diff --git a/packages/app-lib/.env.local b/packages/app-lib/.env.local
index 171b37b9e6..4ef869e277 100644
--- a/packages/app-lib/.env.local
+++ b/packages/app-lib/.env.local
@@ -4,6 +4,9 @@ MODRINTH_API_URL_V3=http://127.0.0.1:8000/v3/
 MODRINTH_SOCKET_URL=ws://127.0.0.1:8000/
 MODRINTH_LAUNCHER_META_URL=https://launcher-meta.modrinth.com/
 
+# Theseus config directory for development
+# THESEUS_CONFIG_DIR=
+
 # SQLite database file used by sqlx for type checking. Uncomment this to a valid path
 # in your system and run `cargo sqlx database setup` to generate an empty database that
 # can be used for developing the app DB schema
diff --git a/packages/app-lib/src/state/dirs.rs b/packages/app-lib/src/state/dirs.rs
index b098dbcac0..7154db6d54 100644
--- a/packages/app-lib/src/state/dirs.rs
+++ b/packages/app-lib/src/state/dirs.rs
@@ -33,7 +33,15 @@ impl DirectoryInfo {
     // Get the settings directory
     // init() is not needed for this function
     pub fn initial_settings_dir_path(app_identifier: &str) -> Option<PathBuf> {
-        Self::env_path("THESEUS_CONFIG_DIR")
+        // Use option_env! to read compile-time env var set by build.rs from .env file
+        option_env!("THESEUS_CONFIG_DIR")
+            .and_then(|p| {
+                if p.is_empty() {
+                    None
+                } else {
+                    Some(PathBuf::from(p))
+                }
+            })
             .or_else(|| Some(dirs::data_dir()?.join(app_identifier)))
     }
 
@@ -184,12 +192,6 @@ impl DirectoryInfo {
         self.config_dir.join(CACHES_FOLDER_NAME)
     }
 
-    /// Get path from environment variable
-    #[inline]
-    fn env_path(name: &str) -> Option<PathBuf> {
-        std::env::var_os(name).map(PathBuf::from)
-    }
-
     #[tracing::instrument(skip(settings, exec, io_semaphore))]
     pub async fn move_launcher_directory<'a, E>(
         settings: &mut Settings,