diff --git a/bundle/deploy/terraform/init.go b/bundle/deploy/terraform/init.go
index 0ce15acb..eb3e99d1 100644
--- a/bundle/deploy/terraform/init.go
+++ b/bundle/deploy/terraform/init.go
@@ -70,6 +70,23 @@ func (m *initialize) findExecPath(ctx context.Context, b *bundle.Bundle, tf *con
 	return tf.ExecPath, nil
 }
 
+// This function inherits some environment variables for Terraform CLI.
+func inheritEnvVars(env map[string]string) error {
+	// Include $HOME in set of environment variables to pass along.
+	home, ok := os.LookupEnv("HOME")
+	if ok {
+		env["HOME"] = home
+	}
+
+	// Include $TF_CLI_CONFIG_FILE to override terraform provider in development.
+	configFile, ok := os.LookupEnv("TF_CLI_CONFIG_FILE")
+	if ok {
+		env["TF_CLI_CONFIG_FILE"] = configFile
+	}
+
+	return nil
+}
+
 // This function sets temp dir location for terraform to use. If user does not
 // specify anything here, we fall back to a `tmp` directory in the bundle's cache
 // directory
@@ -145,10 +162,9 @@ func (m *initialize) Apply(ctx context.Context, b *bundle.Bundle) error {
 		return err
 	}
 
-	// Include $HOME in set of environment variables to pass along.
-	home, ok := os.LookupEnv("HOME")
-	if ok {
-		env["HOME"] = home
+	err = inheritEnvVars(env)
+	if err != nil {
+		return err
 	}
 
 	// Set the temporary directory environment variables
diff --git a/bundle/deploy/terraform/init_test.go b/bundle/deploy/terraform/init_test.go
index aafe5660..79e18170 100644
--- a/bundle/deploy/terraform/init_test.go
+++ b/bundle/deploy/terraform/init_test.go
@@ -272,3 +272,19 @@ func TestSetProxyEnvVars(t *testing.T) {
 	require.NoError(t, err)
 	assert.ElementsMatch(t, []string{"HTTP_PROXY", "HTTPS_PROXY", "NO_PROXY"}, maps.Keys(env))
 }
+
+func TestInheritEnvVars(t *testing.T) {
+	env := map[string]string{}
+
+	t.Setenv("HOME", "/home/testuser")
+	t.Setenv("TF_CLI_CONFIG_FILE", "/tmp/config.tfrc")
+
+	err := inheritEnvVars(env)
+
+	require.NoError(t, err)
+
+	require.Equal(t, map[string]string{
+		"HOME":               "/home/testuser",
+		"TF_CLI_CONFIG_FILE": "/tmp/config.tfrc",
+	}, env)
+}