diff --git a/usr/gen_init_cpio.c b/usr/gen_init_cpio.c
index 7abc07f..f1d3fe3 100644
--- a/usr/gen_init_cpio.c
+++ b/usr/gen_init_cpio.c
@@ -370,6 +370,30 @@
 	return rc;
 }
 
+static char *cpio_replace_env(char *new_location)
+{
+       char expanded[PATH_MAX + 1];
+       char env_var[PATH_MAX + 1];
+       char *start;
+       char *end;
+
+       for (start = NULL; (start = strstr(new_location, "${")); ) {
+               end = strchr(start, '}');
+               if (start < end) {
+                       *env_var = *expanded = '\0';
+                       strncat(env_var, start + 2, end - start - 2);
+                       strncat(expanded, new_location, start - new_location);
+                       strncat(expanded, getenv(env_var), PATH_MAX);
+                       strncat(expanded, end + 1, PATH_MAX);
+                       strncpy(new_location, expanded, PATH_MAX);
+               } else
+                       break;
+       }
+
+       return new_location;
+}
+
+
 static int cpio_mkfile_line(const char *line)
 {
 	char name[PATH_MAX + 1];
@@ -415,7 +439,8 @@
 	} else {
 		dname = name;
 	}
-	rc = cpio_mkfile(dname, location, mode, uid, gid, nlinks);
+	rc = cpio_mkfile(dname, cpio_replace_env(location),
+	                 mode, uid, gid, nlinks);
  fail:
 	if (dname_len) free(dname);
 	return rc;
@@ -439,6 +464,7 @@
 		"\n"
 		"<name>       name of the file/dir/nod/etc in the archive\n"
 		"<location>   location of the file in the current filesystem\n"
+		"             expands shell variables quoted with ${}\n"
 		"<target>     link target\n"
 		"<mode>       mode/permissions of the file\n"
 		"<uid>        user id (0=root)\n"