diff --git a/pkg/systemd/quadlet/quadlet.go b/pkg/systemd/quadlet/quadlet.go
index 9214935cbf..13089c5aef 100644
--- a/pkg/systemd/quadlet/quadlet.go
+++ b/pkg/systemd/quadlet/quadlet.go
@@ -1588,8 +1588,10 @@ func ConvertPod(podUnit *parser.UnitFile, name string, unitsInfoMap map[string]*
 
 	service.AddCmdline(ServiceGroup, "ExecStartPre", execStartPre.Args)
 
+	// Set PODMAN_SYSTEMD_UNIT so that podman auto-update can restart the service.
+	service.Add(ServiceGroup, "Environment", "PODMAN_SYSTEMD_UNIT=%n")
+
 	service.Setv(ServiceGroup,
-		"Environment", "PODMAN_SYSTEMD_UNIT=%n",
 		"Type", "forking",
 		"Restart", "on-failure",
 		"PIDFile", "%t/%N.pid",
diff --git a/test/e2e/quadlet/service-environment.pod b/test/e2e/quadlet/service-environment.pod
new file mode 100644
index 0000000000..82d707d672
--- /dev/null
+++ b/test/e2e/quadlet/service-environment.pod
@@ -0,0 +1,7 @@
+## assert-key-is Service Environment key1=value1 key2=value2 PODMAN_SYSTEMD_UNIT=%n
+
+[Service]
+Environment=key1=value1
+Environment=key2=value2
+
+[Pod]
diff --git a/test/e2e/quadlet_test.go b/test/e2e/quadlet_test.go
index 982c9cd3ae..5a479f18e0 100644
--- a/test/e2e/quadlet_test.go
+++ b/test/e2e/quadlet_test.go
@@ -1089,6 +1089,7 @@ BOGUS=foo
 		Entry("Pod - Remap keep-id", "remap-keep-id.pod"),
 		Entry("Pod - Remap manual", "remap-manual.pod"),
 		Entry("Pod - Shm Size", "shmsize.pod"),
+		Entry("Pod - Service Environment", "service-environment.pod"),
 	)
 
 	DescribeTable("Running expected warning quadlet test case",