diff --git a/src/vs/vscode.d.ts b/src/vs/vscode.d.ts
index ccc90b2f958..1080c5e46e7 100644
--- a/src/vs/vscode.d.ts
+++ b/src/vs/vscode.d.ts
@@ -4979,6 +4979,10 @@ declare module 'vscode' {
 		 * Args for the custom shell executable, this does not work on Windows (see #8429)
 		 */
 		shellArgs?: string[];
+		/**
+		 * Object with environment variables that will be added to the VS Code process.
+		 */
+		env?: { [key: string]: string | null };
 	}
 
 	/**
diff --git a/src/vs/workbench/api/electron-browser/mainThreadTerminalService.ts b/src/vs/workbench/api/electron-browser/mainThreadTerminalService.ts
index a0c4d0db90f..aade4a664e3 100644
--- a/src/vs/workbench/api/electron-browser/mainThreadTerminalService.ts
+++ b/src/vs/workbench/api/electron-browser/mainThreadTerminalService.ts
@@ -33,13 +33,14 @@ export class MainThreadTerminalService implements MainThreadTerminalServiceShape
 		// when the extension host process goes down ?
 	}
 
-	public $createTerminal(name?: string, shellPath?: string, shellArgs?: string[], waitOnExit?: boolean): TPromise<number> {
+	public $createTerminal(name?: string, shellPath?: string, shellArgs?: string[], env?: { [key: string]: string }, waitOnExit?: boolean): TPromise<number> {
 		const shellLaunchConfig: IShellLaunchConfig = {
 			name,
 			executable: shellPath,
 			args: shellArgs,
 			waitOnExit,
-			ignoreConfigurationCwd: true
+			ignoreConfigurationCwd: true,
+			env
 		};
 		return TPromise.as(this.terminalService.createInstance(shellLaunchConfig).id);
 	}
diff --git a/src/vs/workbench/api/node/extHost.protocol.ts b/src/vs/workbench/api/node/extHost.protocol.ts
index 2e14b41c060..9d95254ff6a 100644
--- a/src/vs/workbench/api/node/extHost.protocol.ts
+++ b/src/vs/workbench/api/node/extHost.protocol.ts
@@ -291,7 +291,7 @@ export interface MainThreadProgressShape extends IDisposable {
 }
 
 export interface MainThreadTerminalServiceShape extends IDisposable {
-	$createTerminal(name?: string, shellPath?: string, shellArgs?: string[], waitOnExit?: boolean): TPromise<number>;
+	$createTerminal(name?: string, shellPath?: string, shellArgs?: string[], env?: { [key: string]: string }, waitOnExit?: boolean): TPromise<number>;
 	$dispose(terminalId: number): void;
 	$hide(terminalId: number): void;
 	$sendText(terminalId: number, text: string, addNewLine: boolean): void;
diff --git a/src/vs/workbench/api/node/extHostTerminalService.ts b/src/vs/workbench/api/node/extHostTerminalService.ts
index e42fc83d1f6..adcd7ddd9a1 100644
--- a/src/vs/workbench/api/node/extHostTerminalService.ts
+++ b/src/vs/workbench/api/node/extHostTerminalService.ts
@@ -24,6 +24,7 @@ export class ExtHostTerminal implements vscode.Terminal {
 		name?: string,
 		shellPath?: string,
 		shellArgs?: string[],
+		env?: { [key: string]: string },
 		waitOnExit?: boolean
 	) {
 		this._name = name;
@@ -32,7 +33,7 @@ export class ExtHostTerminal implements vscode.Terminal {
 		this._pidPromise = new TPromise<number>(c => {
 			this._pidPromiseComplete = c;
 		});
-		this._proxy.$createTerminal(name, shellPath, shellArgs, waitOnExit).then((id) => {
+		this._proxy.$createTerminal(name, shellPath, shellArgs, env, waitOnExit).then((id) => {
 			this._id = id;
 			this._queuedRequests.forEach((r) => {
 				r.run(this._proxy, this._id);
@@ -113,7 +114,7 @@ export class ExtHostTerminalService implements ExtHostTerminalServiceShape {
 	}
 
 	public createTerminalFromOptions(options: vscode.TerminalOptions): vscode.Terminal {
-		let terminal = new ExtHostTerminal(this._proxy, options.name, options.shellPath, options.shellArgs/*, options.waitOnExit*/);
+		let terminal = new ExtHostTerminal(this._proxy, options.name, options.shellPath, options.shellArgs, options.env/*, options.waitOnExit*/);
 		this._terminals.push(terminal);
 		return terminal;
 	}
diff --git a/src/vs/workbench/parts/tasks/electron-browser/terminalTaskSystem.ts b/src/vs/workbench/parts/tasks/electron-browser/terminalTaskSystem.ts
index b3e4d73c599..bf9e700758e 100644
--- a/src/vs/workbench/parts/tasks/electron-browser/terminalTaskSystem.ts
+++ b/src/vs/workbench/parts/tasks/electron-browser/terminalTaskSystem.ts
@@ -552,14 +552,7 @@ export class TerminalTaskSystem extends EventEmitter implements ITaskSystem {
 			shellLaunchConfig.cwd = options.cwd;
 		}
 		if (options.env) {
-			let env: IStringDictionary<string> = Object.create(null);
-			Object.keys(process.env).forEach((key) => {
-				env[key] = process.env[key];
-			});
-			Object.keys(options.env).forEach((key) => {
-				env[key] = options.env[key];
-			});
-			shellLaunchConfig.env = env;
+			shellLaunchConfig.env = options.env;
 		}
 		let prefersSameTerminal = task.command.presentation.panel === PanelKind.Dedicated;
 		let allowsSharedTerminal = task.command.presentation.panel === PanelKind.Shared;
diff --git a/src/vs/workbench/parts/terminal/electron-browser/terminalInstance.ts b/src/vs/workbench/parts/terminal/electron-browser/terminalInstance.ts
index 81e366ea283..07075759c0b 100644
--- a/src/vs/workbench/parts/terminal/electron-browser/terminalInstance.ts
+++ b/src/vs/workbench/parts/terminal/electron-browser/terminalInstance.ts
@@ -778,7 +778,18 @@ export class TerminalInstance implements ITerminalInstance {
 	// TODO: This should be private/protected
 	// TODO: locale should not be optional
 	public static createTerminalEnv(parentEnv: IStringDictionary<string>, shell: IShellLaunchConfig, cwd: string, locale?: string, cols?: number, rows?: number): IStringDictionary<string> {
-		const env = shell.env ? shell.env : TerminalInstance._cloneEnv(parentEnv);
+		const env = TerminalInstance._cloneEnv(parentEnv);
+		if (shell.env) {
+			Object.keys(shell.env).forEach((key) => {
+				const value = shell.env[key];
+				if (typeof value === 'string') {
+					env[key] = value;
+				} else {
+					delete env[key];
+				}
+			});
+		}
+
 		env['PTYPID'] = process.pid.toString();
 		env['PTYSHELL'] = shell.executable;
 		env['TERM_PROGRAM'] = 'vscode';