diff --git a/CHANGELOG.md b/CHANGELOG.md
index 721db3b612..5661e35d82 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -12,6 +12,8 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ## Unreleased
 
+- `opentelemetry-sdk`: fix YAML structure injection via environment variable substitution in declarative file configuration; values containing newlines are now emitted as quoted YAML scalars per spec requirement
+  ([#5091](https://github.com/open-telemetry/opentelemetry-python/pull/5091))
 - `opentelemetry-sdk`: Add `create_logger_provider`/`configure_logger_provider` to declarative file configuration, enabling LoggerProvider instantiation from config files without reading env vars
   ([#4990](https://github.com/open-telemetry/opentelemetry-python/pull/4990))
 - `opentelemetry-sdk`: Add `service` resource detector support to declarative file configuration via `detection_development.detectors[].service`
diff --git a/opentelemetry-sdk/src/opentelemetry/sdk/_configuration/file/_env_substitution.py b/opentelemetry-sdk/src/opentelemetry/sdk/_configuration/file/_env_substitution.py
index 0a42809e34..f12e1b0e28 100644
--- a/opentelemetry-sdk/src/opentelemetry/sdk/_configuration/file/_env_substitution.py
+++ b/opentelemetry-sdk/src/opentelemetry/sdk/_configuration/file/_env_substitution.py
@@ -81,6 +81,23 @@ def replace_var(match) -> str:
                 f"Environment variable '{var_name}' not found and no default provided"
             )
 
+        # Per spec: "It MUST NOT be possible to inject YAML structures by
+        # environment variables." Newlines are the primary injection vector —
+        # a value like "legit\nmalicious_key: val" would create extra YAML
+        # keys if substituted verbatim. Wrap such values in a YAML
+        # double-quoted scalar so the newline is treated as literal text.
+        # Simple values (no newlines) are returned as-is so that YAML type
+        # coercion still applies per spec ("Node types MUST be interpreted
+        # after environment variable substitution takes place").
+        if "\n" in value or "\r" in value:
+            escaped = (
+                value.replace("\\", "\\\\")
+                .replace('"', '\\"')
+                .replace("\n", "\\n")
+                .replace("\r", "\\r")
+                .replace("\t", "\\t")
+            )
+            return f'"{escaped}"'
         return value
 
     return re.sub(pattern, replace_var, text)
diff --git a/opentelemetry-sdk/tests/_configuration/file/test_env_substitution.py b/opentelemetry-sdk/tests/_configuration/file/test_env_substitution.py
index 1a8bdc9aa2..3db60432c9 100644
--- a/opentelemetry-sdk/tests/_configuration/file/test_env_substitution.py
+++ b/opentelemetry-sdk/tests/_configuration/file/test_env_substitution.py
@@ -16,6 +16,8 @@
 import unittest
 from unittest.mock import patch
 
+import yaml
+
 from opentelemetry.sdk._configuration.file import (
     EnvSubstitutionError,
     substitute_env_vars,
@@ -115,3 +117,45 @@ def test_only_dollar_signs(self):
         """Test string with only escaped dollar signs."""
         result = substitute_env_vars("$$$$")
         self.assertEqual(result, "$$")
+
+    def test_newline_in_value_prevents_yaml_injection(self):
+        """Values containing newlines must not inject YAML structure.
+
+        Per spec: "It MUST NOT be possible to inject YAML structures by
+        environment variables." A value like "legit\\nmalicious_key: val"
+        must be emitted as a quoted scalar, not raw YAML.
+        """
+        with patch.dict(
+            os.environ,
+            {"SERVICE_NAME": "legit-service\nmalicious_key: injected_value"},
+        ):
+            result = substitute_env_vars(
+                "file_format: '0.1'\nservice_name: ${SERVICE_NAME}"
+            )
+        parsed = yaml.safe_load(result)
+        self.assertNotIn("malicious_key", parsed)
+        self.assertIn("legit-service", parsed["service_name"])
+
+    def test_newline_in_value_preserved_as_literal(self):
+        """Newline within a value is preserved as a literal newline character."""
+        with patch.dict(os.environ, {"MULTI": "line1\nline2"}):
+            result = substitute_env_vars("key: ${MULTI}")
+        parsed = yaml.safe_load(result)
+        self.assertEqual(parsed["key"], "line1\nline2")
+
+    def test_carriage_return_in_value_is_escaped(self):
+        """Carriage return in value is escaped, not injected."""
+        with patch.dict(os.environ, {"VAL": "text\r\nmore"}):
+            result = substitute_env_vars("key: ${VAL}")
+        parsed = yaml.safe_load(result)
+        self.assertIsInstance(parsed["key"], str)
+
+    def test_type_coercion_preserved_for_simple_values(self):
+        """Simple values without newlines still undergo YAML type coercion per spec."""
+        with patch.dict(os.environ, {"BOOL_VAL": "true", "INT_VAL": "42"}):
+            bool_result = yaml.safe_load(
+                substitute_env_vars("key: ${BOOL_VAL}")
+            )
+            int_result = yaml.safe_load(substitute_env_vars("key: ${INT_VAL}"))
+        self.assertIs(bool_result["key"], True)
+        self.assertEqual(int_result["key"], 42)