diff --git a/easybuild/tools/modules.py b/easybuild/tools/modules.py
index 43a2e2ff87..3700a1a8ab 100644
--- a/easybuild/tools/modules.py
+++ b/easybuild/tools/modules.py
@@ -122,7 +122,8 @@ class ModulesTool(object):
     TERSE_OPTION = (0, '--terse')
     # module command to use
     COMMAND = None
-    # environment variable to determine the module command (instead of COMMAND)
+    # environment variable to determine path to module command;
+    # used as fallback in case command is not available in $PATH
     COMMAND_ENVIRONMENT = None
     # run module command explicitly using this shell
     COMMAND_SHELL = None
@@ -156,10 +157,19 @@ def __init__(self, mod_paths=None, testing=False):
 
         # actual module command (i.e., not the 'module' wrapper function, but the binary)
         self.cmd = self.COMMAND
-        if self.COMMAND_ENVIRONMENT is not None and self.COMMAND_ENVIRONMENT in os.environ:
-            self.log.debug('Set command via environment variable %s' % self.COMMAND_ENVIRONMENT)
-            self.cmd = os.environ[self.COMMAND_ENVIRONMENT]
+        env_cmd_path = os.environ.get(self.COMMAND_ENVIRONMENT)
 
+        # only use command path in environment variable if command in not available in $PATH
+        if which(self.cmd) is None and env_cmd_path is not None:
+            self.log.debug('Set command via environment variable %s: %s', self.COMMAND_ENVIRONMENT, self.cmd)
+            self.cmd = env_cmd_path
+
+        # check whether paths obtained via $PATH and $LMOD_CMD are different
+        elif which(self.cmd) != env_cmd_path:
+            self.log.debug("Different paths found for module command '%s' via which/$PATH and $%s: %s vs %s",
+                           self.COMMAND, self.COMMAND_ENVIRONMENT, self.cmd, env_cmd_path)
+
+        # make sure the module command was found
         if self.cmd is None:
             raise EasyBuildError("No command set.")
         else:
diff --git a/test/framework/modulestool.py b/test/framework/modulestool.py
index f6ca56b8a8..6130e33564 100644
--- a/test/framework/modulestool.py
+++ b/test/framework/modulestool.py
@@ -29,6 +29,7 @@
 """
 import os
 import re
+import stat
 import tempfile
 from vsc.utils import fancylogger
 
@@ -41,7 +42,7 @@
 from easybuild.tools import config, modules
 from easybuild.tools.build_log import EasyBuildError
 from easybuild.tools.config import build_option
-from easybuild.tools.filetools import which
+from easybuild.tools.filetools import which, write_file
 from easybuild.tools.modules import modules_tool, Lmod
 from test.framework.utilities import init_config
 
@@ -95,7 +96,8 @@ def test_environment_command(self):
             # should never get here
             self.assertTrue(False, 'BrokenMockModulesTool should fail')
         except EasyBuildError, err:
-            self.assertTrue('command is not available' in str(err))
+            err_msg = "command is not available"
+            self.assertTrue(err_msg in str(err), "'%s' found in: %s" % (err_msg, err))
 
         os.environ[BrokenMockModulesTool.COMMAND_ENVIRONMENT] = MockModulesTool.COMMAND
         os.environ['module'] = "() { /bin/echo $*\n}"
@@ -160,6 +162,9 @@ def test_lmod_specific(self):
             }
             init_config(build_options=build_options)
 
+            lmod = Lmod(testing=True)
+            self.assertEqual(lmod.cmd, lmod_abspath)
+
             # drop any location where 'lmod' or 'spider' can be found from $PATH
             paths = os.environ.get('PATH', '').split(os.pathsep)
             new_paths = []
@@ -173,8 +178,18 @@ def test_lmod_specific(self):
             # make sure $MODULEPATH contains path that provides some modules
             os.environ['MODULEPATH'] = os.path.abspath(os.path.join(os.path.dirname(__file__), 'modules'))
 
-            # initialize Lmod modules tool, pass full path to 'lmod' via $LMOD_CMD
+            # initialize Lmod modules tool, pass (fake) full path to 'lmod' via $LMOD_CMD
+            fake_path = os.path.join(self.test_installpath, 'lmod')
+            write_file(fake_path, '#!/bin/bash\necho "Modules based on Lua: Version %s " >&2' % Lmod.REQ_VERSION)
+            os.chmod(fake_path, stat.S_IRUSR|stat.S_IXUSR)
+            os.environ['LMOD_CMD'] = fake_path
+            init_config(build_options=build_options)
+            lmod = Lmod(testing=True)
+            self.assertEqual(lmod.cmd, fake_path)
+
+            # use correct full path for 'lmod' via $LMOD_CMD
             os.environ['LMOD_CMD'] = lmod_abspath
+            init_config(build_options=build_options)
             lmod = Lmod(testing=True)
 
             # obtain list of availabe modules, should be non-empty