diff --git a/config.c b/config.c
index 43b0d3fb573330..d0ce902af39fe6 100644
--- a/config.c
+++ b/config.c
@@ -1838,11 +1838,6 @@ static int git_default_core_config(const char *var, const char *value, void *cb)
 		return 0;
 	}
 
-	if (!strcmp(var, "core.usereplacerefs")) {
-		read_replace_refs = git_config_bool(var, value);
-		return 0;
-	}
-
 	/* Add other config variables here and to Documentation/config.txt. */
 	return platform_core_config(var, value, cb);
 }
diff --git a/environment.c b/environment.c
index 3b4d87c322fdc8..e198b48081a78c 100644
--- a/environment.c
+++ b/environment.c
@@ -63,7 +63,6 @@ const char *editor_program;
 const char *askpass_program;
 const char *excludes_file;
 enum auto_crlf auto_crlf = AUTO_CRLF_FALSE;
-int read_replace_refs = 1;
 enum eol core_eol = EOL_UNSET;
 int global_conv_flags_eol = CONV_EOL_RNDTRP_WARN;
 char *check_roundtrip_encoding = "SHIFT-JIS";
diff --git a/replace-object.c b/replace-object.c
index 07cfedd6df478a..ae2d55b01475fe 100644
--- a/replace-object.c
+++ b/replace-object.c
@@ -64,7 +64,7 @@ void prepare_replace_object(struct repository *r)
  * replacement object's name (replaced recursively, if necessary).
  * The return value is either oid or a pointer to a
  * permanently-allocated value.  This function always respects replace
- * references, regardless of the value of read_replace_refs.
+ * references, regardless of the value of r->settings.read_replace_refs.
  */
 const struct object_id *do_lookup_replace_object(struct repository *r,
 						 const struct object_id *oid)
@@ -85,6 +85,13 @@ const struct object_id *do_lookup_replace_object(struct repository *r,
 	die(_("replace depth too high for object %s"), oid_to_hex(oid));
 }
 
+/*
+ * This indicator determines whether replace references should be
+ * respected process-wide, regardless of which repository is being
+ * using at the time.
+ */
+static int read_replace_refs = 1;
+
 void disable_replace_refs(void)
 {
 	read_replace_refs = 0;
@@ -92,5 +99,14 @@ void disable_replace_refs(void)
 
 int replace_refs_enabled(struct repository *r)
 {
-	return read_replace_refs;
+	if (!read_replace_refs)
+		return 0;
+
+	if (r->gitdir) {
+		prepare_repo_settings(r);
+		return r->settings.read_replace_refs;
+	}
+
+	/* repository has no objects or refs. */
+	return 0;
 }
diff --git a/replace-object.h b/replace-object.h
index 3e9c3516c3cf68..ba478eb30c47a6 100644
--- a/replace-object.h
+++ b/replace-object.h
@@ -5,14 +5,6 @@
 #include "repository.h"
 #include "object-store.h"
 
-/*
- * Do replace refs need to be checked this run?  This variable is
- * initialized to true unless --no-replace-object is used or
- * $GIT_NO_REPLACE_OBJECTS is set, but is set to false by some
- * commands that do not want replace references to be active.
- */
-extern int read_replace_refs;
-
 struct replace_object {
 	struct oidmap_entry original;
 	struct object_id replacement;
diff --git a/repo-settings.c b/repo-settings.c
index 7b566d729d08b0..525f69c0c77858 100644
--- a/repo-settings.c
+++ b/repo-settings.c
@@ -67,6 +67,7 @@ void prepare_repo_settings(struct repository *r)
 	repo_cfg_bool(r, "pack.usebitmapboundarytraversal",
 		      &r->settings.pack_use_bitmap_boundary_traversal,
 		      r->settings.pack_use_bitmap_boundary_traversal);
+	repo_cfg_bool(r, "core.usereplacerefs", &r->settings.read_replace_refs, 1);
 
 	/*
 	 * The GIT_TEST_MULTI_PACK_INDEX variable is special in that
diff --git a/repository.h b/repository.h
index c42f7ab6bdcd6b..a8ba87cbe0ecea 100644
--- a/repository.h
+++ b/repository.h
@@ -39,6 +39,15 @@ struct repo_settings {
 	int pack_read_reverse_index;
 	int pack_use_bitmap_boundary_traversal;
 
+	/*
+	 * Does this repository have core.useReplaceRefs=true (on by
+	 * default)? This provides a repository-scoped version of this
+	 * config, though it could be disabled process-wide via some Git
+	 * builtins or the --no-replace-objects option. See
+	 * replace_refs_enabled() for more details.
+	 */
+	int read_replace_refs;
+
 	struct fsmonitor_settings *fsmonitor; /* lazily loaded */
 
 	int index_version;
diff --git a/t/t7814-grep-recurse-submodules.sh b/t/t7814-grep-recurse-submodules.sh
index 8143817b19e796..d37c83b4640c31 100755
--- a/t/t7814-grep-recurse-submodules.sh
+++ b/t/t7814-grep-recurse-submodules.sh
@@ -594,4 +594,44 @@ test_expect_success 'grep partially-cloned submodule' '
 	)
 '
 
+test_expect_success 'check scope of core.useReplaceRefs' '
+	git init base &&
+	git init base/sub &&
+
+	echo A >base/a &&
+	echo B >base/b &&
+	echo C >base/sub/c &&
+	echo D >base/sub/d &&
+
+	git -C base/sub add c d &&
+	git -C base/sub commit -m "Add files" &&
+
+	git -C base submodule add ./sub &&
+	git -C base add a b sub &&
+	git -C base commit -m "Add files and submodule" &&
+
+	A=$(git -C base rev-parse HEAD:a) &&
+	B=$(git -C base rev-parse HEAD:b) &&
+	C=$(git -C base/sub rev-parse HEAD:c) &&
+	D=$(git -C base/sub rev-parse HEAD:d) &&
+
+	git -C base replace $A $B &&
+	git -C base/sub replace $C $D &&
+
+	test_must_fail git -C base grep --cached --recurse-submodules A &&
+	test_must_fail git -C base grep --cached --recurse-submodules C &&
+
+	git -C base config core.useReplaceRefs false &&
+	git -C base grep --recurse-submodules A &&
+	test_must_fail git -C base grep --cached --recurse-submodules C &&
+
+	git -C base/sub config core.useReplaceRefs false &&
+	git -C base grep --cached --recurse-submodules A &&
+	git -C base grep --cached --recurse-submodules C &&
+
+	git -C base config --unset core.useReplaceRefs &&
+	test_must_fail git -C base grep --cached --recurse-submodules A &&
+	git -C base grep --cached --recurse-submodules C
+'
+
 test_done