diff --git a/core/src/main/scala/org/apache/spark/deploy/rest/StandaloneRestServer.scala b/core/src/main/scala/org/apache/spark/deploy/rest/StandaloneRestServer.scala
index 8e3dcdc9d378..b9ad4253e7de 100644
--- a/core/src/main/scala/org/apache/spark/deploy/rest/StandaloneRestServer.scala
+++ b/core/src/main/scala/org/apache/spark/deploy/rest/StandaloneRestServer.scala
@@ -174,6 +174,11 @@ private[rest] class StandaloneSubmitRequestServlet(
     conf: SparkConf)
   extends SubmitRequestServlet {
 
+  private def replacePlaceHolder(variable: String) = variable match {
+    case s"{{$name}}" if System.getenv(name) != null => System.getenv(name)
+    case _ => variable
+  }
+
   /**
    * Build a driver description from the fields specified in the submit request.
    *
@@ -214,8 +219,10 @@ private[rest] class StandaloneSubmitRequestServlet(
       _.replace(s":$masterRestPort", s":$masterPort")).getOrElse(masterUrl)
     val appArgs = request.appArgs
     // Filter SPARK_LOCAL_(IP|HOSTNAME) environment variables from being set on the remote system.
+    // In addition, the placeholders are replaced into the values of environment variables.
     val environmentVariables =
       request.environmentVariables.filterNot(x => x._1.matches("SPARK_LOCAL_(IP|HOSTNAME)"))
+        .map(x => (x._1, replacePlaceHolder(x._2)))
 
     // Construct driver description
     val conf = new SparkConf(false)
diff --git a/core/src/test/scala/org/apache/spark/deploy/rest/StandaloneRestSubmitSuite.scala b/core/src/test/scala/org/apache/spark/deploy/rest/StandaloneRestSubmitSuite.scala
index 43a5f7a784f5..f8b595fd4925 100644
--- a/core/src/test/scala/org/apache/spark/deploy/rest/StandaloneRestSubmitSuite.scala
+++ b/core/src/test/scala/org/apache/spark/deploy/rest/StandaloneRestSubmitSuite.scala
@@ -445,6 +445,18 @@ class StandaloneRestSubmitSuite extends SparkFunSuite {
     assert(filteredVariables == Map("SPARK_VAR" -> "1"))
   }
 
+  test("SPARK-49033: Support server-side environment variable replacement in REST Submission API") {
+    val request = new CreateSubmissionRequest
+    request.appResource = ""
+    request.mainClass = ""
+    request.appArgs = Array.empty[String]
+    request.sparkProperties = Map.empty[String, String]
+    request.environmentVariables = Map("AWS_ENDPOINT_URL" -> "{{SPARK_SCALA_VERSION}}")
+    val servlet = new StandaloneSubmitRequestServlet(null, null, null)
+    val desc = servlet.buildDriverDescription(request, "spark://master:7077", 6066)
+    assert(desc.command.environment.get("AWS_ENDPOINT_URL") === Some("2.13"))
+  }
+
   test("SPARK-45197: Make StandaloneRestServer add JavaModuleOptions to drivers") {
     val request = new CreateSubmissionRequest
     request.appResource = ""