diff --git a/README.md b/README.md
index d5443080dd..c5bb73505a 100644
--- a/README.md
+++ b/README.md
@@ -192,6 +192,22 @@ Command Options
 | `--solution=$solution`            | Set Visual Studio Solution version (win)
 
 
+Configuration
+--------
+
+__`node-gyp` responds to environment variables:__
+Variables take the form `npm_config_OPTION_NAME` for any of the options
+listed above (dashes in option names should be replaced by an underscores).
+They can be set in two ways:
+1. as `npm` configuration - these work only when `node-gyp` is executed by
+ `npm`. For example:  
+ `$ npm config set [--global] npm_config_devdir /tmp/.gyp`
+2. as environment variables - these work also when `node-gyp` is invoked
+ directly:  
+ `> set npm_config_devdir=c:\temp\.gyp` for Windows  
+ `$ export npm_config_devdir=/tmp/.gyp` for UNIX-like environments
+
+
 License
 -------