diff --git a/compose/config.py b/compose/config.py
index f87da1d8c15..a78ae579db7 100644
--- a/compose/config.py
+++ b/compose/config.py
@@ -407,11 +407,17 @@ def get_service_name_from_net(net_config):
 def load_yaml(filename):
     try:
         with open(filename, 'r') as fh:
-            return yaml.safe_load(fh)
+            return yaml.safe_load(inject_env_variables(fh.read()))
     except IOError as e:
         raise ConfigurationError(six.text_type(e))
 
 
+def inject_env_variables(content):
+    for k, v in os.environ.iteritems():
+        content = content.replace('$' + k, v)
+    return content
+
+
 class ConfigurationError(Exception):
     def __init__(self, msg):
         self.msg = msg
diff --git a/tests/unit/config_test.py b/tests/unit/config_test.py
index 97bd1b91d1d..28e3b07f5f0 100644
--- a/tests/unit/config_test.py
+++ b/tests/unit/config_test.py
@@ -430,3 +430,9 @@ def test_absolute_path(self):
     def test_from_file(self):
         service_dict = config.load('tests/fixtures/build-path/docker-compose.yml')
         self.assertEquals(service_dict, [{'name': 'foo', 'build': self.abs_context_path}])
+
+
+class InjectEnvTest(unittest.TestCase):
+    def test_injection(self):
+        os.environ["BAR"] = 'rab'
+        self.assertEquals(config.inject_env_variables('foo $BAR oof'), 'foo rab oof')