diff --git a/CHANGES.txt b/CHANGES.txt
index bfd3eb18a9..40cfeb9a82 100644
--- a/CHANGES.txt
+++ b/CHANGES.txt
@@ -15,6 +15,13 @@ RELEASE  VERSION/DATE TO BE FILLED IN LATER
   From John Doe:
     - Whatever John Doe did.
 
+  From Cornelii Sandberg:
+    - Fix Variables() not reading a saved-variables file (e.g. custom.py)
+      from the source directory when building in a separate variant
+      directory. The file is now resolved through the File() node
+      infrastructure, so it is found in the source directory or a
+      repository (issue #816).
+
   From Joseph Brill:
     - Add possible build failure when targeting 32-bit arm using
       Visual Studio 2022 with Windows SDK version 10.0.26100.0 or later
diff --git a/SCons/Variables/VariablesTests.py b/SCons/Variables/VariablesTests.py
index bca6047efc..3b647a9ab1 100644
--- a/SCons/Variables/VariablesTests.py
+++ b/SCons/Variables/VariablesTests.py
@@ -27,6 +27,7 @@
 
 import SCons.Variables
 import SCons.Subst
+import SCons.Node.FS
 import SCons.Warnings
 from SCons.Util import cmp
 from SCons.Variables import *
@@ -43,6 +44,11 @@ def __getitem__(self, key):
         return self.dict[key]
     def __contains__(self, key) -> bool:
         return key in self.dict
+    def File(self, name):
+        # Real Environments resolve files through the File() node
+        # infrastructure; provide the same here so Variables.Update() can
+        # locate saved-variables files (issue #816).
+        return SCons.Node.FS.get_default_fs().File(name)
 
 
 def check(key, value, env) -> None:
diff --git a/SCons/Variables/__init__.py b/SCons/Variables/__init__.py
index dea36ddd0b..8bf9b000a9 100644
--- a/SCons/Variables/__init__.py
+++ b/SCons/Variables/__init__.py
@@ -271,18 +271,25 @@ def Update(self, env, args: dict | None = None) -> None:
 
         # next set the values specified in any saved-variables script(s)
         for filename in self.files:
-            # TODO: issue #816 use Node to access saved-variables file?
-            if os.path.exists(filename):
+            # Resolve the saved-variables file through the File() node so it
+            # is found in the source directory (or a repository) as well as
+            # the build directory, e.g. when using a variant dir (issue #816).
+            node = env.File(filename)
+            if not node.rexists():
+                node = node.srcnode()
+            if node.rexists():
+                # rfile() resolves to the actual on-disk file, which may live
+                # in a repository rather than the local (build) directory.
+                rfile = node.rfile()
                 # issue #4645: don't exec directly into values,
                 #   so we can iterate through for unknown variables.
                 temp_values = {}
-                dirname = os.path.split(os.path.abspath(filename))[0]
+                dirname = os.path.split(rfile.get_abspath())[0]
                 if dirname:
                     sys.path.insert(0, dirname)
                 try:
                     temp_values['__name__'] = filename
-                    with open(filename) as f:
-                        contents = f.read()
+                    contents = rfile.get_text_contents()
                     exec(contents, {}, temp_values)
                 finally:
                     if dirname:
diff --git a/test/Variables/source-dir.py b/test/Variables/source-dir.py
new file mode 100644
index 0000000000..e1669f3c69
--- /dev/null
+++ b/test/Variables/source-dir.py
@@ -0,0 +1,62 @@
+#!/usr/bin/env python
+#
+# MIT License
+#
+# Copyright The SCons Foundation
+#
+# Permission is hereby granted, free of charge, to any person obtaining
+# a copy of this software and associated documentation files (the
+# "Software"), to deal in the Software without restriction, including
+# without limitation the rights to use, copy, modify, merge, publish,
+# distribute, sublicense, and/or sell copies of the Software, and to
+# permit persons to whom the Software is furnished to do so, subject to
+# the following conditions:
+#
+# The above copyright notice and this permission notice shall be included
+# in all copies or substantial portions of the Software.
+#
+# THE SOFTWARE IS PROVIDED "AS IS", WITHOUT WARRANTY OF ANY
+# KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE
+# WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
+# NONINFRINGEMENT. IN NO EVENT SHALL THE AUTHORS OR COPYRIGHT HOLDERS BE
+# LIABLE FOR ANY CLAIM, DAMAGES OR OTHER LIABILITY, WHETHER IN AN ACTION
+# OF CONTRACT, TORT OR OTHERWISE, ARISING FROM, OUT OF OR IN CONNECTION
+# WITH THE SOFTWARE OR THE USE OR OTHER DEALINGS IN THE SOFTWARE.
+
+"""
+Test that a Variables() saved-variables file (e.g. custom.py) is read from
+the source tree when it is not present in the build directory, i.e. when
+building against a separate source directory via Repository() (issue #816).
+"""
+
+import TestSCons
+
+test = TestSCons.TestSCons()
+
+test.subdir('repository', 'work')
+
+opts = "-Y " + test.workpath('repository')
+
+# The saved-variables file lives only in the source tree (the repository),
+# not in the 'work' directory where SCons is actually invoked.
+test.write(['repository', 'custom.py'], """\
+MY_VARIABLE = 'from_source_tree'
+""")
+
+test.write(['repository', 'SConstruct'], """\
+DefaultEnvironment(tools=[])
+vars = Variables('custom.py')
+vars.Add('MY_VARIABLE', 'a test variable', 'default_value')
+env = Environment(variables=vars, tools=[])
+print("MY_VARIABLE =", env['MY_VARIABLE'])
+""")
+
+# Before the issue #816 fix, custom.py was looked up relative to the build
+# directory only, so it was not found here and the default value was used.
+test.run(chdir='work', options=opts, arguments='.')
+
+expect = "MY_VARIABLE = from_source_tree"
+if expect not in test.stdout():
+    test.fail_test()
+
+test.pass_test()