diff --git a/api/api_tests/util/string_processing/test_yaml.py b/api/api_tests/util/string_processing/test_yaml.py
index a5628d80f..bd19491cd 100644
--- a/api/api_tests/util/string_processing/test_yaml.py
+++ b/api/api_tests/util/string_processing/test_yaml.py
@@ -52,6 +52,15 @@ def test_env_var_overrides_default(self):
             result = substitute_env_vars_in_yaml_content("key: $TEST_VAR|default_value")
             assert result == "key: env_value"
 
+    def test_empty_string_treated_as_unset_uses_default(self):
+        """When primary var is set but empty, treat as unset and use default (avoids invalid YAML in lists)."""
+        with patch.dict(os.environ, {"YOLOX_HTTP_ENDPOINT": ""}, clear=True):
+            result = substitute_env_vars_in_yaml_content(
+                "yolox_endpoints: "
+                '[$GRPC|"page-elements:8001", $YOLOX_HTTP_ENDPOINT|"http://page-elements:8000/v1/infer"]'
+            )
+            assert result == 'yolox_endpoints: ["page-elements:8001", "http://page-elements:8000/v1/infer"]'
+
     def test_missing_var_no_default(self):
         """Test that missing variables without defaults become empty strings."""
         with patch.dict(os.environ, {}, clear=True):
diff --git a/api/src/nv_ingest_api/util/string_processing/yaml.py b/api/src/nv_ingest_api/util/string_processing/yaml.py
index af274a3f9..9ad7a4786 100644
--- a/api/src/nv_ingest_api/util/string_processing/yaml.py
+++ b/api/src/nv_ingest_api/util/string_processing/yaml.py
@@ -41,9 +41,9 @@ def _replacer(match: re.Match) -> str:
     var_name = match.group("braced") or match.group("named")
     default_val = match.group("braced_default") or match.group("named_default")
 
-    # First try the primary env var
+    # First try the primary env var (treat empty string as unset so default is used)
     value = os.environ.get(var_name)
-    if value is not None:
+    if value is not None and value != "":
         return _quote_if_needed(value)
 
     # If primary is missing, try the default.