diff --git a/compose/config/environment.py b/compose/config/environment.py
index 696356f3246..15454d68eef 100644
--- a/compose/config/environment.py
+++ b/compose/config/environment.py
@@ -22,6 +22,12 @@ def split_env(env):
     key = value = None
     if '=' in env:
         key, value = env.split('=', 1)
+        # If the value is quoted, remove the quotes
+        if len(value) >= 2 and value[0] == value[-1] and value[0] in ['"', "'"]:
+            value = value[1:-1]
+            # unescape quoted values
+            quote = value[0]
+            value.replace("\\"+quote, quote)
     else:
         key = env
     if re.search(r'\s', key):
diff --git a/tests/unit/config/environment_test.py b/tests/unit/config/environment_test.py
index 88eb0d6e11a..69f78b330a6 100644
--- a/tests/unit/config/environment_test.py
+++ b/tests/unit/config/environment_test.py
@@ -62,3 +62,14 @@ def test_env_vars_from_file_whitespace(self):
         with pytest.raises(ConfigurationError) as exc:
             env_vars_from_file(str(tmpdir.join('whitespace.env')))
         assert 'environment variable' in exc.exconly()
+
+    def test_env_vars_from_file_quoted(self):
+        tmpdir = pytest.ensuretemp('env_file')
+        self.addCleanup(tmpdir.remove)
+        with codecs.open('{}/quoted.env'.format(str(tmpdir)), 'w', encoding='utf-8') as f:
+            f.write('DOUBLE_QUOTES="testing \"double\" quotes"\n')
+            f.write("SINGLE_QUOTES='testing \'single\' quotes'\n")
+        assert env_vars_from_file(str(tmpdir.join('quoted.env'))) == {
+            'DOUBLE_QUOTES': 'testing "double" quotes',
+            'SINGLE_QUOTES': "testing 'single' quotes",
+        }