diff --git a/packages/knip/fixtures/plugins/jest2/jest.config.js b/packages/knip/fixtures/plugins/jest2/jest.config.js
index cd556eae..3669705e 100644
--- a/packages/knip/fixtures/plugins/jest2/jest.config.js
+++ b/packages/knip/fixtures/plugins/jest2/jest.config.js
@@ -1,3 +1,5 @@
 module.exports = {
   displayName: 'dev',
+    testEnvironment:
+    '<rootDir>/jest.environment.js',
 };
diff --git a/packages/knip/fixtures/plugins/jest2/jest.environment.js b/packages/knip/fixtures/plugins/jest2/jest.environment.js
new file mode 100644
index 00000000..f053ebf7
--- /dev/null
+++ b/packages/knip/fixtures/plugins/jest2/jest.environment.js
@@ -0,0 +1 @@
+module.exports = {};
diff --git a/packages/knip/src/plugins/jest/index.ts b/packages/knip/src/plugins/jest/index.ts
index 583594ef..2bfe0950 100644
--- a/packages/knip/src/plugins/jest/index.ts
+++ b/packages/knip/src/plugins/jest/index.ts
@@ -58,7 +58,12 @@ const resolveDependencies = async (config: JestInitialOptions, options: PluginOp
 
   const runner = config.runner ? [config.runner] : [];
   const runtime = config.runtime && config.runtime !== 'jest-circus' ? [config.runtime] : [];
-  const environments = config.testEnvironment === 'jsdom' ? ['jest-environment-jsdom'] : [];
+  const environments =
+    config.testEnvironment === 'jsdom'
+      ? ['jest-environment-jsdom']
+      : config.testEnvironment
+        ? [config.testEnvironment]
+        : [];
   const resolvers = config.resolver ? [config.resolver] : [];
   const reporters = config.reporters
     ? config.reporters
diff --git a/packages/knip/test/plugins/jest2.test.ts b/packages/knip/test/plugins/jest2.test.ts
index 66404297..e85de032 100644
--- a/packages/knip/test/plugins/jest2.test.ts
+++ b/packages/knip/test/plugins/jest2.test.ts
@@ -19,13 +19,16 @@ test('Find dependencies with the Jest plugin', async () => {
   // <rootDir> to reference the root directory.
   assert(!issues.files.has(join(cwd, 'project1/setupFiles/setup.js')));
 
+  // Correctly identifies a local `testEnvironment` file.
+  assert(!issues.files.has(join(cwd, 'jest.environment.js')));
+
   assert.deepEqual(counters, {
     ...baseCounters,
     files: 0,
     devDependencies: 1,
     unlisted: 0,
     unresolved: 0,
-    processed: 4,
-    total: 4,
+    processed: 5,
+    total: 5,
   });
 });