diff --git a/test/test_env/BUILD b/test/test_env/BUILD
index 5660f7b6a3..ba7ba26075 100644
--- a/test/test_env/BUILD
+++ b/test/test_env/BUILD
@@ -10,13 +10,22 @@ rust_binary(
     edition = "2018",
 )
 
+filegroup(
+    name = "hello_world_main",
+    srcs = ["src/main.rs"],
+)
+
 rust_test(
     name = "test",
     srcs = ["tests/run.rs"],
-    data = [":hello-world"],
+    data = [
+        ":hello-world",
+        ":hello_world_main",
+    ],
     edition = "2018",
     env = {
         "FERRIS_SAYS": "Hello fellow Rustaceans!",
-        "HELLO_WORLD_BIN": "$(rootpath :hello-world)",
+        "HELLO_WORLD_BIN_ROOTPATH": "$(rootpath :hello-world)",
+        "HELLO_WORLD_SRC_EXECPATH": "$(execpath :hello_world_main)",
     },
 )
diff --git a/test/test_env/tests/run.rs b/test/test_env/tests/run.rs
index 9c1760e0c8..4353b728bd 100644
--- a/test/test_env/tests/run.rs
+++ b/test/test_env/tests/run.rs
@@ -6,5 +6,18 @@ fn run() {
 
     // Test the `env` attribute of `rust_test` at run time
     assert_eq!(std::env::var("FERRIS_SAYS").unwrap(), "Hello fellow Rustaceans!");
-    assert_eq!(std::env::var("HELLO_WORLD_BIN").unwrap(), "test/test_env/hello-world");
+
+    // Test the behavior of `rootpath` and that a binary can be found relative to current_dir
+    let hello_world_bin = std::path::PathBuf::from(std::env::var_os("HELLO_WORLD_BIN_ROOTPATH").unwrap());
+    assert_eq!(
+        hello_world_bin.as_path(), 
+        std::path::Path::new("test/test_env/hello-world"),
+    );
+    assert!(!hello_world_bin.is_absolute());
+    assert!(hello_world_bin.exists());
+
+    // Ensure `execpath` expanded variables map to real files and have absolute paths
+    let hello_world_src = std::path::PathBuf::from(std::env::var("HELLO_WORLD_SRC_EXECPATH").unwrap());
+    assert!(hello_world_src.is_absolute());
+    assert!(hello_world_src.exists());
 }
diff --git a/util/launcher/launcher_main.rs b/util/launcher/launcher_main.rs
index 168453a016..0fe27a47f1 100644
--- a/util/launcher/launcher_main.rs
+++ b/util/launcher/launcher_main.rs
@@ -21,6 +21,11 @@ fn environ() -> BTreeMap<String, String> {
     let env_path = std::env::args().nth(0).expect("arg 0 was not set") + LAUNCHFILES_ENV_PATH;
     let file = File::open(env_path).expect("Failed to load the environment file");
 
+    // Variables will have the `${pwd}` variable replaced which is rendered by 
+    // `@rules_rust//rust/private:util.bzl::expand_locations`
+    let pwd = std::env::current_dir().expect("Failed to get current working directory");
+    let pwd_str = pwd.to_string_lossy();
+
     // Find all environment variables by reading pairs of lines as key/value pairs
     for line in BufReader::new(file).lines() {
         if key.is_none() {
@@ -29,8 +34,8 @@ fn environ() -> BTreeMap<String, String> {
         }
 
         environ.insert(
-            key.expect("Key is not set"), 
-            line.expect("Failed to read line"),
+            key.expect("Key is not set"),
+            line.expect("Failed to read line").replace("${pwd}", &pwd_str),
         );
 
         key = None;