diff --git a/BASE/Test/Microsoft.ApplicationInsights.Test/Microsoft.ApplicationInsights.Tests/Extensibility/Implementation/Tracing/SelfDiagnostics/SelfDiagnosticsConfigRefresherTest.cs b/BASE/Test/Microsoft.ApplicationInsights.Test/Microsoft.ApplicationInsights.Tests/Extensibility/Implementation/Tracing/SelfDiagnostics/SelfDiagnosticsConfigRefresherTest.cs
index fa12d6b1e5..3af6d6629a 100644
--- a/BASE/Test/Microsoft.ApplicationInsights.Test/Microsoft.ApplicationInsights.Tests/Extensibility/Implementation/Tracing/SelfDiagnostics/SelfDiagnosticsConfigRefresherTest.cs
+++ b/BASE/Test/Microsoft.ApplicationInsights.Test/Microsoft.ApplicationInsights.Tests/Extensibility/Implementation/Tracing/SelfDiagnostics/SelfDiagnosticsConfigRefresherTest.cs
@@ -1,10 +1,14 @@
 namespace Microsoft.ApplicationInsights.Extensibility.Implementation.Tracing.SelfDiagnostics
 {
+    using System;
     using System.Diagnostics;
     using System.IO;
+    using System.Runtime.InteropServices;
     using System.Text;
     using System.Text.RegularExpressions;
     using Microsoft.VisualStudio.TestTools.UnitTesting;
+    using Newtonsoft.Json;
+    using Newtonsoft.Json.Linq;
 
     [TestClass]
     public class SelfDiagnosticsConfigRefresherTest
@@ -36,7 +40,8 @@ public void SelfDiagnosticsConfigRefresher_OmitAsConfigured()
 
                     // The event was omitted
                     Assert.AreEqual('\0', (char)actualBytes[MessageOnNewFile.Length]);
-                }}
+                }
+            }
             finally
             {
                 CleanupConfigFile();
@@ -74,6 +79,42 @@ public void SelfDiagnosticsConfigRefresher_CaptureAsConfigured()
             }
         }
 
+        [TestMethod]
+        public void SelfDiagnosticsConfigRefresher_ReadFromEnviornmentVar()
+        {
+            var key = "APPLICATIONINSIGHTS_LOG_DIAGNOSTICS";
+            var val = @"C:\home\LogFiles\SelfDiagnostics";
+            Environment.SetEnvironmentVariable(key, val);
+
+            try
+            {
+                CreateConfigFile(false, val);
+                using (var configRefresher = new SelfDiagnosticsConfigRefresher())
+                {
+                    // Emitting event of EventLevel.Error
+                    CoreEventSource.Log.InvalidOperationToStopError();
+                    var filePath = configRefresher.CurrentFilePath;
+
+                    int bufferSize = 512;
+                    byte[] actualBytes = ReadFile(filePath, bufferSize);
+                    string logText = Encoding.UTF8.GetString(actualBytes);
+                    Assert.IsTrue(logText.StartsWith(MessageOnNewFileString));
+
+                    // The event was captured
+                    string logLine = logText.Substring(MessageOnNewFileString.Length);
+                    string logMessage = ParseLogMessage(logLine);
+                    string expectedMessage = "Operation to stop does not match the current operation. Telemetry is not tracked.";
+                    Assert.IsTrue(logMessage.StartsWith(expectedMessage));
+                }
+            }
+            finally
+            {
+                Environment.SetEnvironmentVariable(key, null);
+                Platform.PlatformSingleton.Current = null; // Force reinitialization in future tests so that new environment variables will be loaded.
+                CleanupConfigFile();
+            }
+        }
+
         private static string ParseLogMessage(string logLine)
         {
             int timestampPrefixLength = "2020-08-14T20:33:24.4788109Z:".Length;
@@ -91,13 +132,24 @@ private static byte[] ReadFile(string filePath, int byteCount)
             }
         }
 
-        private static void CreateConfigFile()
+        private void CreateConfigFile(bool userDefinedLogDirectory = true, string envVarVal = "")
         {
-            string configJson = @"{
-                    ""LogDirectory"": ""."",
-                    ""FileSize"": 1024,
-                    ""LogLevel"": ""Error""
-                    }";
+            ConfigFileObj configFileObj = new()
+            {
+                FileSize = 1024,
+                LogLevel = "Error"
+            };
+
+            if (userDefinedLogDirectory)
+            {
+                configFileObj.LogDirectory = ".";
+            }
+            else
+            {
+                configFileObj.LogDirectory = envVarVal;
+            }
+
+            string configJson = JsonConvert.SerializeObject(configFileObj);
             using (FileStream file = File.Open(ConfigFilePath, FileMode.Create, FileAccess.Write))
             {
                 byte[] configBytes = Encoding.UTF8.GetBytes(configJson);
@@ -105,6 +157,13 @@ private static void CreateConfigFile()
             }
         }
 
+        private class ConfigFileObj
+        {
+            public int FileSize { get; set; }
+            public string LogLevel { get; set; }
+            public string LogDirectory { get; set; }
+        };
+
         private static void CleanupConfigFile()
         {
             try
@@ -116,4 +175,4 @@ private static void CleanupConfigFile()
             }
         }
     }
-}
+}
\ No newline at end of file
diff --git a/BASE/src/Microsoft.ApplicationInsights/Extensibility/Implementation/Tracing/SelfDiagnostics/SelfDiagnosticsConfigParser.cs b/BASE/src/Microsoft.ApplicationInsights/Extensibility/Implementation/Tracing/SelfDiagnostics/SelfDiagnosticsConfigParser.cs
index 480e0085fe..b58299c5ee 100644
--- a/BASE/src/Microsoft.ApplicationInsights/Extensibility/Implementation/Tracing/SelfDiagnostics/SelfDiagnosticsConfigParser.cs
+++ b/BASE/src/Microsoft.ApplicationInsights/Extensibility/Implementation/Tracing/SelfDiagnostics/SelfDiagnosticsConfigParser.cs
@@ -5,6 +5,7 @@
     using System.IO;
     using System.Text;
     using System.Text.RegularExpressions;
+    using Microsoft.ApplicationInsights.Extensibility.Implementation.Platform;
 
     internal class SelfDiagnosticsConfigParser
     {
@@ -12,6 +13,8 @@ internal class SelfDiagnosticsConfigParser
         private const int FileSizeLowerLimit = 1024;  // Lower limit for log file size in KB: 1MB
         private const int FileSizeUpperLimit = 128 * 1024;  // Upper limit for log file size in KB: 128MB
 
+        private const string LogDiagnosticsEnvironmentVariable = "APPLICATIONINSIGHTS_LOG_DIAGNOSTICS";
+
         /// <summary>
         /// ConfigBufferSize is the maximum bytes of config file that will be read.
         /// </summary>
@@ -40,8 +43,15 @@ public bool TryGetConfiguration(out string logDirectory, out int fileSizeInKB, o
             {
                 var configFilePath = ConfigFileName;
 
-                // First check using current working directory
-                if (!File.Exists(configFilePath))
+                // First, check whether the enviornment variable was set.
+                if (PlatformSingleton.Current.TryGetEnvironmentVariable(LogDiagnosticsEnvironmentVariable, out string logDiagnosticsPath))
+                {
+                    configFilePath = Path.Combine(logDiagnosticsPath, ConfigFileName);
+                    logDirectory = logDiagnosticsPath;
+                }
+
+                // Second, check using current working directory.
+                else if (!File.Exists(configFilePath))
                 {
 #if NET452
                     configFilePath = Path.Combine(AppDomain.CurrentDomain.BaseDirectory, ConfigFileName);
@@ -49,7 +59,7 @@ public bool TryGetConfiguration(out string logDirectory, out int fileSizeInKB, o
                     configFilePath = Path.Combine(AppContext.BaseDirectory, ConfigFileName);
 #endif
 
-                    // Second check using application base directory
+                    // Third, check using application base directory.
                     if (!File.Exists(configFilePath))
                     {
                         return false;
@@ -67,7 +77,8 @@ public bool TryGetConfiguration(out string logDirectory, out int fileSizeInKB, o
 
                     file.Read(buffer, 0, buffer.Length);
                     string configJson = Encoding.UTF8.GetString(buffer);
-                    if (!TryParseLogDirectory(configJson, out logDirectory))
+                    
+                    if (logDirectory == null && !TryParseLogDirectory(configJson, out logDirectory))
                     {
                         return false;
                     }
diff --git a/CHANGELOG.md b/CHANGELOG.md
index cc8302df20..824e4b8811 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -1,6 +1,7 @@
 # Changelog
 
 ## VNext
+- [Added support to read diagnostics config from the path defined in environment variable.](https://github.com/microsoft/ApplicationInsights-dotnet/pull/2769)
 
 ## Version 2.22.0-beta3
 - [Do not report CosmosDB transport-level calls](https://github.com/microsoft/ApplicationInsights-dotnet/pull/2789)