diff --git a/package.json b/package.json
index 39bdab87..a10b9fdd 100644
--- a/package.json
+++ b/package.json
@@ -165,8 +165,11 @@
                     "description": "Update the RLS whenever the extension starts up."
                 },
                 "rust-client.channel": {
-                    "type": "string",
-                    "default": "nightly",
+                    "type": [
+                        "string",
+                        "null"
+                    ],
+                    "default": null,
                     "description": "Rust channel to install RLS from."
                 },
                 "rust-client.rls-name": {
diff --git a/src/configuration.ts b/src/configuration.ts
index 813d4d1f..de9c8db7 100644
--- a/src/configuration.ts
+++ b/src/configuration.ts
@@ -13,6 +13,8 @@
 import { workspace, WorkspaceConfiguration } from 'vscode';
 import { RevealOutputChannelOn } from 'vscode-languageclient';
 
+import { getActiveChannel } from './rustup';
+
 function fromStringToRevealOutputChannelOn(value: string): RevealOutputChannelOn {
     switch (value && value.toLowerCase()) {
         case 'info':
@@ -58,15 +60,38 @@ export class RLSConfiguration {
         this.revealOutputChannelOn = RLSConfiguration.readRevealOutputChannelOn(configuration);
         this.updateOnStartup = configuration.get<boolean>('rust-client.updateOnStartup', true);
 
-        this.channel = configuration.get('rust-client.channel', 'nightly');
+        this.channel = RLSConfiguration.readChannel(this.rustupPath, configuration);
         this.componentName = configuration.get('rust-client.rls-name', 'rls');
 
         // Hidden options that are not exposed to the user
         this.rlsPath = configuration.get('rls.path', null);
         this.rlsRoot = configuration.get('rls.root', null);
     }
+
     private static readRevealOutputChannelOn(configuration: WorkspaceConfiguration) {
         const setting = configuration.get<string>('rust-client.revealOutputChannelOn', 'never');
         return fromStringToRevealOutputChannelOn(setting);
     }
+
+    /**
+     * Tries to fetch the `rust-client.channel` configuration value. If missing,
+     * falls back on active toolchain specified by rustup (at `rustupPath`),
+     * finally defaulting to `nightly` if all fails.
+     */
+    private static readChannel(rustupPath: string, configuration: WorkspaceConfiguration): string {
+        const channel = configuration.get<string | null>('rust-client.channel', null);
+        if (channel !== null) {
+            return channel;
+        } else {
+            try {
+                return getActiveChannel(rustupPath);
+            }
+            // rustup might not be installed at the time the configuration is
+            // initially loaded, so silently ignore the error and return a default value
+            catch (e) {
+                return 'nightly';
+            }
+
+        }
+    }
 }
diff --git a/src/extension.ts b/src/extension.ts
index 9676f4ce..52dccda3 100644
--- a/src/extension.ts
+++ b/src/extension.ts
@@ -23,6 +23,8 @@ import { commands, ExtensionContext, IndentAction, languages, TextEditor,
 import { LanguageClient, LanguageClientOptions, Location, NotificationType,
     ServerOptions } from 'vscode-languageclient';
 
+// FIXME(#233): Don't only rely on lazily initializing it once on startup,
+// handle possible `rust-client.*` value changes while extension is running
 export const CONFIGURATION = RLSConfiguration.loadFromWorkspace();
 
 function getSysroot(env: Object): string | Error {
diff --git a/src/rustup.ts b/src/rustup.ts
index 6252c2b3..a1d68e7a 100644
--- a/src/rustup.ts
+++ b/src/rustup.ts
@@ -11,7 +11,7 @@
 'use strict';
 
 import * as child_process from 'child_process';
-import { window } from 'vscode';
+import { window, workspace } from 'vscode';
 
 import { execChildProcess } from './utils/child_process';
 import { startSpinner, stopSpinner } from './spinner';
@@ -172,4 +172,43 @@ async function installRls(): Promise<void> {
     }
 
     stopSpinner('RLS components installed successfully');
-}
\ No newline at end of file
+}
+
+/**
+ * Parses given output of `rustup show` and retrieves the local active toolchain.
+ */
+export function parseActiveToolchain(rustupOutput: string): string {
+    // There may a default entry under 'installed toolchains' section, so search
+    // for currently active/overridden one only under 'active toolchain' section
+    const activeToolchainsIndex = rustupOutput.search('active toolchain');
+    if (activeToolchainsIndex === -1) {
+        throw new Error(`couldn't find active toolchains`);
+    }
+
+    rustupOutput = rustupOutput.substr(activeToolchainsIndex);
+
+    const matchActiveChannel = new RegExp(/^(\S*) \((?:default|overridden)/gm);
+    const match = matchActiveChannel.exec(rustupOutput);
+    if (match === null) {
+        throw new Error(`couldn't find active toolchain under 'active toolchains'`);
+    } else if (match.length > 2) {
+        throw new Error(`multiple active toolchains found under 'active toolchains'`);
+    }
+
+    return match[1];
+}
+
+/**
+ * Returns active (including local overrides) toolchain, as specified by rustup.
+ * May throw if rustup at specified path can't be executed.
+ */
+export function getActiveChannel(rustupPath: string, cwd = workspace.rootPath): string {
+    // rustup info might differ depending on where it's executed
+    // (e.g. when a toolchain is locally overriden), so executing it
+    // under our current workspace root should give us close enough result
+    const output = child_process.execSync(`${rustupPath} show`, {cwd: cwd}).toString();
+
+    const activeChannel = parseActiveToolchain(output);
+    console.info(`Detected active channel: ${activeChannel} (since 'rust-client.channel' is unspecified)`);
+    return activeChannel;
+}