diff --git a/core/src/main/scala/sbt/librarymanagement/ResolverExtra.scala b/core/src/main/scala/sbt/librarymanagement/ResolverExtra.scala
index 7e16ee39b..10dd77e8f 100644
--- a/core/src/main/scala/sbt/librarymanagement/ResolverExtra.scala
+++ b/core/src/main/scala/sbt/librarymanagement/ResolverExtra.scala
@@ -391,6 +391,17 @@ private[librarymanagement] abstract class ResolverFunctions {
   def defaultRetrievePattern =
     "[type]s/[organisation]/[module]/" + PluginPattern + "[artifact](-[revision])(-[classifier]).[ext]"
   final val PluginPattern = "(scala_[scalaVersion]/)(sbt_[sbtVersion]/)"
+  private[librarymanagement] def expandMavenSettings(str: String): String = {
+    // Aren't regular expressions beautifully clear and concise.
+    // This means "find all ${...}" blocks, with the first group of each being the text between curly brackets.
+    val findQuoted = "\\$\\{([^\\}]*)\\}".r
+    val env = "env\\.(.*)".r
+
+    findQuoted.replaceAllIn(str, _.group(1) match {
+      case env(variable) => sys.env.getOrElse(variable, "")
+      case property      => sys.props.getOrElse(property, "")
+    })
+  }
   private[this] def mavenLocalDir: File = {
     def loadHomeFromSettings(f: () => File): Option[File] =
       try {
@@ -399,7 +410,7 @@ private[librarymanagement] abstract class ResolverFunctions {
         else
           ((XML.loadFile(file) \ "localRepository").text match {
             case ""    => None
-            case e @ _ => Some(new File(e))
+            case e @ _ => Some(new File(expandMavenSettings(e)))
           })
       } catch {
         // Occurs inside File constructor when property or environment variable does not exist
diff --git a/core/src/test/scala/sbt/librarymanagement/ResolverExtraTest.scala b/core/src/test/scala/sbt/librarymanagement/ResolverExtraTest.scala
new file mode 100644
index 000000000..10cad9012
--- /dev/null
+++ b/core/src/test/scala/sbt/librarymanagement/ResolverExtraTest.scala
@@ -0,0 +1,43 @@
+package sbt.librarymanagement
+
+import verify.BasicTestSuite
+import scala.annotation.nowarn
+
+@nowarn // Necessary because our test cases look like interpolated strings.
+object ResolverExtraTest extends BasicTestSuite {
+  test("expandMavenSettings should expand existing environment variables") {
+    assertExpansion(
+      input = "User home: ${env.HOME}",
+      expected = s"User home: ${env("HOME")}"
+    )
+  }
+
+  test("expandMavenSettings should expand existing system properties") {
+    assertExpansion(
+      input = "User dir: ${user.dir}",
+      expected = s"User dir: ${prop("user.dir")}"
+    )
+  }
+
+  test("expandMavenSettings should expand unknown system properties to the empty string") {
+    assertExpansion(
+      input = "Unknown system property: ${IF_THIS_EXISTS_WE_NEED_TO_HAVE_A_CHAT}",
+      expected = s"Unknown system property: "
+    )
+  }
+
+  test("expandMavenSettings should expand unknown environment variables to the empty string") {
+    assertExpansion(
+      input = "Unknown environment variable: ${IF_THIS_EXISTS_I_WORRY_ABOUT_YOU}",
+      expected = s"Unknown environment variable: "
+    )
+  }
+
+  // - Helper functions ----------------------------------------------------------------------------
+  // -----------------------------------------------------------------------------------------------
+  def assertExpansion(input: String, expected: String) =
+    assert(Resolver.expandMavenSettings(input) == s"$expected")
+
+  def env(name: String) = sys.env.getOrElse(name, "")
+  def prop(name: String) = sys.props.getOrElse(name, "")
+}