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%SystemRoot% is a built-in variable (along with a small handful of others like %SystemDrive%). That is, it is not actually defined in the environment variable store at HKLM\SYSTEM\CurrentControlSet\Control\Session Manager\Environment in the registry.

On Win 7 %SystemRoot% is a read-only system variable while %windir% can be changed and is set by default as windir=%SystemRoot% .

On the other hand, %windir% is a regular variable and is defined in the variable store as %SystemRoot%. (There is no “real variable” counterpart to %SystemDrive%.)

Which to use doesn’t really matter, but you may run into problems with variable expansion in batch-files, in which case you could try the other one. (I don’t recall having problems with this specifically, but it’s worth keeping in mind.)

In addition, %SystemRoot% (and %SystemDrive%) are set during the installation process (when you choose the destination drive) and is thus available from the earliest point when Windows is being installed whereas %windir% is set at a later point during the install, so if you are creating some sort of custom installation (e.g., OEM, PE, etc.), you will want to use %SystemRoot%.