diff --git a/packer/core.go b/packer/core.go
index e8329b821..678e44e08 100644
--- a/packer/core.go
+++ b/packer/core.go
@@ -66,12 +66,17 @@ func NewCore(c *CoreConfig) (*Core, error) {
 		builds[v] = b
 	}
 
-	return &Core{
+	result := &Core{
 		components: c.Components,
 		template:   c.Template,
 		variables:  c.Variables,
 		builds:     builds,
-	}, nil
+	}
+	if err := result.init(); err != nil {
+		return nil, err
+	}
+
+	return result, nil
 }
 
 // BuildNames returns the builds that are available in this configured core.
@@ -228,3 +233,35 @@ func (c *Core) Validate() error {
 
 	return err
 }
+
+func (c *Core) init() error {
+	if c.variables == nil {
+		c.variables = make(map[string]string)
+	}
+
+	// Go through the variables and interpolate the environment variables
+	ctx := &interpolate.Context{EnableEnv: true}
+	for k, v := range c.template.Variables {
+		// Ignore variables that are required
+		if v.Required {
+			continue
+		}
+
+		// Ignore variables that have a value
+		if _, ok := c.variables[k]; ok {
+			continue
+		}
+
+		// Interpolate the default
+		def, err := interpolate.Render(v.Default, ctx)
+		if err != nil {
+			return fmt.Errorf(
+				"error interpolating default value for '%s': %s",
+				k, err)
+		}
+
+		c.variables[k] = def
+	}
+
+	return nil
+}
diff --git a/packer/core_test.go b/packer/core_test.go
index 8cec16bae..09059909b 100644
--- a/packer/core_test.go
+++ b/packer/core_test.go
@@ -5,6 +5,7 @@ import (
 	"reflect"
 	"testing"
 
+	configHelper "github.com/mitchellh/packer/helper/config"
 	"github.com/mitchellh/packer/template"
 )
 
@@ -108,6 +109,38 @@ func TestCoreBuild_basicInterpolated(t *testing.T) {
 	}
 }
 
+func TestCoreBuild_env(t *testing.T) {
+	os.Setenv("PACKER_TEST_ENV", "test")
+	defer os.Setenv("PACKER_TEST_ENV", "")
+
+	config := TestCoreConfig(t)
+	testCoreTemplate(t, config, fixtureDir("build-env.json"))
+	b := TestBuilder(t, config, "test")
+	core := TestCore(t, config)
+
+	b.ArtifactId = "hello"
+
+	build, err := core.Build("test")
+	if err != nil {
+		t.Fatalf("err: %s", err)
+	}
+
+	if _, err := build.Prepare(); err != nil {
+		t.Fatalf("err: %s", err)
+	}
+
+	// Interpolate the config
+	var result map[string]interface{}
+	err = configHelper.Decode(&result, nil, b.PrepareConfig...)
+	if err != nil {
+		t.Fatalf("err: %s", err)
+	}
+
+	if result["value"] != "test" {
+		t.Fatalf("bad: %#v", result)
+	}
+}
+
 func TestCoreBuild_nonExist(t *testing.T) {
 	config := TestCoreConfig(t)
 	testCoreTemplate(t, config, fixtureDir("build-basic.json"))
diff --git a/packer/test-fixtures/build-env.json b/packer/test-fixtures/build-env.json
new file mode 100644
index 000000000..4f2c9b118
--- /dev/null
+++ b/packer/test-fixtures/build-env.json
@@ -0,0 +1,10 @@
+{
+    "variables": {
+        "var": "{{env `PACKER_TEST_ENV`}}"
+    },
+
+    "builders": [{
+        "type": "test",
+        "value": "{{user `var`}}"
+    }]
+}