diff --git a/lua/diffview/path.lua b/lua/diffview/path.lua
index 3fc4b20f..101e123c 100644
--- a/lua/diffview/path.lua
+++ b/lua/diffview/path.lua
@@ -295,8 +295,8 @@ function PathLib:expand(path)
 
   for i = idx, #segments do
     local env_var = segments[i]:match("^%$(%S+)$")
-    if env_var then
-      segments[i] = uv.os_getenv(env_var) or env_var
+    if env_var and uv.os_getenv(env_var) ~= nil then
+      segments[i] = uv.os_getenv(env_var)
     end
   end
 
diff --git a/lua/diffview/tests/functional/pathlib_spec.lua b/lua/diffview/tests/functional/pathlib_spec.lua
index 4ace9661..7c451578 100644
--- a/lua/diffview/tests/functional/pathlib_spec.lua
+++ b/lua/diffview/tests/functional/pathlib_spec.lua
@@ -248,7 +248,7 @@ describe("diffview.path", function()
       local pl = PathLib({ os = "unix" })
 
       eq("/lorem/ipsum/dolor/foo", pl:expand("~/foo"))
-      eq("foo/EXPANDED_FOO/EXPANDED_BAR/baz", pl:expand("foo/$VAR_FOO/$VAR_BAR/baz"))
+      eq("foo/EXPANDED_FOO/EXPANDED_BAR/$baz", pl:expand("foo/$VAR_FOO/$VAR_BAR/$baz"))
     end)
   end)