diff --git a/examples/dotenvx-pm2/.env.initial b/examples/dotenvx-pm2/.env.initial
new file mode 100644
index 000000000..315c7be05
--- /dev/null
+++ b/examples/dotenvx-pm2/.env.initial
@@ -0,0 +1,4 @@
+DE=dotenv_initial
+SH_DE=dotenv_initial
+DE_PM=dotenv_initial
+SH_DE_PM=dotenv_initial
diff --git a/examples/dotenvx-pm2/.env.updated b/examples/dotenvx-pm2/.env.updated
new file mode 100644
index 000000000..3689eaaac
--- /dev/null
+++ b/examples/dotenvx-pm2/.env.updated
@@ -0,0 +1,4 @@
+DE=dotenv_updated
+SH_DE=dotenv_updated
+DE_PM=dotenv_updated
+SH_DE_PM=dotenv_updated
diff --git a/examples/dotenvx-pm2/README.md b/examples/dotenvx-pm2/README.md
new file mode 100644
index 000000000..6bf7fe210
--- /dev/null
+++ b/examples/dotenvx-pm2/README.md
@@ -0,0 +1,21 @@
+This is an example of using [dotenvx](https://dotenvx.com/) with pm2.
+
+It demonstrates how to update the environment for forked and clustered apps using dotenvx.
+
+In this example, the environment variables come from three sources and are applied in the following order (dotenv files take precedence because of the `--overload` option used):
+- shell environment
+- dotenv files `.env.initial` or `.env.updated`.
+- pm2 ecosystem config `ecosystem.config.cjs`
+
+See `package.json` scripts for the actual commands.
+
+```bash
+# install dotenvx
+npm install
+# start apps with `initial` environment and `.env.initial` dotenv file
+npm run start:json
+# reload apps with `updated` environment and `.env.updated` dotenv file
+npm run reload:json
+# delete apps
+npm run delete:json
+```
diff --git a/examples/dotenvx-pm2/ecosystem.config.cjs b/examples/dotenvx-pm2/ecosystem.config.cjs
new file mode 100644
index 000000000..c708322b6
--- /dev/null
+++ b/examples/dotenvx-pm2/ecosystem.config.cjs
@@ -0,0 +1,42 @@
+module.exports = {
+  apps: [
+    {
+      name: 'forked_app',
+      script: './index.js',
+      env_initial: {
+        PORT: 8001,
+        PM: 'pm2_initial',
+        SH_PM: 'pm2_initial',
+        DE_PM: 'pm2_initial',
+        SH_DE_PM: 'pm2_initial',
+      },
+      env_updated: {
+        PORT: 8001,
+        PM: 'pm2_updated',
+        SH_PM: 'pm2_updated',
+        DE_PM: 'pm2_updated',
+        SH_DE_PM: 'pm2_updated',
+      },
+    },
+    {
+      name: 'clustered_app',
+      script: './index.js',
+      instances: 2,
+      exec_mode: 'cluster',
+      env_initial: {
+        PORT: 8002,
+        PM: 'pm2_initial',
+        SH_PM: 'pm2_initial',
+        DE_PM: 'pm2_initial',
+        SH_DE_PM: 'pm2_initial',
+      },
+      env_updated: {
+        PORT: 8002,
+        PM: 'pm2_updated',
+        SH_PM: 'pm2_updated',
+        DE_PM: 'pm2_updated',
+        SH_DE_PM: 'pm2_updated',
+      },
+    },
+  ],
+};
diff --git a/examples/dotenvx-pm2/index.js b/examples/dotenvx-pm2/index.js
new file mode 100644
index 000000000..589c4b73c
--- /dev/null
+++ b/examples/dotenvx-pm2/index.js
@@ -0,0 +1,27 @@
+import http from 'http';
+
+const {
+  PORT,
+  SH,
+  DE,
+  PM,
+  SH_DE,
+  SH_PM,
+  DE_PM,
+  SH_DE_PM,
+} = process.env;
+
+http.createServer((req, res) => {
+  res.writeHead(200);
+  res.end(JSON.stringify({
+    SH,
+    DE,
+    PM,
+    SH_DE,
+    SH_PM,
+    DE_PM,
+    SH_DE_PM,
+  }, null, 2));
+}).listen(PORT, '0.0.0.0', () => {
+  console.log(`App listening on port ${PORT}`);
+});
diff --git a/examples/dotenvx-pm2/package.json b/examples/dotenvx-pm2/package.json
new file mode 100644
index 000000000..99fc0d3fe
--- /dev/null
+++ b/examples/dotenvx-pm2/package.json
@@ -0,0 +1,18 @@
+{
+  "name": "dotenvx-pm2",
+  "version": "1.0.0",
+  "description": "Example usage of dotenvx with pm2",
+  "main": "index.js",
+  "type": "module",
+  "author": "Michael Kalygin",
+  "license": "MIT",
+  "scripts": {
+    "start:json": "SH=shell_initial SH_DE=shell_initial SH_PM=shell_initial SH_DE_PM=shell_initial dotenvx run --env-file .env.initial --overload -- ../../bin/pm2 start ecosystem.config.cjs --env initial",
+    "reload:json": "SH=shell_updated SH_DE=shell_updated SH_PM=shell_updated SH_DE_PM=shell_updated dotenvx run --env-file .env.updated --overload -- ../../bin/pm2 reload ecosystem.config.cjs --env updated --update-env",
+    "delete:json": "../../bin/pm2 delete ecosystem.config.cjs",
+    "test:json": "../../bin/pm2 update && npm run delete:json && npm run start:json && npm run reload:json"
+  },
+  "dependencies": {
+    "@dotenvx/dotenvx": "^1.10.2"
+  }
+}
diff --git a/lib/API.js b/lib/API.js
index 8b7bf2fa6..8a4ed1bdd 100644
--- a/lib/API.js
+++ b/lib/API.js
@@ -1071,7 +1071,7 @@ class API {
         });
 
         // When we are processing JSON, allow to keep the new env by default
-        env.updateEnv = true;
+        env.updateEnv = typeof(opts.updateEnv) === 'undefined' ? true : opts.updateEnv;
 
         // Pass `env` option
         that._operate(action, proc_name, env, function(err, ret) {
diff --git a/lib/Utility.js b/lib/Utility.js
index 547ec9bf6..fd35269f8 100644
--- a/lib/Utility.js
+++ b/lib/Utility.js
@@ -33,10 +33,10 @@ var Utility = module.exports = {
   },
   extendExtraConfig : function(proc, opts) {
     if (opts.env && opts.env.current_conf) {
-      if (opts.env.current_conf.env &&
-          typeof(opts.env.current_conf.env) === 'object' &&
-          Object.keys(opts.env.current_conf.env).length === 0)
-        delete opts.env.current_conf.env
+      // NOTE: `env` gets overriden by `Utility.extendMix` call. Instead, we want to merge envs.
+      if (opts.env.current_conf.env && typeof(opts.env.current_conf.env) === 'object')
+        Utility.extendMix(proc.pm2_env.env, opts.env.current_conf.env);
+        delete opts.env.current_conf.env;
 
       Utility.extendMix(proc.pm2_env, opts.env.current_conf);
       delete opts.env.current_conf;
diff --git a/test/e2e.sh b/test/e2e.sh
old mode 100644
new mode 100755
diff --git a/test/e2e/cli/env-refresh.sh b/test/e2e/cli/env-refresh.sh
index 418c9e2f5..110f3d2c4 100644
--- a/test/e2e/cli/env-refresh.sh
+++ b/test/e2e/cli/env-refresh.sh
@@ -88,3 +88,98 @@ $pm2 kill
 $pm2 l
 NODE_PATH='/test2' $pm2 start local_require.js -i 1
 should 'should have loaded the right globalPaths' 'restart_time: 0' 1
+
+#
+# Ensuring that environment update works correctly when reloading with JSON config.
+#
+# Related issue:
+# https://github.com/Unitech/pm2/issues/3192
+#
+
+# start with config
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_initial PM=pm2_initial SH_PM=pm2_initial" out-env.log &> /dev/null
+spec "should inject shell environment, then inject config environment on start with config"
+
+# restart config without --update-env
+$pm2 delete all
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+SH=shell_updated SH_PM=shell_updated $pm2 restart update-env.config.js --env updated
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_updated PM=pm2_updated SH_PM=pm2_updated" out-env.log &> /dev/null
+spec "should inject shell environment, then inject config environment on restart with config and without --update-env option"
+
+# reload config without --update-env
+$pm2 delete all
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+SH=shell_updated SH_PM=shell_updated $pm2 reload update-env.config.js --env updated
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_updated PM=pm2_updated SH_PM=pm2_updated" out-env.log &> /dev/null
+spec "should inject shell environment, then inject config environment on reload with config and without --update-env option"
+
+# restart config with --update-env
+$pm2 delete all
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+SH=shell_updated SH_PM=shell_updated $pm2 restart update-env.config.js --env updated --update-env
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_updated PM=pm2_updated SH_PM=pm2_updated" out-env.log &> /dev/null
+spec "should inject shell environment, then inject config environment on restart with config and with --update-env option"
+
+# reload config with --update-env
+$pm2 delete all
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+SH=shell_updated SH_PM=shell_updated $pm2 reload update-env.config.js --env updated --update-env
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_updated PM=pm2_updated SH_PM=pm2_updated" out-env.log &> /dev/null
+spec "should inject shell environment, then inject config environment on reload with config and with --update-env option"
+
+# restart pid without --update-env
+$pm2 delete all
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+SH=shell_updated SH_PM=shell_updated $pm2 restart update_env_app
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_initial PM=pm2_initial SH_PM=pm2_initial" out-env.log &> /dev/null
+spec "should keep environment on restart with pid and without --update-env option"
+
+# reload pid without --update-env
+$pm2 delete all
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+SH=shell_updated SH_PM=shell_updated $pm2 reload update_env_app
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_initial PM=pm2_initial SH_PM=pm2_initial" out-env.log &> /dev/null
+spec "should keep environment on reload with pid and without --update-env option"
+
+# restart pid with --update-env
+$pm2 delete all
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+SH=shell_updated SH_PM=shell_updated $pm2 restart update_env_app --update-env
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_updated PM=pm2_initial SH_PM=shell_updated" out-env.log &> /dev/null
+spec "should inject shell environment on restart with pid and with --update-env option"
+
+# reload pid with --update-env
+$pm2 delete all
+SH=shell_initial SH_PM=shell_initial $pm2 start update-env.config.js --env initial
+SH=shell_updated SH_PM=shell_updated $pm2 reload update_env_app --update-env
+>out-env.log
+
+sleep 0.5
+grep "SH=shell_updated PM=pm2_initial SH_PM=shell_updated" out-env.log &> /dev/null
+spec "should inject shell environment on reload with pid and with --update-env option"
diff --git a/test/fixtures/update-env.config.js b/test/fixtures/update-env.config.js
new file mode 100644
index 000000000..550bdaf6f
--- /dev/null
+++ b/test/fixtures/update-env.config.js
@@ -0,0 +1,22 @@
+module.exports = {
+  apps: [
+    {
+      name: 'update_env_app',
+      script: './update-env.js',
+      instances: 2,
+      exec_mode: 'cluster',
+      out_file: 'out-env.log',
+      merge_logs: true,
+      env_initial: {
+        NODE_ENV: 'test',
+        PM: 'pm2_initial',
+        SH_PM: 'pm2_initial',
+      },
+      env_updated: {
+        NODE_ENV: 'test',
+        PM: 'pm2_updated',
+        SH_PM: 'pm2_updated',
+      },
+    },
+  ],
+};
diff --git a/test/fixtures/update-env.js b/test/fixtures/update-env.js
new file mode 100644
index 000000000..0654665b9
--- /dev/null
+++ b/test/fixtures/update-env.js
@@ -0,0 +1,5 @@
+setInterval(() => {
+  const { SH, PM, SH_PM } = process.env;
+
+  console.log(`SH=${SH} PM=${PM} SH_PM=${SH_PM}`);
+}, 100);
diff --git a/test/programmatic/env_switching.js b/test/programmatic/env_switching.js
index fe55ce424..da1a9d61f 100644
--- a/test/programmatic/env_switching.js
+++ b/test/programmatic/env_switching.js
@@ -130,14 +130,117 @@ describe('PM2 programmatic calls', function() {
     });
   });
 
-  // it('should start a script and NODE_ENV have right value', function(done) {
-  //   pm2.start(json_declaration_simple, function(err, data) {
-  //     proc1 = data[0];
-  //     should(err).be.null;
-  //     proc1.pm2_env['NODE_ENV'].should.eql(json_declaration.env.NODE_ENV);
-  //     done();
-  //   });
-  // });
+  /**
+   * Ensuring that environment update works correctly when reloading with JSON config.
+   *
+   * Related issue:
+   * https://github.com/Unitech/pm2/issues/3192
+   */
+  describe('with updateEnv option', () => {
+    const env = {
+      shell: {
+        initial: {
+          SH: 'shell_initial',
+          SH_PM: 'shell_initial',
+        },
+        updated: {
+          SH: 'shell_updated',
+          SH_PM: 'shell_updated',
+        },
+      },
+      pm2: {
+        initial: {
+          PM: 'pm2_initial',
+          SH_PM: 'pm2_initia',
+        },
+        updated: {
+          PM: 'pm2_updated',
+          SH_PM: 'pm2_updated',
+        },
+      },
+    };
+
+    const configInitial = {
+      name: 'child-update-env',
+      script: './../fixtures/env-switching/child.js',
+      instances: '2',
+      env: {
+        NODE_ENV: 'test',
+        ...env.pm2.initial,
+      },
+    };
+
+    const configUpdated = {
+      ...configInitial,
+      env: {
+        NODE_ENV: 'test',
+        ...env.pm2.updated,
+      },
+    };
+
+    it('should inject shell environment, then inject config environment on start', (done) => {
+      Object.assign(process.env, env.shell.initial);
+
+      pm2.start(configInitial, (err, data) => {
+        try {
+          const pm2Env = data[0] ? data[0].pm2_env || {} : {};
+          should(err).be.null();
+          should(pm2Env.SH).eql(env.shell.initial.SH);
+          should(pm2Env.PM).eql(env.pm2.initial.PM);
+          should(pm2Env.SH_PM).eql(env.pm2.initial.SH_PM);
+          done();
+        } catch (err) {
+          done(err);
+        }
+      });
+    });
+
+    it('should inject only config environment on restart when disabled', (done) => {
+      Object.assign(process.env, env.shell.updated);
+
+      pm2.restart(configUpdated, { updateEnv: false }, (err) => {
+        should(err).be.null();
+
+        pm2.list((err, data) => {
+          try {
+            const pm2Env = data.find(proc => proc.name === configInitial.name).pm2_env;
+            should(err).be.null();
+            should(pm2Env.SH).eql(env.shell.initial.SH);
+            should(pm2Env.PM).eql(env.pm2.updated.PM);
+            should(pm2Env.SH_PM).eql(env.pm2.updated.SH_PM);
+            done();
+          } catch (err) {
+            done(err);
+          }
+        });
+      });
+    });
 
+    it('should inject shell environment, then inject config environment on start when endabled', (done) => {
+      Object.assign(process.env, env.shell.updated);
+
+      pm2.restart(configUpdated, { updateEnv: true }, (err) => {
+        should(err).be.null();
+
+        pm2.list((err, data) => {
+          try {
+            const pm2Env = data.find(proc => proc.name === configInitial.name).pm2_env;
+            should(err).be.null();
+            should(pm2Env.SH).eql(env.shell.updated.SH);
+            should(pm2Env.PM).eql(env.pm2.updated.PM);
+            should(pm2Env.SH_PM).eql(env.pm2.updated.SH_PM);
+            done();
+          } catch (err) {
+            done(err);
+          }
+        });
+      });
+    });
 
+    it('should delete all processes', (done) => {
+      pm2.delete('all', (err, ret) => {
+        done();
+      });
+    });
+  });
 });
diff --git a/test/unit.sh b/test/unit.sh
old mode 100644
new mode 100755