diff --git a/packages/core/src/config/variable.ts b/packages/core/src/config/variable.ts
index e6d7ad4d266a..afbb3259bbe8 100644
--- a/packages/core/src/config/variable.ts
+++ b/packages/core/src/config/variable.ts
@@ -23,7 +23,12 @@ type SubstituteInput = ParseSource & {
   env?: Record<string, string>
 }
 
-/** Apply {env:VAR} and {file:path} substitutions to config text. */
+/**
+ * Apply {env:VAR} and {file:path} substitutions to config text.
+ *
+ * `text` is raw JSON(C) source: `{file:...}` bodies are JSON string fragments,
+ * so their escapes are decoded before filesystem access.
+ */
 export const substitute = Effect.fn("ConfigVariable.substitute")(function* (input: SubstituteInput) {
   const text = input.text.replace(
     /\{env:([^}]+)\}/g,
@@ -53,7 +58,14 @@ const substituteFiles = Effect.fnUntraced(function* (input: SubstituteInput, tex
       continue
     }
 
-    const filePath = token.slice("{file:".length, -1)
+    let filePath = token.slice("{file:".length, -1)
+    try {
+      // Bodies sit inside JSON(C) string values, so encoded escapes (e.g. the
+      // doubled backslashes of Windows paths) must be decoded first.
+      filePath = JSON.parse(`"${filePath}"`)
+    } catch {
+      // Not valid JSON string content; keep the raw path.
+    }
     const expandedPath = filePath.startsWith("~/") ? path.join(os.homedir(), filePath.slice(2)) : filePath
     const resolvedPath = path.isAbsolute(expandedPath) ? expandedPath : path.resolve(configDir, expandedPath)
     const fileContent = yield* fs.readFileString(resolvedPath).pipe(
diff --git a/packages/core/test/config/variable.test.ts b/packages/core/test/config/variable.test.ts
new file mode 100644
index 000000000000..0fd38eb9636b
--- /dev/null
+++ b/packages/core/test/config/variable.test.ts
@@ -0,0 +1,99 @@
+import os from "os"
+import path from "path"
+import { describe, expect } from "bun:test"
+import { Effect, Layer } from "effect"
+import { ConfigVariable } from "@opencode/core/config/variable"
+import { FSUtil } from "@opencode/util/fs-util"
+import { LayerNode } from "@opencode/util/effect/layer-node"
+import { testEffect } from "../lib/effect"
+
+const it = testEffect(Layer.empty)
+
+// substitute() only reads files through FSUtil, so a spy layer records the exact
+// paths the substitution asks for while serving canned content.
+function spyFileSystemLayer(spy: { paths: string[]; content: string }) {
+  return Layer.effect(
+    FSUtil.Service,
+    FSUtil.Service.use((fs) =>
+      Effect.succeed(
+        FSUtil.Service.of({
+          ...fs,
+          readFileString: (target: string) => {
+            spy.paths.push(target)
+            return Effect.succeed(spy.content)
+          },
+        }),
+      ),
+    ),
+  ).pipe(Layer.provide(LayerNode.compile(FSUtil.node)))
+}
+
+describe("ConfigVariable.substitute", () => {
+  // Reproduction: a UNC path inside a JSON string value must be written with
+  // doubled backslashes, so the raw token body cannot be used as a filesystem
+  // path — it has to be JSON-decoded first.
+  it.effect("decodes JSON string escapes in {file:...} bodies before filesystem access", () =>
+    Effect.gen(function* () {
+      const spy = { paths: [] as string[], content: "decoded" }
+      const text = String.raw`{"shell":"{file:\\\\server\\share\\mcp.json}"}`
+      const substituted = yield* ConfigVariable.substitute({ type: "path", path: "/project/opencode.json", text }).pipe(
+        Effect.provide(spyFileSystemLayer(spy)),
+      )
+      expect(spy.paths).toEqual([String.raw`\\server\share\mcp.json`])
+      expect(substituted).toBe(`{"shell":"decoded"}`)
+    }),
+  )
+
+  // A plain Windows path written as JSON (doubled backslashes) must decode to
+  // the same path the user meant; on POSIX the body has no escapes and passes
+  // through unchanged, so this holds on every platform.
+  it.effect("decodes escaped Windows paths in {file:...} bodies", () =>
+    Effect.gen(function* () {
+      const spy = { paths: [] as string[], content: "decoded" }
+      const target = path.join("C:", "Users", "dev", "mcp.json")
+      const body = JSON.stringify(target).slice(1, -1)
+      const text = `{"shell":"{file:${body}}"}`
+      const substituted = yield* ConfigVariable.substitute({ type: "path", path: "/project/opencode.json", text }).pipe(
+        Effect.provide(spyFileSystemLayer(spy)),
+      )
+      expect(spy.paths).toEqual([target])
+      expect(substituted).toBe(`{"shell":"decoded"}`)
+    }),
+  )
+
+  it.effect("resolves plain relative {file:...} paths against the config directory", () =>
+    Effect.gen(function* () {
+      const spy = { paths: [] as string[], content: "decoded" }
+      const text = String.raw`{"shell":"{file:sub/mcp.json}"}`
+      const substituted = yield* ConfigVariable.substitute({ type: "path", path: "/project/opencode.json", text }).pipe(
+        Effect.provide(spyFileSystemLayer(spy)),
+      )
+      expect(spy.paths).toEqual([path.resolve("/project", "sub/mcp.json")])
+      expect(substituted).toBe(`{"shell":"decoded"}`)
+    }),
+  )
+
+  it.effect("keeps the raw path when a {file:...} body is not valid JSON string content", () =>
+    Effect.gen(function* () {
+      const spy = { paths: [] as string[], content: "decoded" }
+      const text = String.raw`{"shell":"{file:\q}"}`
+      const substituted = yield* ConfigVariable.substitute({ type: "path", path: "/project/opencode.json", text }).pipe(
+        Effect.provide(spyFileSystemLayer(spy)),
+      )
+      expect(spy.paths).toHaveLength(1)
+      expect(substituted).toBe(`{"shell":"decoded"}`)
+    }),
+  )
+
+  it.effect("expands ~ after decoding escapes in {file:...} bodies", () =>
+    Effect.gen(function* () {
+      const spy = { paths: [] as string[], content: "decoded" }
+      const text = String.raw`{"shell":"{file:~\/config/mcp.json}"}`
+      const substituted = yield* ConfigVariable.substitute({ type: "path", path: "/project/opencode.json", text }).pipe(
+        Effect.provide(spyFileSystemLayer(spy)),
+      )
+      expect(spy.paths).toEqual([path.join(os.homedir(), path.join("config", "mcp.json"))])
+      expect(substituted).toBe(`{"shell":"decoded"}`)
+    }),
+  )
+})