diff --git a/src/services/mcp/envExpansion.test.ts b/src/services/mcp/envExpansion.test.ts
new file mode 100644
index 0000000000..b47e853591
--- /dev/null
+++ b/src/services/mcp/envExpansion.test.ts
@@ -0,0 +1,49 @@
+import { afterEach, beforeEach, describe, expect, test } from 'bun:test'
+import { expandEnvVarsInString } from './envExpansion.js'
+
+describe('expandEnvVarsInString', () => {
+  const saved: Record<string, string | undefined> = {}
+  const keys = ['ENVEXP_SET', 'ENVEXP_UNSET']
+
+  beforeEach(() => {
+    for (const k of keys) saved[k] = process.env[k]
+    process.env.ENVEXP_SET = 'real'
+    delete process.env.ENVEXP_UNSET
+  })
+  afterEach(() => {
+    for (const k of keys) {
+      if (saved[k] === undefined) delete process.env[k]
+      else process.env[k] = saved[k]
+    }
+  })
+
+  test('preserves a default value that itself contains ":-"', () => {
+    // JS String.split(sep, 2) would discard everything after the second ":-".
+    // bash `${VAR:-a:-b}` yields "a:-b"; the expansion must match.
+    expect(
+      expandEnvVarsInString('${ENVEXP_UNSET:-a:-b}').expanded,
+    ).toBe('a:-b')
+  })
+
+  test('expands a set variable and reports no missing vars', () => {
+    const r = expandEnvVarsInString('${ENVEXP_SET:-fallback}')
+    expect(r.expanded).toBe('real')
+    expect(r.missingVars).toEqual([])
+  })
+
+  test('uses the default when the variable is unset', () => {
+    expect(expandEnvVarsInString('${ENVEXP_UNSET:-fallback}').expanded).toBe(
+      'fallback',
+    )
+  })
+
+  test('supports an empty default', () => {
+    expect(expandEnvVarsInString('${ENVEXP_UNSET:-}').expanded).toBe('')
+  })
+
+  test('reports a missing variable with no default', () => {
+    const r = expandEnvVarsInString('${ENVEXP_UNSET}')
+    expect(r.expanded).toBe('${ENVEXP_UNSET}')
+    expect(r.missingVars).toEqual(['ENVEXP_UNSET'])
+  })
+})
diff --git a/src/services/mcp/envExpansion.ts b/src/services/mcp/envExpansion.ts
index 49255e5c39..a0d941d2c8 100644
--- a/src/services/mcp/envExpansion.ts
+++ b/src/services/mcp/envExpansion.ts
@@ -14,8 +14,17 @@ export function expandEnvVarsInString(value: string): {
   const missingVars: string[] = []
 
   const expanded = value.replace(/\$\{([^}]+)\}/g, (match, varContent) => {
-    // Split on :- to support default values (limit to 2 parts to preserve :- in defaults)
-    const [varName, defaultValue] = varContent.split(':-', 2)
+    // Split on the FIRST ':-' to support ${VAR:-default} default values. Note
+    // String.split(sep, limit) caps the array length and discards the
+    // remainder — it does not glue the tail back on like a maxsplit — so
+    // `split(':-', 2)` would truncate a default that itself contains ':-'
+    // (e.g. ${VAR:-a:-b} -> "a" instead of "a:-b"). Slice at the first ':-'
+    // instead so any later ':-' stays in the default, matching bash.
+    const sepIndex = varContent.indexOf(':-')
+    const varName =
+      sepIndex === -1 ? varContent : varContent.slice(0, sepIndex)
+    const defaultValue =
+      sepIndex === -1 ? undefined : varContent.slice(sepIndex + 2)
     const envValue = process.env[varName]
 
     if (envValue !== undefined) {