diff --git a/CHANGELOG.md b/CHANGELOG.md
index 17e53055328..a254eb0a637 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -44,6 +44,9 @@ release.
 
 ### SDK Configuration
 
+- Clarify environment variable substitution is not recursive
+  ([#3913](https://github.com/open-telemetry/opentelemetry-specification/pull/3913))
+
 ### Common
 
 ### Supplementary Guidelines
diff --git a/specification/configuration/file-configuration.md b/specification/configuration/file-configuration.md
index b530ee73ab1..6e75166befc 100644
--- a/specification/configuration/file-configuration.md
+++ b/specification/configuration/file-configuration.md
@@ -94,6 +94,9 @@ or floating point fields can be properly converted to expected types.
 It MUST NOT be possible to inject YAML structures by environment variables. For
 example, references to `INVALID_MAP_VALUE` environment variable below.
 
+It MUST NOT be possible to inject environment variable by environment variables.
+For example, references to `DO_NOT_REPLACE_ME` environment variable below.
+
 For example, consider the following environment variables,
 and [YAML](#yaml-file-format) configuration file:
 
@@ -102,7 +105,9 @@ export STRING_VALUE="value"
 export BOOl_VALUE="true"
 export INT_VALUE="1"
 export FLOAT_VALUE="1.1"
-export INVALID_MAP_VALUE"value\nkey:value" # An invalid attempt to inject a map key into the YAML
+export INVALID_MAP_VALUE="value\nkey:value"           # An invalid attempt to inject a map key into the YAML
+export DO_NOT_REPLACE_ME="Never use this value"       # An unused environment variable
+export REPLACE_ME='${DO_NOT_REPLACE_ME}'              # A valid replacement text, used verbatim, not replaced with "Never use this value"
 ```
 
 ```yaml
@@ -116,6 +121,7 @@ float_key: ${FLOAT_VALUE}                             # Valid reference to FLOAT
 combo_string_key: foo ${STRING_VALUE} ${FLOAT_VALUE}  # Valid reference to STRING_VALUE and FLOAT_VALUE
 undefined_key: ${UNDEFINED_KEY}                       # Invalid reference, UNDEFINED_KEY is not defined and is replaced with ""
 ${STRING_VALUE}: value                                # Invalid reference, substitution is not valid in mapping keys and reference is ignored
+recursive_key: ${REPLACE_ME}                          # Valid reference to REPLACE_ME
 ```
 
 Environment variable substitution results in the following YAML:
@@ -131,6 +137,7 @@ float_key: 1.1                              # Interpreted as type float, tag URI
 combo_string_key: foo value 1.1             # Interpreted as type string, tag URI tag:yaml.org,2002:str
 undefined_key:                              # Interpreted as type null, tag URI tag:yaml.org,2002:null
 ${STRING_VALUE}: value                      # Interpreted as type string, tag URI tag:yaml.org,2002:str
+recursive_key: ${DO_NOT_REPLACE_ME}         # Interpreted as type string, tag URI tag:yaml.org,2002:str
 ```
 
 ## SDK Configuration