diff --git a/CHANGELOG.md b/CHANGELOG.md
index 2e1100a3c..4eefcc0bf 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -9,6 +9,7 @@
 - Change default CLI download path to be in extension directory.
 - Delete sentry reporting.
 - send analytics event "plugin installed" the first time the extension is started
+- Allow `${workspaceFolder}` in `trustedFolders` and `folderConfigs`
 
 ## [2.19.2]
 - Update download endpoint to downloads.snyk.io.
diff --git a/src/snyk/common/languageServer/settings.ts b/src/snyk/common/languageServer/settings.ts
index e1351d348..c3dcf450b 100644
--- a/src/snyk/common/languageServer/settings.ts
+++ b/src/snyk/common/languageServer/settings.ts
@@ -3,6 +3,7 @@ import { CLI_INTEGRATION_NAME } from '../../cli/contants/integration';
 import { Configuration, FolderConfig, IConfiguration, SeverityFilter } from '../configuration/configuration';
 import { User } from '../user';
 import { PROTOCOL_VERSION } from '../constants/languageServer';
+import { vsCodeWorkspace } from '../vscode/workspace';
 
 export type ServerSettings = {
   // Feature toggles
@@ -80,12 +81,29 @@ export class LanguageServerSettings {
       scanningMode: configuration.scanningMode,
       insecure: `${configuration.getInsecure()}`,
       enableTrustedFoldersFeature: 'true',
-      trustedFolders: configuration.getTrustedFolders(),
+      trustedFolders: configuration.getTrustedFolders().map((value, _index, _array) => {
+        const wf = vsCodeWorkspace.getWorkspaceFolders()?.[0];
+        if (wf) {
+          return value.replace('${workspaceFolder}', wf);
+        } else {
+          return value;
+        }
+      }),
       integrationName: CLI_INTEGRATION_NAME,
       integrationVersion: await Configuration.getVersion(),
       deviceId: user.anonymousId,
       requiredProtocolVersion: `${PROTOCOL_VERSION}`,
-      folderConfigs: configuration.getFolderConfigs(),
+      folderConfigs: configuration.getFolderConfigs().map((value, _index, _array) => {
+        const wf = vsCodeWorkspace.getWorkspaceFolders()?.[0];
+        if (wf) {
+          return {
+            folderPath: value.folderPath.replace('${workspaceFolder}', wf),
+            baseBranch: value.baseBranch,
+            localBranches: value.localBranches,
+          };
+        }
+        return value;
+      }),
       enableSnykOSSQuickFixCodeActions: `${configuration.getPreviewFeatures().ossQuickfixes}`,
       hoverVerbosity: 1,
     };
diff --git a/src/test/integration/configuration.test.ts b/src/test/integration/configuration.test.ts
index 5c3e5d43a..29edd4ff4 100644
--- a/src/test/integration/configuration.test.ts
+++ b/src/test/integration/configuration.test.ts
@@ -1,9 +1,10 @@
-import { deepStrictEqual, strictEqual } from 'assert';
+import { deepStrictEqual, strictEqual, notStrictEqual } from 'assert';
 import { FeaturesConfiguration } from '../../snyk/common/configuration/configuration';
 import { configuration } from '../../snyk/common/configuration/instance';
 import vscode from 'vscode';
-import { ADVANCED_CUSTOM_ENDPOINT } from '../../snyk/common/constants/settings';
-
+import { ADVANCED_CUSTOM_ENDPOINT, FOLDER_CONFIGS, TRUSTED_FOLDERS } from '../../snyk/common/constants/settings';
+import { LanguageServerSettings } from '../../snyk/common/languageServer/settings';
+import { User } from '../../snyk/common/user';
 suite('Configuration', () => {
   test('settings change is reflected', async () => {
     await vscode.workspace.getConfiguration().update(ADVANCED_CUSTOM_ENDPOINT, '');
@@ -32,4 +33,19 @@ suite('Configuration', () => {
     deepStrictEqual(configuration.getFeaturesConfiguration(), featuresConfig);
     await configuration.setToken('');
   });
+
+  test('workspaceFolder is transformed', async () => {
+    await vscode.workspace.getConfiguration().update(TRUSTED_FOLDERS, ['${workspaceFolder}']);
+    await vscode.workspace.getConfiguration().update(FOLDER_CONFIGS, [
+      {
+        folderPath: '${workspaceFolder}',
+        baseBranch: 'baseBranch',
+        localBranches: [],
+      },
+    ]);
+
+    const serverSettings = await LanguageServerSettings.fromConfiguration(configuration, new User());
+    notStrictEqual(serverSettings.trustedFolders?.at(0), '${workspaceFolder}');
+    notStrictEqual(serverSettings.folderConfigs?.at(0)?.folderPath, '${workspaceFolder}');
+  });
 });