diff --git a/terraform/context_test.go b/terraform/context_test.go
index caee0f761..d4597f11f 100644
--- a/terraform/context_test.go
+++ b/terraform/context_test.go
@@ -5988,6 +5988,46 @@ func TestContext2Apply_vars(t *testing.T) {
 	}
 }
 
+func TestContext2Apply_varsEnv(t *testing.T) {
+	m := testModule(t, "apply-vars-env")
+	p := testProvider("aws")
+	p.ApplyFn = testApplyFn
+	p.DiffFn = testDiffFn
+	ctx := testContext2(t, &ContextOpts{
+		Module: m,
+		Providers: map[string]ResourceProviderFactory{
+			"aws": testProviderFuncFixed(p),
+		},
+	})
+
+	// Set the env var
+	old := tempEnv(t, "TF_VAR_ami", "baz")
+	defer os.Setenv("TF_VAR_ami", old)
+
+	w, e := ctx.Validate()
+	if len(w) > 0 {
+		t.Fatalf("bad: %#v", w)
+	}
+	if len(e) > 0 {
+		t.Fatalf("bad: %s", e)
+	}
+
+	if _, err := ctx.Plan(); err != nil {
+		t.Fatalf("err: %s", err)
+	}
+
+	state, err := ctx.Apply()
+	if err != nil {
+		t.Fatalf("err: %s", err)
+	}
+
+	actual := strings.TrimSpace(state.String())
+	expected := strings.TrimSpace(testTerraformApplyVarsEnvStr)
+	if actual != expected {
+		t.Fatalf("bad: \n%s", actual)
+	}
+}
+
 func TestContext2Apply_createBefore_depends(t *testing.T) {
 	m := testModule(t, "apply-depends-create-before")
 	h := new(HookRecordApplyOrder)
diff --git a/terraform/interpolate.go b/terraform/interpolate.go
index aee283a78..b0af5f659 100644
--- a/terraform/interpolate.go
+++ b/terraform/interpolate.go
@@ -11,6 +11,12 @@ import (
 	"github.com/hashicorp/terraform/config/module"
 )
 
+const (
+	// VarEnvPrefix is the prefix of variables that are read from
+	// the environment to set variables here.
+	VarEnvPrefix = "TF_VAR_"
+)
+
 // Interpolater is the structure responsible for determining the values
 // for interpolations such as `aws_instance.foo.bar`.
 type Interpolater struct {
@@ -43,6 +49,11 @@ func (i *Interpolater) Values(
 		}
 		for _, v := range mod.Config().Variables {
 			for k, val := range v.DefaultsMap() {
+				envKey := VarEnvPrefix + strings.TrimPrefix(k, "var.")
+				if v := os.Getenv(envKey); v != "" {
+					val = v
+				}
+
 				result[k] = ast.Variable{
 					Value: val,
 					Type:  ast.TypeString,
diff --git a/terraform/terraform_test.go b/terraform/terraform_test.go
index bb54ef6ac..38be7b9fd 100644
--- a/terraform/terraform_test.go
+++ b/terraform/terraform_test.go
@@ -47,6 +47,14 @@ func tempDir(t *testing.T) string {
 	return dir
 }
 
+// tempEnv lets you temporarily set an environment variable. It returns
+// the old value that should be set via a defer.
+func tempEnv(t *testing.T, k string, v string) string {
+	old := os.Getenv(k)
+	os.Setenv(k, v)
+	return old
+}
+
 func testConfig(t *testing.T, name string) *config.Config {
 	c, err := config.Load(filepath.Join(fixtureDir, name, "main.tf"))
 	if err != nil {
@@ -621,6 +629,13 @@ aws_instance.foo:
   type = aws_instance
 `
 
+const testTerraformApplyVarsEnvStr = `
+aws_instance.bar:
+  ID = foo
+  foo = baz
+  type = aws_instance
+`
+
 const testTerraformPlanStr = `
 DIFF:
 
diff --git a/terraform/test-fixtures/apply-vars-env/main.tf b/terraform/test-fixtures/apply-vars-env/main.tf
new file mode 100644
index 000000000..b686da065
--- /dev/null
+++ b/terraform/test-fixtures/apply-vars-env/main.tf
@@ -0,0 +1,7 @@
+variable "ami" {
+    default = "foo"
+}
+
+resource "aws_instance" "bar" {
+    foo = "${var.ami}"
+}