diff --git a/mercurial/utils/procutil.py b/mercurial/utils/procutil.py
--- a/mercurial/utils/procutil.py
+++ b/mercurial/utils/procutil.py
@@ -42,6 +42,8 @@
 else:
     from .. import posix as platform
 
+UNSET_ENV = object()
+
 
 def isatty(fp):
     try:
@@ -466,7 +468,11 @@
 
     env = dict(encoding.environ)
     if environ:
-        env.update((k, py2shell(v)) for k, v in pycompat.iteritems(environ))
+        for k, v in pycompat.iteritems(environ):
+            if v is UNSET_ENV:
+                env.pop(k, None)
+            else:
+                env[k] = py2shell(v)
     env[b'HG'] = hgexecutable()
     return env