diff --git a/README.md b/README.md
index b63a2460f6..0261be1f6d 100644
--- a/README.md
+++ b/README.md
@@ -24,11 +24,11 @@ Please visit [our documentation](https://develop.sentry.dev/self-hosted/) for ev
 
 ### Customize DotEnv (.env) file
 
-Environment specific configurations can be done in the `.env.custom` file. It will be located in the root directory of the Sentry installation.
+Environment specific configurations can be done in the `.env.custom` file. It will be located in the root directory of the Sentry installation, and if it exists then `.env` will be ignored entirely.
 
 By default, there exists no `.env.custom` file. In this case, you can manually add this file by copying the `.env` file to a new `.env.custom` file and adjust your settings in the `.env.custom` file.
 
-Please keep in mind to check the `.env` file for changes, when you perform an upgrade of Sentry, so that you can adjust your `.env.custom` accordingly, if required.
+Please keep in mind to check the `.env` file for changes, when you perform an upgrade of Sentry, so that you can adjust your `.env.custom` accordingly, if required, as `.env` is ignored entirely if `.env.custom` is present.
 
 ### Enhance Sentry image
 
diff --git a/install/_lib.sh b/install/_lib.sh
index f8a104b4a0..3080c8d6d7 100644
--- a/install/_lib.sh
+++ b/install/_lib.sh
@@ -15,11 +15,13 @@ else
   cd "$(dirname $0)"  # assume we're a test script or some such
 fi
 
-# Allow `.env` overrides using the `.env.custom` file
-if [[ -f "../.env.custom" ]]; then
-  _ENV="$(realpath ../.env.custom)"
+# Allow `.env` overrides using the `.env.custom` file.
+# We pass this to docker compose in a couple places.
+basedir="$( cd .. ; pwd -P )"  # realpath is missing on stock macOS
+if [[ -f "$basedir/.env.custom" ]]; then
+  _ENV="$basedir/.env.custom"
 else
-  _ENV="$(realpath ../.env)"
+  _ENV="$basedir/.env"
 fi
 
 # Read .env for default values with a tip o' the hat to https://stackoverflow.com/a/59831605/90297