diff --git a/opentelemetry-sdk/CHANGELOG.md b/opentelemetry-sdk/CHANGELOG.md
index f494130c44..fd270f6798 100644
--- a/opentelemetry-sdk/CHANGELOG.md
+++ b/opentelemetry-sdk/CHANGELOG.md
@@ -2,6 +2,12 @@
 
 ## vNext
 
+- `EnvResourceDetector` now percent-decodes attribute values read from
+  `OTEL_RESOURCE_ATTRIBUTES`, matching the W3C Baggage encoding required by the
+  Resource SDK specification. For example,
+  `OTEL_RESOURCE_ATTRIBUTES=key=hello%20world` now yields the value
+  `hello world`. Keys are baggage tokens and are left unchanged.
+  ([#857](https://github.com/open-telemetry/opentelemetry-rust/issues/857))
 - Bound instruments are now available for `Gauge` and `UpDownCounter` via the
   new `BoundGauge<T>` and `BoundUpDownCounter<T>` types exposed by the
   `opentelemetry` crate. Requires the `experimental_metrics_bound_instruments`
diff --git a/opentelemetry-sdk/Cargo.toml b/opentelemetry-sdk/Cargo.toml
index 1a10758afa..14fb62ca90 100644
--- a/opentelemetry-sdk/Cargo.toml
+++ b/opentelemetry-sdk/Cargo.toml
@@ -16,7 +16,7 @@ opentelemetry-http = { workspace = true, optional = true }
 futures-channel = { workspace = true }
 futures-executor = { workspace = true }
 futures-util = { workspace = true, features = ["std", "sink", "async-await-macro"] }
-percent-encoding = { workspace = true, optional = true }
+percent-encoding = { workspace = true }
 rand = { workspace = true, features = ["std", "std_rng", "small_rng", "os_rng", "thread_rng"], optional = true }
 serde = { workspace = true, features = ["derive", "rc"], optional = true }
 serde_json = { workspace = true, optional = true }
@@ -44,7 +44,7 @@ pprof = { workspace = true }
 
 [features]
 default = ["trace", "metrics", "logs", "internal-logs"]
-trace = ["opentelemetry/trace", "rand", "percent-encoding"]
+trace = ["opentelemetry/trace", "rand"]
 jaeger_remote_sampler = ["trace", "opentelemetry-http", "http", "serde", "serde_json", "url", "experimental_async_runtime"]
 logs = ["opentelemetry/logs"]
 metrics = ["opentelemetry/metrics"]
diff --git a/opentelemetry-sdk/src/resource/env.rs b/opentelemetry-sdk/src/resource/env.rs
index da2600453b..f9b71cb574 100644
--- a/opentelemetry-sdk/src/resource/env.rs
+++ b/opentelemetry-sdk/src/resource/env.rs
@@ -4,6 +4,7 @@
 //! variables.
 use crate::resource::{Resource, ResourceDetector};
 use opentelemetry::{Key, KeyValue, Value};
+use percent_encoding::percent_decode_str;
 use std::env;
 
 const OTEL_RESOURCE_ATTRIBUTES: &str = "OTEL_RESOURCE_ATTRIBUTES";
@@ -50,9 +51,13 @@ fn construct_otel_resources(s: String) -> Resource {
                 None => return None,
             };
             let key = parts.0.trim();
-            let value = parts.1.trim();
+            // Trim OWS *before* percent-decoding so that any encoded whitespace
+            // (e.g. `%20`) in the value is preserved. Per the Resource SDK spec
+            // the value MUST be percent-decoded; keys are baggage tokens and are
+            // not encoded.
+            let value = percent_decode_str(parts.1.trim()).decode_utf8_lossy();
 
-            Some(KeyValue::new(key.to_owned(), value.to_owned()))
+            Some(KeyValue::new(key.to_owned(), value.into_owned()))
         }))
         .build()
 }
@@ -124,7 +129,7 @@ mod tests {
             [
                 (
                     "OTEL_RESOURCE_ATTRIBUTES",
-                    Some("key=value, k = v , a= x, a=z,base64=SGVsbG8sIFdvcmxkIQ=="),
+                    Some("key=value, k = v , a= x, a=z,base64=SGVsbG8sIFdvcmxkIQ==,encoded=user%20id%3D42%2C%20name%3D%22foo%22"),
                 ),
                 ("IRRELEVANT", Some("20200810")),
             ],
@@ -140,6 +145,8 @@ mod tests {
                             KeyValue::new("a", "x"),
                             KeyValue::new("a", "z"),
                             KeyValue::new("base64", "SGVsbG8sIFdvcmxkIQ=="), // base64('Hello, World!')
+                            // Values are percent-decoded per the Resource SDK spec.
+                            KeyValue::new("encoded", "user id=42, name=\"foo\""),
                         ])
                         .build()
                 );