Setting env variables from files works differently than setting them in a terminal.

Each line is just a string that gets split on "=" with the right hand side of that split being assigned as the value, and the left hand side being assigned as the key.

If you look at the source code for the run command:

https://github.com/docker/cli/blob/master/cli/command/container/run.go

you'll see that environment variables aren't set set through bash commands. It's just a series of string assignments.

This is pretty much always the case with env files.They're strings, and are set as such. The syntax you're trying to use only works on platforms that make an effort to run env files as a series of bash commands, but docker doesn't do that. This has nothing do with with VS code, it's just how env files ususally work.

One potential workaround would be to move this assignment from your env file to your Dockerfile or docker-compose. Those instructions are run as bash commands, so your variable call will work.

Examples

Dockerfile

ENV FIRST=ONE
ENV SECOND=${FIRST}

Here, inside your container echo ${SECOND} will print out ONE.

docker-compose

Docker compose environment variables work a bit differently. It doesn't set the variables in your compose file sequentially, so referencing a variable that you set in the same service definition doesn't work. However, If your variables are set in a .env file in the same directory as your compose file, then you can access those values by doing:

services:
  myapp:
    environment:
      - VAR_IN_MY_CONTAINER=${VAR_ON_MY_HOST}

This behavior happens because compose considers any .env file in its directory to be part of the host environment.