diff --git a/docs/source/config_file.rst b/docs/source/config_file.rst
index 52d47140c78a..322716c91379 100644
--- a/docs/source/config_file.rst
+++ b/docs/source/config_file.rst
@@ -392,6 +392,8 @@ section of the command line docs.
 
 ``cache_dir`` (string, default ``.mypy_cache``)
     Specifies the location where mypy stores incremental cache info.
+    User home directory and environment variables will be expanded.
+
     Note that the cache is only read when incremental mode is enabled
     but is always written to, unless the value is set to ``/dev/nul``
     (UNIX) or ``nul`` (Windows).
diff --git a/mypy/config_parser.py b/mypy/config_parser.py
index 5f43badd1dca..18e7fe89338d 100644
--- a/mypy/config_parser.py
+++ b/mypy/config_parser.py
@@ -208,7 +208,7 @@ def parse_section(prefix: str, template: Options,
             print("%s%s: %s" % (prefix, key, err), file=stderr)
             continue
         if key == 'cache_dir':
-            v = os.path.expanduser(v)
+            v = os.path.expandvars(os.path.expanduser(v))
         if key == 'silent_imports':
             print("%ssilent_imports has been replaced by "
                   "ignore_missing_imports=True; follow_imports=skip" % prefix, file=stderr)