diff --git a/e2e/cypress/src/cypress.test.ts b/e2e/cypress/src/cypress.test.ts
index 91b5d26a3f398..62fffefdb7cca 100644
--- a/e2e/cypress/src/cypress.test.ts
+++ b/e2e/cypress/src/cypress.test.ts
@@ -1,11 +1,13 @@
 import {
   checkFilesExist,
+  createFile,
   killPorts,
   newProject,
   readJson,
   runCLI,
   uniq,
   updateFile,
+  updateJson,
 } from '@nrwl/e2e/utils';
 
 describe('Cypress E2E Test runner', () => {
@@ -34,10 +36,53 @@ describe('Cypress E2E Test runner', () => {
   }, 1000000);
 
   it('should execute e2e tests using Cypress', async () => {
+    // make sure env vars work
+    createFile(
+      `apps/${myapp}-e2e/cypress.env.json`,
+      `
+{
+  "cypressEnvJson": "i am from the cypress.env.json file"
+}`
+    );
+
+    updateJson(`apps/${myapp}-e2e/project.json`, (json) => {
+      json.targets.e2e.options = {
+        ...json.targets.e2e.options,
+        env: {
+          projectJson: 'i am from the nx project json file',
+        },
+      };
+      return json;
+    });
+    createFile(
+      `apps/${myapp}-e2e/src/e2e/env.cy.ts`,
+      `
+describe('env vars', () => {
+  it('should have cli args', () => {
+    assert.equal(Cypress.env('cliArg'), 'i am from the cli args');
+  });
+
+  it('should have cypress.env.json vars', () => {
+    assert.equal(
+      Cypress.env('cypressEnvJson'),
+      'i am from the cypress.env.json file'
+    );
+  });
+
+  it('cli args should not merged project.json vars', () => {
+    assert.equal(
+      Cypress.env('projectJson'),
+      undefined
+    );
+  });
+});`
+    );
+
     // contains the correct output and works
-    const run1 = runCLI(`e2e ${myapp}-e2e --no-watch`);
+    const run1 = runCLI(
+      `e2e ${myapp}-e2e --no-watch --env.cliArg="i am from the cli args"`
+    );
     expect(run1).toContain('All specs passed!');
-
     await killPorts(4200);
     // tests should not fail because of a config change
     updateFile(
@@ -50,13 +95,43 @@ export default defineConfig({
   e2e: {
   ...nxE2EPreset(__dirname),
   fixturesFolder: undefined,
-  }
-  ,
+  },
 });`
     );
 
-    const run2 = runCLI(`e2e ${myapp}-e2e --no-watch`);
+    const run2 = runCLI(
+      `e2e ${myapp}-e2e --no-watch --env.cliArg="i am from the cli args"`
+    );
     expect(run2).toContain('All specs passed!');
+    await killPorts(4200);
+
+    // make sure project.json env vars also work
+    updateFile(
+      `apps/${myapp}-e2e/src/e2e/env.cy.ts`,
+      `
+describe('env vars', () => {
+  it('should not have cli args', () => {
+    assert.equal(Cypress.env('cliArg'), undefined);
+  });
+
+  it('should have cypress.env.json vars', () => {
+    assert.equal(
+      Cypress.env('cypressEnvJson'),
+      'i am from the cypress.env.json file'
+    );
+  });
+
+  it('should have project.json vars', () => {
+    assert.equal(
+      Cypress.env('projectJson'),
+      'i am from the nx project json file'
+    );
+  });
+});`
+    );
+    const run3 = runCLI(`e2e ${myapp}-e2e --no-watch`);
+    expect(run3).toContain('All specs passed!');
+
     expect(await killPorts(4200)).toBeTruthy();
   }, 1000000);
 });