diff --git a/podman_compose.py b/podman_compose.py
index a0ea0587..4e83809c 100755
--- a/podman_compose.py
+++ b/podman_compose.py
@@ -2319,6 +2319,9 @@ def _parse_compose_file(self) -> None:
         })
         self.environ = dotenv_dict  # type: ignore[assignment]
         self.environ.update(dict(os.environ))
+
+        # Match Regex for env_file directive
+        self.environ = rec_subs(dotenv_dict, dict(os.environ))
         # see: https://docs.docker.com/compose/reference/envvars/
         # see: https://docs.docker.com/compose/env-file/
         self.environ.update({