diff --git a/crates/ruff/src/args.rs b/crates/ruff/src/args.rs
index 022d5c6f2452f..8aea65056394a 100644
--- a/crates/ruff/src/args.rs
+++ b/crates/ruff/src/args.rs
@@ -812,14 +812,24 @@ impl TypedValueParser for ConfigArgumentParser {
         arg: Option<&clap::Arg>,
         value: &std::ffi::OsStr,
     ) -> Result<Self::Value, clap::Error> {
-        let path_to_config_file = PathBuf::from(value);
-        if path_to_config_file.exists() {
-            return Ok(SingleConfigArgument::FilePath(path_to_config_file));
-        }
+        // Convert to UTF-8.
+        let Some(value) = value.to_str() else {
+            // But respect non-UTF-8 paths.
+            let path_to_config_file = PathBuf::from(value);
+            if path_to_config_file.is_file() {
+                return Ok(SingleConfigArgument::FilePath(path_to_config_file));
+            }
+            return Err(clap::Error::new(clap::error::ErrorKind::InvalidUtf8));
+        };
 
-        let value = value
-            .to_str()
-            .ok_or_else(|| clap::Error::new(clap::error::ErrorKind::InvalidUtf8))?;
+        // Expand environment variables and tildes.
+        if let Ok(path_to_config_file) =
+            shellexpand::full(value).map(|config| PathBuf::from(&*config))
+        {
+            if path_to_config_file.is_file() {
+                return Ok(SingleConfigArgument::FilePath(path_to_config_file));
+            }
+        }
 
         let config_parse_error = match toml::Table::from_str(value) {
             Ok(table) => match table.try_into::<Options>() {
@@ -887,7 +897,7 @@ A `--config` flag must either be a path to a `.toml` configuration file
                     "
 
 It looks like you were trying to pass a path to a configuration file.
-The path `{value}` does not exist"
+The path `{value}` does not point to a configuration file"
                 ));
             }
         } else if value.contains('=') {
diff --git a/crates/ruff/src/resolve.rs b/crates/ruff/src/resolve.rs
index f1dbf5aa17ffd..89796ee156507 100644
--- a/crates/ruff/src/resolve.rs
+++ b/crates/ruff/src/resolve.rs
@@ -1,4 +1,4 @@
-use std::path::{Path, PathBuf};
+use std::path::Path;
 
 use anyhow::Result;
 use log::debug;
@@ -34,13 +34,8 @@ pub fn resolve(
     // Second priority: the user specified a `pyproject.toml` file. Use that
     // `pyproject.toml` for _all_ configuration, and resolve paths relative to the
     // current working directory. (This matches ESLint's behavior.)
-    if let Some(pyproject) = config_arguments
-        .config_file()
-        .map(|config| config.display().to_string())
-        .map(|config| shellexpand::full(&config).map(|config| PathBuf::from(config.as_ref())))
-        .transpose()?
-    {
-        let settings = resolve_root_settings(&pyproject, Relativity::Cwd, config_arguments)?;
+    if let Some(pyproject) = config_arguments.config_file() {
+        let settings = resolve_root_settings(pyproject, Relativity::Cwd, config_arguments)?;
         debug!(
             "Using user-specified configuration file at: {}",
             pyproject.display()
@@ -48,7 +43,7 @@ pub fn resolve(
         return Ok(PyprojectConfig::new(
             PyprojectDiscoveryStrategy::Fixed,
             settings,
-            Some(pyproject),
+            Some(pyproject.to_path_buf()),
         ));
     }
 
diff --git a/crates/ruff/tests/format.rs b/crates/ruff/tests/format.rs
index 0a63670cf676c..8301e789abcd2 100644
--- a/crates/ruff/tests/format.rs
+++ b/crates/ruff/tests/format.rs
@@ -111,7 +111,7 @@ fn nonexistent_config_file() {
            option
 
     It looks like you were trying to pass a path to a configuration file.
-    The path `foo.toml` does not exist
+    The path `foo.toml` does not point to a configuration file
 
     For more information, try '--help'.
     "###);
diff --git a/crates/ruff/tests/lint.rs b/crates/ruff/tests/lint.rs
index 900fc5382f24b..1dc89484a907a 100644
--- a/crates/ruff/tests/lint.rs
+++ b/crates/ruff/tests/lint.rs
@@ -522,7 +522,7 @@ fn nonexistent_config_file() {
            option
 
     It looks like you were trying to pass a path to a configuration file.
-    The path `foo.toml` does not exist
+    The path `foo.toml` does not point to a configuration file
 
     For more information, try '--help'.
     "###);
@@ -1126,3 +1126,43 @@ import os
 
     Ok(())
 }
+
+/// Expand environment variables in `--config` paths provided via the CLI.
+#[test]
+fn config_expand() -> Result<()> {
+    let tempdir = TempDir::new()?;
+    let ruff_toml = tempdir.path().join("ruff.toml");
+    fs::write(
+        ruff_toml,
+        r#"
+[lint]
+select = ["F"]
+ignore = ["F841"]
+"#,
+    )?;
+
+    assert_cmd_snapshot!(Command::new(get_cargo_bin(BIN_NAME))
+        .args(STDIN_BASE_OPTIONS)
+        .arg("--config")
+        .arg("${NAME}.toml")
+        .env("NAME", "ruff")
+        .arg("-")
+        .current_dir(tempdir.path())
+        .pass_stdin(r#"
+import os
+
+def func():
+    x = 1
+"#), @r###"
+    success: false
+    exit_code: 1
+    ----- stdout -----
+    -:2:8: F401 [*] `os` imported but unused
+    Found 1 error.
+    [*] 1 fixable with the `--fix` option.
+
+    ----- stderr -----
+    "###);
+
+    Ok(())
+}