diff --git a/master_changes.md b/master_changes.md
index 3d0e532c730..67911dcbe0e 100644
--- a/master_changes.md
+++ b/master_changes.md
@@ -165,6 +165,7 @@ users)
   * Add `with-tools` variable for recommended tools [#5016 @rjbou]
   * Add `x-locked` extension fields for overlay internal use, it stores if the files originate from a locked file, if so its extension [#5080 @rjbou]
   * Set `depext-bypass` parsing with depth 1, no needed brakcet if single package [#5154 @rjbou]
+  * [BUG] Variables are now expanded in build-env (as for setenv) [#5351 @dra27]
 
 ## External dependencies
   * Set `DEBIAN_FRONTEND=noninteractive` for unsafe-yes confirmation level [#4735 @dra27 - partially fix #4731] [2.1.0~rc2 #4739]
diff --git a/src/client/opamAction.ml b/src/client/opamAction.ml
index 871921eec2a..063f2ebfe2c 100644
--- a/src/client/opamAction.ml
+++ b/src/client/opamAction.ml
@@ -520,6 +520,9 @@ let prepare_package_source st nv dir =
 
 let compilation_env t opam =
   let open OpamParserTypes in
+  let build_env =
+    List.map (OpamEnv.env_expansion ~opam t) (OpamFile.OPAM.build_env opam)
+  in
   let scrub = OpamClientConfig.(!r.scrubbed_environment_variables) in
   OpamEnv.get_full ~scrub ~set_opamroot:true ~set_opamswitch:true
     ~force_path:true t ~updates:([
@@ -534,7 +537,7 @@ let compilation_env t opam =
       Some "build environment definition";
       "OPAMCLI", Eq, "2.0", Some "opam CLI version";
     ] @
-      OpamFile.OPAM.build_env opam)
+      build_env)
 
 let installed_opam_opt st nv =
   OpamStd.Option.Op.(
diff --git a/src/state/opamEnv.ml b/src/state/opamEnv.ml
index 40b31e16fb1..b4adaf04266 100644
--- a/src/state/opamEnv.ml
+++ b/src/state/opamEnv.ml
@@ -185,18 +185,22 @@ let add (env: env) (updates: env_update list) =
   in
   env @ expand updates
 
+let env_expansion ?opam st (name, op, str, cmt) =
+  let fenv v =
+    try OpamPackageVar.resolve st ?opam v
+    with Not_found ->
+      log "Undefined variable: %s" (OpamVariable.Full.to_string v);
+      None
+  in
+  let s = OpamFilter.expand_string ~default:(fun _ -> "") fenv str in
+  name, op, s, cmt
+
 let compute_updates ?(force_path=false) st =
   (* Todo: put these back into their packages!
   let perl5 = OpamPackage.Name.of_string "perl5" in
   let add_to_perl5lib =  OpamPath.Switch.lib t.root t.switch t.switch_config perl5 in
   let new_perl5lib = "PERL5LIB", "+=", OpamFilename.Dir.to_string add_to_perl5lib in
 *)
-  let fenv ?opam v =
-    try OpamPackageVar.resolve st ?opam v
-    with Not_found ->
-      log "Undefined variable: %s" (OpamVariable.Full.to_string v);
-      None
-  in
   let bindir =
     OpamPath.Switch.bin st.switch_global.root st.switch st.switch_config
   in
@@ -218,21 +222,17 @@ let compute_updates ?(force_path=false) st =
             st.switch_global.root st.switch st.switch_config),
       Some "Current opam switch man dir"]
   in
-  let env_expansion ?opam (name,op,str,cmt) =
-    let s = OpamFilter.expand_string ~default:(fun _ -> "") (fenv ?opam) str in
-    name, op, s, cmt
-  in
   let switch_env =
     ("OPAM_SWITCH_PREFIX", Eq,
      OpamFilename.Dir.to_string
        (OpamPath.Switch.root st.switch_global.root st.switch),
      Some "Prefix of the current opam switch") ::
-    List.map env_expansion st.switch_config.OpamFile.Switch_config.env
+    List.map (env_expansion st) st.switch_config.OpamFile.Switch_config.env
   in
   let pkg_env = (* XXX: Does this need a (costly) topological sort? *)
     OpamPackage.Set.fold (fun nv acc ->
         match OpamPackage.Map.find_opt nv st.opams with
-        | Some opam -> List.map (env_expansion ~opam) (OpamFile.OPAM.env opam) @ acc
+        | Some opam -> List.map (env_expansion ~opam st) (OpamFile.OPAM.env opam) @ acc
         | None -> acc)
       st.installed []
   in
diff --git a/src/state/opamEnv.mli b/src/state/opamEnv.mli
index e497166ec0e..3e9c9e021d7 100644
--- a/src/state/opamEnv.mli
+++ b/src/state/opamEnv.mli
@@ -94,6 +94,9 @@ val path: force_path:bool -> dirname -> switch -> string
 val full_with_path:
   force_path:bool -> ?updates:env_update list -> dirname -> switch -> env
 
+(** Performs variable expansion on the strings in an environment update *)
+val env_expansion: ?opam:OpamFile.OPAM.t -> 'a switch_state -> env_update -> env_update
+
 (** {2 Shell and initialisation support} *)
 
 (** Sets the opam configuration in the user shell, after detailing the process