diff --git a/pkg/kvfile/kvfile.go b/pkg/kvfile/kvfile.go
index f6ac8ef4e047..c527db10f20e 100644
--- a/pkg/kvfile/kvfile.go
+++ b/pkg/kvfile/kvfile.go
@@ -15,11 +15,12 @@
 //
 // # Interpolation, substitution, and escaping
 //
-// Both keys and values are used as-is; no interpolation, substitution or
-// escaping is supported, and quotes are considered part of the key or value.
-// Whitespace in values (including leading and trailing) is preserved. Given
-// that the file format is line-delimited, neither key, nor value, can contain
-// newlines.
+// Both keys and values are used as-is; no interpolation or substitution
+// is supported. Matching surrounding quotes (single or double) on values
+// are stripped to be consistent with shell sourcing behavior. Whitespace
+// in values (including leading and trailing) is preserved after any quote
+// removal. Given that the file format is line-delimited, neither key, nor
+// value, can contain newlines.
 //
 // # Key/Value pairs
 //
@@ -78,6 +79,19 @@ func ParseFromReader(r io.Reader, lookupFn func(key string) (value string, found
 
 const whiteSpaces = " \t"
 
+// trimQuotes removes matching surrounding quotes (single or double) from a
+// value string. Quotes are only removed when the first and last characters
+// are the same quote character. This matches the behavior of shell sourcing.
+func trimQuotes(value string) string {
+	if len(value) >= 2 {
+		if (value[0] == '"' && value[len(value)-1] == '"') ||
+			(value[0] == '\'' && value[len(value)-1] == '\'') {
+			return value[1 : len(value)-1]
+		}
+	}
+	return value
+}
+
 func parseKeyValueFile(r io.Reader, lookupFn func(string) (string, bool)) ([]string, error) {
 	lines := []string{}
 	scanner := bufio.NewScanner(r)
@@ -100,7 +114,7 @@ func parseKeyValueFile(r io.Reader, lookupFn func(string) (string, bool)) ([]str
 			continue
 		}
 
-		key, _, hasValue := strings.Cut(line, "=")
+		key, value, hasValue := strings.Cut(line, "=")
 		if len(key) == 0 {
 			return []string{}, fmt.Errorf("no variable name on line '%s'", line)
 		}
@@ -113,8 +127,10 @@ func parseKeyValueFile(r io.Reader, lookupFn func(string) (string, bool)) ([]str
 		}
 
 		if hasValue {
-			// key/value pair is valid and has a value; add the line as-is.
-			lines = append(lines, line)
+			// Strip matching surrounding quotes from the value,
+			// consistent with shell sourcing behavior.
+			value = trimQuotes(value)
+			lines = append(lines, key+"="+value)
 			continue
 		}
 
diff --git a/pkg/kvfile/kvfile_test.go b/pkg/kvfile/kvfile_test.go
index f1a0e88e6bf5..714462cc0ac8 100644
--- a/pkg/kvfile/kvfile_test.go
+++ b/pkg/kvfile/kvfile_test.go
@@ -143,3 +143,78 @@ func TestParseFromReaderWithNoName(t *testing.T) {
 	const expectedMessage = "no variable name on line '=blank variable names are an error case'"
 	assert.Check(t, is.ErrorContains(err, expectedMessage))
 }
+
+// Test trimQuotes helper function
+func TestTrimQuotes(t *testing.T) {
+	tests := []struct {
+		name     string
+		input    string
+		expected string
+	}{
+		{name: "double quotes", input: `"bar"`, expected: "bar"},
+		{name: "single quotes", input: "'bar'", expected: "bar"},
+		{name: "no quotes", input: "bar", expected: "bar"},
+		{name: "empty string", input: "", expected: ""},
+		{name: "mismatched quotes double-single", input: `"bar'`, expected: `"bar'`},
+		{name: "mismatched quotes single-double", input: `'bar"`, expected: `'bar"`},
+		{name: "only opening double quote", input: `"bar`, expected: `"bar`},
+		{name: "only closing double quote", input: `bar"`, expected: `bar"`},
+		{name: "only opening single quote", input: "'bar", expected: "'bar"},
+		{name: "only closing single quote", input: "bar'", expected: "bar'"},
+		{name: "empty double quotes", input: `""`, expected: ""},
+		{name: "empty single quotes", input: "''", expected: ""},
+		{name: "nested double in single", input: `'"bar"'`, expected: `"bar"`},
+		{name: "nested single in double", input: `"'bar'"`, expected: "'bar'"},
+		{name: "single char", input: "a", expected: "a"},
+		{name: "single double quote", input: `"`, expected: `"`},
+		{name: "single single quote", input: "'", expected: "'"},
+		{name: "spaces inside double quotes", input: `"hello world"`, expected: "hello world"},
+		{name: "spaces inside single quotes", input: "'hello world'", expected: "hello world"},
+		{name: "value with internal quotes", input: `"say \"hello\""`, expected: `say \"hello\"`},
+		{name: "triple double quotes", input: `"""`, expected: `"`},
+	}
+	for _, tc := range tests {
+		t.Run(tc.name, func(t *testing.T) {
+			result := trimQuotes(tc.input)
+			assert.Check(t, is.Equal(result, tc.expected))
+		})
+	}
+}
+
+// Test ParseFromReader strips surrounding quotes from values
+func TestParseFromReaderQuotedValues(t *testing.T) {
+	content := `# Quoted values should have surrounding quotes stripped
+DOUBLE_QUOTED="hello world"
+SINGLE_QUOTED='hello world'
+NO_QUOTES=hello
+EMPTY_DOUBLE=""
+EMPTY_SINGLE=''
+MISMATCHED="hello'
+NESTED_DOUBLE='"hello"'
+NESTED_SINGLE="'hello'"
+UNQUOTED_SPACES=hello world
+INTERNAL_QUOTES=he"ll"o
+ONLY_OPENING="hello
+VALUE_WITH_EQUALS="foo=bar"
+`
+
+	lines, err := ParseFromReader(strings.NewReader(content), nil)
+	assert.NilError(t, err)
+
+	expectedLines := []string{
+		"DOUBLE_QUOTED=hello world",
+		"SINGLE_QUOTED=hello world",
+		"NO_QUOTES=hello",
+		"EMPTY_DOUBLE=",
+		"EMPTY_SINGLE=",
+		`MISMATCHED="hello'`,
+		`NESTED_DOUBLE="hello"`,
+		"NESTED_SINGLE='hello'",
+		"UNQUOTED_SPACES=hello world",
+		`INTERNAL_QUOTES=he"ll"o`,
+		`ONLY_OPENING="hello`,
+		"VALUE_WITH_EQUALS=foo=bar",
+	}
+
+	assert.Check(t, is.DeepEqual(lines, expectedLines))
+}