diff --git a/Cargo.lock b/Cargo.lock
index 9ae7006..118400d 100644
--- a/Cargo.lock
+++ b/Cargo.lock
@@ -1,6 +1,58 @@
 # This file is automatically @generated by Cargo.
 # It is not intended for manual editing.
+[[package]]
+name = "aho-corasick"
+version = "0.7.6"
+source = "registry+https://github.com/rust-lang/crates.io-index"
+dependencies = [
+ "memchr 2.3.0 (registry+https://github.com/rust-lang/crates.io-index)",
+]
+
+[[package]]
+name = "lazy_static"
+version = "1.4.0"
+source = "registry+https://github.com/rust-lang/crates.io-index"
+
+[[package]]
+name = "memchr"
+version = "2.3.0"
+source = "registry+https://github.com/rust-lang/crates.io-index"
+
+[[package]]
+name = "regex"
+version = "1.3.3"
+source = "registry+https://github.com/rust-lang/crates.io-index"
+dependencies = [
+ "aho-corasick 0.7.6 (registry+https://github.com/rust-lang/crates.io-index)",
+ "memchr 2.3.0 (registry+https://github.com/rust-lang/crates.io-index)",
+ "regex-syntax 0.6.13 (registry+https://github.com/rust-lang/crates.io-index)",
+ "thread_local 1.0.1 (registry+https://github.com/rust-lang/crates.io-index)",
+]
+
+[[package]]
+name = "regex-syntax"
+version = "0.6.13"
+source = "registry+https://github.com/rust-lang/crates.io-index"
+
 [[package]]
 name = "sv-filelist-parser"
 version = "0.1.0"
+dependencies = [
+ "regex 1.3.3 (registry+https://github.com/rust-lang/crates.io-index)",
+]
 
+[[package]]
+name = "thread_local"
+version = "1.0.1"
+source = "registry+https://github.com/rust-lang/crates.io-index"
+dependencies = [
+ "lazy_static 1.4.0 (registry+https://github.com/rust-lang/crates.io-index)",
+]
+
+[metadata]
+"checksum aho-corasick 0.7.6 (registry+https://github.com/rust-lang/crates.io-index)" = "58fb5e95d83b38284460a5fda7d6470aa0b8844d283a0b614b8535e880800d2d"
+"checksum lazy_static 1.4.0 (registry+https://github.com/rust-lang/crates.io-index)" = "e2abad23fbc42b3700f2f279844dc832adb2b2eb069b2df918f455c4e18cc646"
+"checksum memchr 2.3.0 (registry+https://github.com/rust-lang/crates.io-index)" = "3197e20c7edb283f87c071ddfc7a2cca8f8e0b888c242959846a6fce03c72223"
+"checksum regex 1.3.3 (registry+https://github.com/rust-lang/crates.io-index)" = "b5508c1941e4e7cb19965abef075d35a9a8b5cdf0846f30b4050e9b55dc55e87"
+"checksum regex-syntax 0.6.13 (registry+https://github.com/rust-lang/crates.io-index)" = "e734e891f5b408a29efbf8309e656876276f49ab6a6ac208600b4419bd893d90"
+"checksum thread_local 1.0.1 (registry+https://github.com/rust-lang/crates.io-index)" = "d40c6d1b69745a6ec6fb1ca717914848da4b44ae29d9b3080cbee91d72a69b14"
diff --git a/Cargo.toml b/Cargo.toml
index 89cb498..dab15b3 100644
--- a/Cargo.toml
+++ b/Cargo.toml
@@ -7,3 +7,4 @@ edition = "2018"
 # See more keys and their definitions at https://doc.rust-lang.org/cargo/reference/manifest.html
 
 [dependencies]
+regex = "1.0"
\ No newline at end of file
diff --git a/src/file_parser.rs b/src/file_parser.rs
index 5bfd70f..2a497a2 100644
--- a/src/file_parser.rs
+++ b/src/file_parser.rs
@@ -1,6 +1,7 @@
 use std::collections::HashMap;
 use std::error::Error;
 use std::fs;
+use regex::Regex;
 
 use crate::line_parser;
 use crate::line_parser::LineType;
@@ -37,7 +38,8 @@ pub fn parse_file(path: &str) -> Result<Filelist, Box<dyn Error>> {
     let mut filelist = Filelist::new();
 
     for line in contents.lines() {
-        match line_parser::parse_line(line) {
+        let line = replace_env_vars(&line);
+        match line_parser::parse_line(&line) {
             LineType::File(file) => filelist.files.push(file.to_string()),
             LineType::Define(define_map) => {
                 for define in define_map.into_iter() {
@@ -57,3 +59,23 @@ pub fn parse_file(path: &str) -> Result<Filelist, Box<dyn Error>> {
     }
     Ok(filelist)
 }
+
+fn replace_env_vars(line: &str) -> String {
+    let re_env_brace = Regex::new(r"\$\{(?P<env>[^}]+)\}").unwrap();
+    let re_env_paren = Regex::new(r"\$\((?P<env>[^)]+)\)").unwrap();
+
+    let mut expanded_line = String::from(line);
+    for caps in re_env_brace.captures_iter(&line) {
+        let env = &caps["env"];
+        if let Ok(env_var) = std::env::var(env) {
+            expanded_line = expanded_line.replace(&format!("${{{}}}", env), &env_var);
+        }
+    }
+    for caps in re_env_paren.captures_iter(&line) {
+        let env = &caps["env"];
+        if let Ok(env_var) = std::env::var(env) {
+            expanded_line = expanded_line.replace(&format!("$({})", env), &env_var);
+        }
+    }
+    expanded_line
+}
\ No newline at end of file
diff --git a/testcase/files.f b/testcase/files.f
index 8d89f83..4eecee6 100644
--- a/testcase/files.f
+++ b/testcase/files.f
@@ -4,4 +4,6 @@ testcase/file3.sv
 +incdir+testcase/
 // Some comment
 +define+a=b+c=d+e=f
++define+$(VAR1)=var1
++define+${VAR2}=var2
 -f testcase/files2.f
\ No newline at end of file
diff --git a/tests/integration_tests.rs b/tests/integration_tests.rs
index 1be5492..93a0723 100644
--- a/tests/integration_tests.rs
+++ b/tests/integration_tests.rs
@@ -7,6 +7,9 @@ fn simple_test() {
     defines.insert("a".to_string(), "bad".to_string());
     defines.insert("e".to_string(), "f".to_string());
     defines.insert("c".to_string(), "d".to_string());
+    defines.insert("ENV_VAR1".to_string(), "var1".to_string());
+    defines.insert("ENV_VAR2".to_string(), "var2".to_string());
+
 
     let filelist_exp = sv_filelist_parser::Filelist {
         files : vec!["testcase/file1.sv".to_string(),
@@ -17,6 +20,11 @@ fn simple_test() {
         defines : defines,
         comments_present : true
     };
+
+    // Add env vars
+    std::env::set_var("VAR1", "ENV_VAR1");
+    std::env::set_var("VAR2", "ENV_VAR2");
+
     let filelist = sv_filelist_parser::parse("testcase/files.f")
         .expect("Error parsing");
     assert_eq!(filelist_exp, filelist);