,30 @@ func TestListPluginCandidatesEmpty(t *testing.T) {
 	assert.Assert(t, len(candidates) == 0)
 }
 
+func TestPluginDirEnvironmentVariableExpansion(t *testing.T) {
+	pluginDir := "plugins1"
+	t.Setenv("MY_PLUGIN_DIR", pluginDir)
+	dir := fs.NewDir(t, t.Name(),
+		fs.WithDir("${MY_PLUGIN_DIR}",
+			fs.WithFile("docker-plugin1", ""),
+		),
+	)
+	defer dir.Remove()
+
+	t.Setenv("DOCKER_CLI_E2E_PLUGINS_EXTRA_DIRS", dir.Join(pluginDir))
+
+	cli := test.NewFakeCli(nil)
+	cli.SetConfigFile(&configfile.ConfigFile{CLIPluginsExtraDirs: []string{"$DOCKER_CLI_E2E_PLUGINS_EXTRA_DIRS"}})
+
+	pluginDirs := getPluginDirs(cli.ConfigFile())
+	expected := []string{
+		dir.Join(pluginDir),
+		filepath.Join(config.Dir(), "cli-plugins"),
+	}
+	expected = append(expected, defaultSystemPluginDirs...)
+	assert.DeepEqual(t, expected, pluginDirs)
+}
+
 // Regression test for https://github.com/docker/cli/issues/5643.
 // Check that inaccessible directories that come before accessible ones are ignored
 // and do not prevent the latter from being processed.