diff --git a/controllers/argocd/statefulset.go b/controllers/argocd/statefulset.go
index fb36f62c1..37e3b208d 100644
--- a/controllers/argocd/statefulset.go
+++ b/controllers/argocd/statefulset.go
@@ -469,7 +469,7 @@ func (r *ReconcileArgoCD) reconcileRedisStatefulSet(cr *argoproj.ArgoCD) error {
 	return r.Client.Create(context.TODO(), ss)
 }
 
-func getArgoControllerContainerEnv(cr *argoproj.ArgoCD) []corev1.EnvVar {
+func getArgoControllerContainerEnv(cr *argoproj.ArgoCD, replicas int32) []corev1.EnvVar {
 	env := make([]corev1.EnvVar, 0)
 
 	env = append(env, corev1.EnvVar{
@@ -489,10 +489,10 @@ func getArgoControllerContainerEnv(cr *argoproj.ArgoCD) []corev1.EnvVar {
 		},
 	})
 
-	if cr.Spec.Controller.Sharding.Enabled {
+	if cr.Spec.Controller.Sharding.Enabled || (cr.Spec.Controller.Sharding.DynamicScalingEnabled != nil && *cr.Spec.Controller.Sharding.DynamicScalingEnabled) {
 		env = append(env, corev1.EnvVar{
 			Name:  "ARGOCD_CONTROLLER_REPLICAS",
-			Value: fmt.Sprint(cr.Spec.Controller.Sharding.Replicas),
+			Value: fmt.Sprint(replicas),
 		})
 	}
 
@@ -564,7 +564,7 @@ func (r *ReconcileArgoCD) reconcileApplicationControllerStatefulSet(cr *argoproj
 	ss.Spec.Replicas = &replicas
 	controllerEnv := cr.Spec.Controller.Env
 	// Sharding setting explicitly overrides a value set in the env
-	controllerEnv = argoutil.EnvMerge(controllerEnv, getArgoControllerContainerEnv(cr), true)
+	controllerEnv = argoutil.EnvMerge(controllerEnv, getArgoControllerContainerEnv(cr, replicas), true)
 	// Let user specify their own environment first
 	controllerEnv = argoutil.EnvMerge(controllerEnv, proxyEnvVars(), false)
 
diff --git a/controllers/argocd/statefulset_test.go b/controllers/argocd/statefulset_test.go
index d68155c9f..89195d93a 100644
--- a/controllers/argocd/statefulset_test.go
+++ b/controllers/argocd/statefulset_test.go
@@ -411,6 +411,29 @@ func TestReconcileArgoCD_reconcileApplicationController_withSharding(t *testing.
 					}},
 			},
 		},
+		{
+			sharding: argoproj.ArgoCDApplicationControllerShardSpec{
+				DynamicScalingEnabled: boolPtr(true),
+				MinShards:             2,
+				MaxShards:             4,
+				ClustersPerShard:      1,
+			},
+			replicas: 2,
+			vars: []corev1.EnvVar{
+				{Name: "ARGOCD_CONTROLLER_REPLICAS", Value: "2"},
+				{Name: "HOME", Value: "/home/argocd"},
+				{Name: "REDIS_PASSWORD", Value: "",
+					ValueFrom: &corev1.EnvVarSource{
+						SecretKeyRef: &corev1.SecretKeySelector{
+							LocalObjectReference: corev1.LocalObjectReference{
+								Name: fmt.Sprintf("argocd-redis-initial-password"),
+							},
+							Key: "admin.password",
+						},
+					},
+				},
+			},
+		},
 	}
 
 	for _, st := range tests {
diff --git a/controllers/argocd/util_test.go b/controllers/argocd/util_test.go
index 020526183..68bcba92b 100644
--- a/controllers/argocd/util_test.go
+++ b/controllers/argocd/util_test.go
@@ -630,7 +630,7 @@ func TestGetArgoApplicationContainerEnv(t *testing.T) {
 
 	for _, tt := range cmdTests {
 		cr := makeTestArgoCD(tt.opts...)
-		env := getArgoControllerContainerEnv(cr)
+		env := getArgoControllerContainerEnv(cr, 1)
 
 		if !reflect.DeepEqual(env, tt.want) {
 			t.Fatalf("got %#v, want %#v", env, tt.want)
diff --git a/tests/k8s/1-032_validate_dynamic_scaling/01-assert.yaml b/tests/k8s/1-032_validate_dynamic_scaling/01-assert.yaml
index dc419f168..3af7e5e74 100644
--- a/tests/k8s/1-032_validate_dynamic_scaling/01-assert.yaml
+++ b/tests/k8s/1-032_validate_dynamic_scaling/01-assert.yaml
@@ -3,4 +3,24 @@ kind: ArgoCD
 metadata:
   name: argocd
 status:
-  phase: Available
\ No newline at end of file
+  phase: Available
+---
+apiVersion: kuttl.dev/v1beta1
+kind: TestAssert
+timeout: 720
+commands:
+  - script: |
+      stsReplicas=$(kubectl get sts argocd-application-controller -n $NAMESPACE -o jsonpath='{.status.replicas}')
+      echo "$stsReplicas"
+      if test "$stsReplicas" != "1"; then
+        echo "FAILED! Number of replicas not equal to desired replicas"
+        exit 1
+      fi
+
+      replicaEnvVariable=$(kubectl exec -it -n $NAMESPACE argocd-application-controller-0 -- printenv | grep -i ARGOCD_CONTROLLER_REPLICAS)
+      echo "$replicaEnvVariable"
+      if test "$replicaEnvVariable" != "ARGOCD_CONTROLLER_REPLICAS=1"; then
+        echo "FAILED! ARGOCD_CONTROLLER_REPLICAS not equal to desired replicas"
+        exit 1
+      fi
+      exit 0
diff --git a/tests/k8s/1-032_validate_dynamic_scaling/01-install.yaml b/tests/k8s/1-032_validate_dynamic_scaling/01-install.yaml
index b70c30661..d505156fc 100644
--- a/tests/k8s/1-032_validate_dynamic_scaling/01-install.yaml
+++ b/tests/k8s/1-032_validate_dynamic_scaling/01-install.yaml
@@ -13,4 +13,4 @@ spec:
 apiVersion: kuttl.dev/v1beta1
 kind: TestStep
 commands:
-  - command: sleep 30s
\ No newline at end of file
+  - command: sleep 60s
diff --git a/tests/k8s/1-032_validate_dynamic_scaling/02-add-cluster-secrets.yaml b/tests/k8s/1-032_validate_dynamic_scaling/02-add-cluster-secrets.yaml
index 92e4d7e56..d05f310c1 100644
--- a/tests/k8s/1-032_validate_dynamic_scaling/02-add-cluster-secrets.yaml
+++ b/tests/k8s/1-032_validate_dynamic_scaling/02-add-cluster-secrets.yaml
@@ -23,4 +23,4 @@ stringData:
 apiVersion: kuttl.dev/v1beta1
 kind: TestStep
 commands:
-  - command: sleep 30s
+  - command: sleep 60s
diff --git a/tests/k8s/1-032_validate_dynamic_scaling/02-assert.yaml b/tests/k8s/1-032_validate_dynamic_scaling/02-assert.yaml
index 2a7afd31e..38c4b5ce0 100644
--- a/tests/k8s/1-032_validate_dynamic_scaling/02-assert.yaml
+++ b/tests/k8s/1-032_validate_dynamic_scaling/02-assert.yaml
@@ -1,6 +1,3 @@
-apiVersion: kuttl.dev/v1beta1
-kind: TestAssert
-timeout: 720
 ---
 apiVersion: argoproj.io/v1alpha1
 kind: ArgoCD
@@ -15,3 +12,23 @@ metadata:
   name: argocd-application-controller
 status:
   replicas: 3
+---
+apiVersion: kuttl.dev/v1beta1
+kind: TestAssert
+timeout: 720
+commands:
+  - script: |
+      stsReplicas=$(kubectl get sts argocd-application-controller -n $NAMESPACE -o jsonpath='{.status.replicas}')
+      echo "$stsReplicas"
+      if test "$stsReplicas" != "3"; then
+        echo "FAILED! Number of replicas not equal to desired replicas"
+        exit 1
+      fi
+
+      replicaEnvVariable=$(kubectl exec -it -n $NAMESPACE argocd-application-controller-0 -- printenv | grep -i ARGOCD_CONTROLLER_REPLICAS)
+      echo "$replicaEnvVariable"
+      if test "$replicaEnvVariable" != "ARGOCD_CONTROLLER_REPLICAS=3"; then
+        echo "FAILED! ARGOCD_CONTROLLER_REPLICAS not equal to desired replicas"
+        exit 1
+      fi
+      exit 0
diff --git a/tests/k8s/1-032_validate_dynamic_scaling/03-assert.yaml b/tests/k8s/1-032_validate_dynamic_scaling/03-assert.yaml
index cd383a7ac..ab154c719 100644
--- a/tests/k8s/1-032_validate_dynamic_scaling/03-assert.yaml
+++ b/tests/k8s/1-032_validate_dynamic_scaling/03-assert.yaml
@@ -17,11 +17,18 @@ apiVersion: kuttl.dev/v1beta1
 kind: TestAssert
 timeout: 720
 commands:
-- script: |
-    stsReplicas=$(kubectl get sts argocd-application-controller -n $NAMESPACE -o jsonpath='{.status.replicas}')
-    echo "$stsReplicas"
-    if test "$stsReplicas" != "4"; then
-      echo "FAILED! Number of replicas not equal to maxShards"
-      exit 1
-    fi
-    exit 0
+  - script: |
+      stsReplicas=$(kubectl get sts argocd-application-controller -n $NAMESPACE -o jsonpath='{.status.replicas}')
+      echo "$stsReplicas"
+      if test "$stsReplicas" != "4"; then
+        echo "FAILED! Number of replicas not equal to maxShards"
+        exit 1
+      fi
+
+      replicaEnvVariable=$(kubectl exec -it -n $NAMESPACE argocd-application-controller-0 -- printenv | grep -i ARGOCD_CONTROLLER_REPLICAS)
+      echo "$replicaEnvVariable"
+      if test "$replicaEnvVariable" != "ARGOCD_CONTROLLER_REPLICAS=4"; then
+        echo "FAILED! ARGOCD_CONTROLLER_REPLICAS not equal to maxShards"
+        exit 1
+      fi
+      exit 0