diff --git a/CHANGELOG.md b/CHANGELOG.md
index e5f25414..7e3d2eb2 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -14,6 +14,7 @@ project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0.html).
 - `set_key` and `unset_key` no longer leave a `.tmp_*` file behind on Windows when writing a read-only `.env` fails, and the error raised is the one from the failed write rather than from cleaning up the temporary file by [@MohammedAlkindi] in [#686]
 - `load_dotenv`, `dotenv_values`, `get_key`, `set_key`, `unset_key` and the CLI `--file` option now expand a leading `~` to the user's home directory by [@veeceey] in [#615]
 - `find_dotenv` and the IPython `%dotenv` magic now expand a leading `~` in the file name by [@theskumar] in [#714]
+- A variable without a value (`FOO`) in a `.env` file no longer hides the environment or a `${FOO:-default}` default when it is referenced by a later variable, so `FOO\nBAR=${FOO}` now expands to the value of `FOO` from the environment instead of an empty string by [@TheNetherWatcher] in [#728]
 
 ## [1.2.4] - 2026-10-01
 
@@ -467,6 +468,7 @@ os.PathLike]` instead of just `os.PathLike` (#347 by [@bbc2]).
 [#700]: https://github.com/theskumar/python-dotenv/pull/700
 [#711]: https://github.com/theskumar/python-dotenv/pull/711
 [#714]: https://github.com/theskumar/python-dotenv/pull/714
+[#728]: https://github.com/theskumar/python-dotenv/pull/728
 [790c5c0]: https://github.com/theskumar/python-dotenv/commit/790c5c02991100aa1bf41ee5330aca75edc51311
 
 <!-- contributors -->
@@ -533,6 +535,7 @@ os.PathLike]` instead of just `os.PathLike` (#347 by [@bbc2]).
 [@JYOuyang]: https://github.com/JYOuyang
 [@burnout-projects]: https://github.com/burnout-projects
 [@cpackham-atlnz]: https://github.com/cpackham-atlnz
+[@TheNetherWatcher]: https://github.com/TheNetherWatcher
 [Unreleased]: https://github.com/theskumar/python-dotenv/compare/v1.2.4...HEAD
 [1.2.4]: https://github.com/theskumar/python-dotenv/compare/v1.2.3...v1.2.4
 [1.2.3]: https://github.com/theskumar/python-dotenv/compare/v1.2.2...v1.2.3
diff --git a/src/dotenv/main.py b/src/dotenv/main.py
index 5faa7f0e..b03f84ea 100644
--- a/src/dotenv/main.py
+++ b/src/dotenv/main.py
@@ -341,12 +341,15 @@ def resolve_variables(
             result = None
         else:
             atoms = parse_variables(value)
+            # A variable without a value (`FOO`) is not set, so it must not
+            # hide the environment or a default when it is referenced.
+            file_values = {k: v for k, v in new_values.items() if v is not None}
             env: Dict[str, Optional[str]] = {}
             if override:
                 env.update(os.environ)  # type: ignore
-                env.update(new_values)
+                env.update(file_values)
             else:
-                env.update(new_values)
+                env.update(file_values)
                 env.update(os.environ)  # type: ignore
             result = "".join(atom.resolve(env) for atom in atoms)
 
diff --git a/tests/test_main.py b/tests/test_main.py
index 930ab171..7e1a2abd 100644
--- a/tests/test_main.py
+++ b/tests/test_main.py
@@ -816,6 +816,20 @@ def test_load_dotenv_redefine_var_used_in_file_with_override(dotenv_path):
     assert os.environ == {"a": "b", "d": "b"}
 
 
+@pytest.mark.skipif(
+    sys.platform == "win32", reason="This test assumes case-sensitive variable names"
+)
+@pytest.mark.parametrize("override", [False, True])
+@mock.patch.dict(os.environ, {"a": "c"}, clear=True)
+def test_load_dotenv_var_without_value_used_in_file(dotenv_path, override):
+    dotenv_path.write_text('a\nb\nd="${a}"\ne="${b:-f}"')
+
+    result = dotenv.load_dotenv(dotenv_path, override=override)
+
+    assert result is True
+    assert os.environ == {"a": "c", "d": "c", "e": "f"}
+
+
 @pytest.mark.skipif(
     sys.platform == "win32", reason="This test assumes case-sensitive variable names"
 )
@@ -910,6 +924,10 @@ def test_dotenv_values_file(dotenv_path):
         ({"b": "c"}, "b=d\na=${b}", True, {"a": "d", "b": "d"}),
         ({}, "a=b\na=c\nd=${a}", True, {"a": "c", "d": "c"}),
         ({}, "a=b\nc=${a}\nd=e\nc=${d}", True, {"a": "b", "c": "e", "d": "e"}),
+        # Defined in file without a value
+        ({"b": "c"}, "b\na=${b}", True, {"a": "c", "b": None}),
+        ({}, "b\na=${b}", True, {"a": "", "b": None}),
+        ({}, "b\na=${b:-d}", True, {"a": "d", "b": None}),
     ],
 )
 def test_dotenv_values_string_io(env, string, interpolate, expected):