diff --git a/__tests__/lib/dev-environment/dev-environment-configuration-file.js b/__tests__/lib/dev-environment/dev-environment-configuration-file.js
index 2bcbd6896..044fb9c7c 100644
--- a/__tests__/lib/dev-environment/dev-environment-configuration-file.js
+++ b/__tests__/lib/dev-environment/dev-environment-configuration-file.js
@@ -4,7 +4,9 @@
 
 import { jest } from '@jest/globals';
 import { readFile } from 'node:fs/promises';
+import path from 'node:path';
 
+import * as exit from '../../../src/lib/cli/exit';
 import { getConfigurationFileOptions } from '../../../src/lib/dev-environment/dev-environment-configuration-file';
 
 // Mock fs operations
@@ -18,9 +20,12 @@ jest.mock( '../../../src/lib/cli/exit', () => ( {
 } ) );
 
 const mockedReadFile = readFile;
+const mockedExitWithError = exit.withError;
 
 describe( 'dev-environment-configuration-file', () => {
 	describe( 'multisite configuration sanitization', () => {
+		const templateConfigDir = path.join( '/test/dir', '.wpvip' );
+		const templateConfigPath = path.join( templateConfigDir, 'vip-dev-env.yml.ejs' );
 		const createConfigContent = multisiteValue => `
 configuration-version: 1
 slug: test-site
@@ -32,6 +37,9 @@ app-code: demo
 		beforeEach( () => {
 			jest.clearAllMocks();
 			jest.resetAllMocks();
+			mockedExitWithError.mockImplementation( message => {
+				throw new Error( message );
+			} );
 			// Mock process.cwd() to return a known directory
 			jest.spyOn( process, 'cwd' ).mockReturnValue( '/test/dir' );
 			// Default mock to reject all file reads
@@ -126,5 +134,38 @@ app-code: demo
 
 			expect( result ).toEqual( {} );
 		} );
+
+		it( 'should replace supported configDir placeholders in template configuration files', async () => {
+			const configContent = `
+configuration-version: 1
+slug: test-site
+overrides: |
+  services:
+    php:
+      volumes:
+        - <%= configDir %>/..:/wp/wp-content/plugins/my-integration
+`;
+
+			mockedReadFile.mockResolvedValueOnce( configContent );
+
+			const result = await getConfigurationFileOptions();
+
+			expect( result.overrides ).toContain(
+				`${ templateConfigDir }/..:/wp/wp-content/plugins/my-integration`
+			);
+		} );
+
+		it( 'should reject arbitrary EJS syntax in template configuration files', async () => {
+			const configContent = `
+configuration-version: 1
+slug: <%= process.env.SLUG %>
+`;
+
+			mockedReadFile.mockResolvedValueOnce( configContent );
+
+			await expect( getConfigurationFileOptions() ).rejects.toThrow(
+				`EJS JavaScript is not supported in dev-env configuration file ${ templateConfigPath }`
+			);
+		} );
 	} );
 } );
diff --git a/src/lib/dev-environment/dev-environment-configuration-file.ts b/src/lib/dev-environment/dev-environment-configuration-file.ts
index 8667c36c1..41391f15f 100644
--- a/src/lib/dev-environment/dev-environment-configuration-file.ts
+++ b/src/lib/dev-environment/dev-environment-configuration-file.ts
@@ -1,6 +1,5 @@
 import chalk from 'chalk';
 import debugLib from 'debug';
-import ejs from 'ejs';
 import yaml, { FAILSAFE_SCHEMA } from 'js-yaml';
 import { readFile } from 'node:fs/promises';
 import path from 'node:path';
@@ -23,6 +22,8 @@ const debug = debugLib( '@automattic/vip:bin:dev-environment' );
 
 export const CONFIGURATION_FILE_NAME = 'vip-dev-env.yml';
 export const CONFIGURATION_TEMPLATE_FILE_NAME = 'vip-dev-env.yml.ejs';
+const ALLOWED_CONFIG_DIR_TEMPLATE = /<%=\s*configDir\s*%>/g;
+const EJS_TEMPLATE_TAG = /<%[\s\S]*?%>/;
 
 export async function getConfigurationFileOptions(): Promise< ConfigurationFileOptions > {
 	const configurationFile = await findConfigurationFile();
@@ -249,19 +250,30 @@ async function findConfigurationFile(): Promise<
 	}
 
 	for ( const { dir, file, template } of locations ) {
+		let contents: string;
 		try {
 			// eslint-disable-next-line no-await-in-loop
-			const contents = await readFile( file, 'utf8' );
-			if ( template ) {
-				const rendered = ejs.render( contents, { configDir: dir } );
-				return { configurationPath: file, configurationContents: rendered };
-			}
-
-			return { configurationPath: file, configurationContents: contents };
+			contents = await readFile( file, 'utf8' );
 		} catch ( error ) {
 			const err = error instanceof Error ? error : new Error( 'Unknown error' );
-			debug( `Error reading or rendering file ${ file }: ${ err.message }` );
+			debug( `Error reading file ${ file }: ${ err.message }` );
+			continue;
 		}
+
+		if ( template ) {
+			const stripped = contents.replace( ALLOWED_CONFIG_DIR_TEMPLATE, '' );
+			if ( EJS_TEMPLATE_TAG.test( stripped ) ) {
+				exit.withError(
+					`EJS JavaScript is not supported in dev-env configuration file ${ file }. ` +
+						'Use plain YAML, or only the supported <%= configDir %> placeholder.'
+				);
+			}
+
+			const rendered = contents.replace( ALLOWED_CONFIG_DIR_TEMPLATE, () => dir );
+			return { configurationPath: file, configurationContents: rendered };
+		}
+
+		return { configurationPath: file, configurationContents: contents };
 	}
 
 	return false;