diff --git a/src/common/utils/paths.ts b/src/common/utils/paths.ts
index 68d8f61ffa..d7b7e41fbb 100644
--- a/src/common/utils/paths.ts
+++ b/src/common/utils/paths.ts
@@ -22,9 +22,9 @@
 import path from "path";
 import os from "os";
 
-function resolveTilde(filePath: string) {
+export function resolveTilde(filePath: string, home?: string) {
   if (filePath[0] === "~" && (filePath[1] === "/" || filePath.length === 1)) {
-    return filePath.replace("~", os.homedir());
+    return filePath.replace("~", home || os.homedir());
   }
 
   return filePath;
diff --git a/src/main/__test__/shell-session.test.ts b/src/main/__test__/shell-session.test.ts
index e58b54ee5b..95111953d1 100644
--- a/src/main/__test__/shell-session.test.ts
+++ b/src/main/__test__/shell-session.test.ts
@@ -24,6 +24,7 @@
  */
 
 import { clearKubeconfigEnvVars } from "../utils/clear-kube-env-vars";
+import { resolveEnv } from "../utils/shell-env";
 
 describe("clearKubeconfigEnvVars tests", () => {
   it("should not touch non kubeconfig keys", () => {
@@ -38,3 +39,29 @@ describe("clearKubeconfigEnvVars tests", () => {
     expect(clearKubeconfigEnvVars({ a: 1, kubeconfig: "1", kUbeconfig: "1" })).toStrictEqual({ a: 1 });
   });
 });
+
+describe("resolveEnv tests", () => {
+  const env = {"HOME": "/home/user", "FOO": "foo", "bar": "bar"};
+
+  it("should resolve 1 var", () => {
+    expect(resolveEnv("$HOME", env, env.HOME)).toStrictEqual("/home/user");
+  });
+  it("should resolve multiple vars", () => {
+    expect(resolveEnv("$HOME/$FOO", env, env.HOME)).toStrictEqual("/home/user/foo");
+  });
+  it("should resolve lowercase var", () => {
+    expect(resolveEnv("$bar", env, env.HOME)).toStrictEqual("bar");
+  });
+  it("should resolve ~ as $HOME", () => {
+    expect(resolveEnv("~/foo", env, env.HOME)).toStrictEqual("/home/user/foo");
+  });
+  it("should not resolve missing var", () => {
+    expect(resolveEnv("$BAR", env, env.HOME)).toStrictEqual("$BAR");
+  });
+  it("should not resolve var with brackets", () => {
+    expect(resolveEnv("${HOME}", env, env.HOME)).toStrictEqual("${HOME}");
+  });
+  it("should not resolve invalid var (starts with digit)", () => {
+    expect(resolveEnv("$0HOME", {"0HOME": "/home/user"})).toStrictEqual("$0HOME");
+  });
+});
diff --git a/src/main/shell-session/shell-session.ts b/src/main/shell-session/shell-session.ts
index 4771ec8b77..a9374ab014 100644
--- a/src/main/shell-session/shell-session.ts
+++ b/src/main/shell-session/shell-session.ts
@@ -23,7 +23,7 @@ import fse from "fs-extra";
 import type { Cluster } from "../cluster";
 import { Kubectl } from "../kubectl";
 import type * as WebSocket from "ws";
-import { shellEnv } from "../utils/shell-env";
+import { resolveEnv, shellEnv } from "../utils/shell-env";
 import { app } from "electron";
 import { clearKubeconfigEnvVars } from "../utils/clear-kube-env-vars";
 import path from "path";
@@ -60,16 +60,22 @@ export abstract class ShellSession {
   }
 
   protected async open(shell: string, args: string[], env: Record<string, any>) {
-    const cwd = (this.cwd && await fse.pathExists(this.cwd))
-    	? this.cwd
-    	: env.HOME;
+    let cwd = env.HOME;
+
+    if (this.cwd) {
+      const resolvedCwd = resolveEnv(this.cwd, env, env.HOME);
+
+      if (await fse.pathExists(resolvedCwd)) {
+        cwd = resolvedCwd;
+      }
+    }
 
     this.shellProcess = pty.spawn(shell, args, {
       cols: 80,
+      rows: 30,
       cwd,
       env,
       name: "xterm-256color",
-      rows: 30,
     });
     this.running = true;
 
diff --git a/src/main/utils/shell-env.ts b/src/main/utils/shell-env.ts
index 18a9545af9..e6acce5e50 100644
--- a/src/main/utils/shell-env.ts
+++ b/src/main/utils/shell-env.ts
@@ -21,6 +21,7 @@
 
 import shellEnvironment from "shell-env";
 import logger from "../logger";
+import { resolveTilde } from "../../common/utils/paths";
 
 export interface EnvironmentVariables {
   readonly [key: string]: string;
@@ -64,3 +65,13 @@ export async function shellEnv(shell?: string, forceRetry = false) : Promise<Env
 
   return envVars;
 }
+
+export function resolveEnv(value: string, env: Record<string, any>, home?: string): string {
+  const resolvedValue = value.replace(/\$([a-zA-Z_]+[a-zA-Z0-9_]*)/g, function (match) {
+    const sub = env[match.substring(1)];
+
+    return sub || match;
+  });
+
+  return resolveTilde(resolvedValue, home);
+}
diff --git a/src/renderer/components/cluster-settings/components/cluster-home-dir-setting.tsx b/src/renderer/components/cluster-settings/components/cluster-home-dir-setting.tsx
index 55abaf5dc6..692278eab4 100644
--- a/src/renderer/components/cluster-settings/components/cluster-home-dir-setting.tsx
+++ b/src/renderer/components/cluster-settings/components/cluster-home-dir-setting.tsx
@@ -67,8 +67,9 @@ export class ClusterHomeDirSetting extends React.Component<Props> {
           placeholder="$HOME"
         />
         <small className="hint">
-          An explicit start path where the terminal will be launched,{" "}
-          this is used as the current working directory (cwd) for the shell process.
+          An explicit start path where the terminal will be launched.{" "}
+          This is used as the current working directory (cwd) for the shell process{" "}
+          and supports both ~ and environment variable expansion.
         </small>
       </>
     );