diff --git a/bin/babel/util.js b/bin/babel/util.js
index d6b6bc26c1..24afd62a12 100644
--- a/bin/babel/util.js
+++ b/bin/babel/util.js
@@ -1,10 +1,11 @@
-var readdir = require("fs-readdir-recursive");
-var index   = require("./index");
-var babel   = require("../../lib/babel/api/node");
-var util    = require("../../lib/babel/util");
-var path    = require("path");
-var fs      = require("fs");
-var _       = require("lodash");
+var resolveRc = require("../../lib/babel/api/register/resolve-rc");
+var readdir   = require("fs-readdir-recursive");
+var index     = require("./index");
+var babel     = require("../../lib/babel/api/node");
+var util      = require("../../lib/babel/util");
+var path      = require("path");
+var fs        = require("fs");
+var _         = require("lodash");
 
 exports.readdirFilter = function (filename) {
   return readdir(filename).filter(function (filename) {
@@ -41,6 +42,7 @@ exports.transform = function (filename, code, opts) {
 };
 
 exports.compile = function (filename, opts) {
+  resolveRc(filename, opts);
   var code = fs.readFileSync(filename, "utf8");
   return exports.transform(filename, code, opts);
 };
diff --git a/lib/babel/api/register/node.js b/lib/babel/api/register/node.js
index 56367f5fa4..1878f5542d 100644
--- a/lib/babel/api/register/node.js
+++ b/lib/babel/api/register/node.js
@@ -4,6 +4,7 @@ require("../../polyfill");
 
 var sourceMapSupport = require("source-map-support");
 var registerCache    = require("./cache");
+var resolveRc        = require("./resolve-rc");
 var extend           = require("lodash/object/extend");
 var babel            = require("../node");
 var each             = require("lodash/collection/each");
@@ -44,7 +45,10 @@ var mtime = function (filename) {
 var compile = function (filename) {
   var result;
 
-  var cacheKey = filename + ":" + JSON.stringify(transformOpts);
+  var opts = extend({}, transformOpts);
+  resolveRc(filename, opts);
+
+  var cacheKey = filename + ":" + JSON.stringify(opts);
 
   if (cache) {
     var cached = cache[cacheKey];
@@ -54,10 +58,10 @@ var compile = function (filename) {
   }
 
   if (!result) {
-    result = babel.transformFileSync(filename, extend({
+    result = babel.transformFileSync(filename, extend(opts, {
       sourceMap: true,
       ast:       false
-    }, transformOpts));
+    }));
   }
 
   if (cache) {
diff --git a/lib/babel/api/register/resolve-rc.js b/lib/babel/api/register/resolve-rc.js
new file mode 100644
index 0000000000..80d16e9a9f
--- /dev/null
+++ b/lib/babel/api/register/resolve-rc.js
@@ -0,0 +1,45 @@
+"use strict";
+
+var merge = require("lodash/object/merge");
+var path  = require("path");
+var fs    = require("fs");
+
+var cache = {};
+
+function exists(filename) {
+  var cached = cache[filename];
+  if (cached != null) return cached;
+  return cache[filename] = fs.existsSync(filename);;
+}
+
+module.exports = function (loc, opts) {
+  var rel = ".babelrc";
+  opts = opts || {};
+
+  function find(start, rel) {
+    var file = path.join(start, rel);
+
+    if (exists(file)) {
+      var file = fs.readFileSync(file, "utf8");
+      var json;
+
+      try {
+        json = JSON.parse(file);
+      } catch (err) {
+        err.filename = file + ": " + err.filename;
+        throw err;
+      }
+
+      opts = merge(json, opts);
+    }
+
+    var up = path.dirname(start);
+    if (up !== start) { // root
+      find(up, rel);
+    }
+  }
+
+  find(loc, rel);
+
+  return opts;
+};