diff --git a/doc/manual/release-notes.xml b/doc/manual/release-notes.xml
index ba36d949d..e32bc2daa 100644
--- a/doc/manual/release-notes.xml
+++ b/doc/manual/release-notes.xml
@@ -50,6 +50,9 @@
   <option>--set</option>.</para></listitem>
   
 
+  <listitem><para>TODO: <option>--argstr</option>.</para></listitem>
+  
+
   <listitem><para>TODO: new built-ins
   <function>builtins.attrNames</function>,
   <function>builtins.filterSource</function>.</para></listitem>
diff --git a/src/libexpr/Makefile.am b/src/libexpr/Makefile.am
index 3d255d6bb..b08c079f4 100644
--- a/src/libexpr/Makefile.am
+++ b/src/libexpr/Makefile.am
@@ -2,11 +2,11 @@ pkglib_LTLIBRARIES = libexpr.la
 
 libexpr_la_SOURCES = \
  nixexpr.cc eval.cc primops.cc lexer-tab.cc parser-tab.cc \
- get-drvs.cc attr-path.cc expr-to-xml.cc
+ get-drvs.cc attr-path.cc expr-to-xml.cc common-opts.cc
 
 pkginclude_HEADERS = \
  nixexpr.hh eval.hh parser.hh lexer-tab.hh parser-tab.hh \
- get-drvs.hh attr-path.hh expr-to-xml.hh
+ get-drvs.hh attr-path.hh expr-to-xml.hh common-opts.hh
 
 libexpr_la_LIBADD = ../libutil/libutil.la ../libstore/libstore.la \
  ../boost/format/libformat.la
diff --git a/src/libexpr/common-opts.cc b/src/libexpr/common-opts.cc
new file mode 100644
index 000000000..9e3f8f961
--- /dev/null
+++ b/src/libexpr/common-opts.cc
@@ -0,0 +1,32 @@
+#include "common-opts.hh"
+#include "../libmain/shared.hh"
+#include "util.hh"
+#include "parser.hh"
+
+
+namespace nix {
+
+
+bool parseOptionArg(const string & arg, Strings::iterator & i,
+    const Strings::iterator & argsEnd, EvalState & state,
+    ATermMap & autoArgs)
+{
+    if (arg != "--arg" && arg != "--argstr") return false;
+
+    UsageError error(format("`%1%' requires two arguments") % arg);
+    
+    if (i == argsEnd) throw error;
+    string name = *i++;
+    if (i == argsEnd) throw error;
+    string value = *i++;
+    
+    Expr e = arg == "--arg"
+        ? parseExprFromString(state, value, absPath("."))
+        : makeStr(value);
+    autoArgs.set(toATerm(name), e);
+    
+    return true;
+}
+
+ 
+}
diff --git a/src/libexpr/common-opts.hh b/src/libexpr/common-opts.hh
new file mode 100644
index 000000000..fb9659cdc
--- /dev/null
+++ b/src/libexpr/common-opts.hh
@@ -0,0 +1,17 @@
+#ifndef __COMMON_OPTS_H
+#define __COMMON_OPTS_H
+
+#include "eval.hh"
+
+
+namespace nix {
+
+/* Some common option parsing between nix-env and nix-instantiate. */
+bool parseOptionArg(const string & arg, Strings::iterator & i,
+    const Strings::iterator & argsEnd, EvalState & state,
+    ATermMap & autoArgs);
+    
+}
+
+
+#endif /* !__COMMON_OPTS_H */
diff --git a/src/libmain/shared.hh b/src/libmain/shared.hh
index fa45645fe..a7e46c927 100644
--- a/src/libmain/shared.hh
+++ b/src/libmain/shared.hh
@@ -31,7 +31,7 @@ extern bool setuidMode;
 
 extern volatile ::sig_atomic_t blockInt;
 
-MakeError(UsageError, nix::Error)
+MakeError(UsageError, nix::Error);
 
 }
 
diff --git a/src/nix-env/nix-env.cc b/src/nix-env/nix-env.cc
index e131bf96c..04641697f 100644
--- a/src/nix-env/nix-env.cc
+++ b/src/nix-env/nix-env.cc
@@ -10,6 +10,7 @@
 #include "get-drvs.hh"
 #include "attr-path.hh"
 #include "pathlocks.hh"
+#include "common-opts.hh"
 #include "xml-writer.hh"
 #include "store-api.hh"
 #include "db.hh"
@@ -45,7 +46,7 @@ struct InstallSourceInfo
     Path profile; /* for srcProfile */
     string systemFilter; /* for srcNixExprDrvs */
     ATermMap autoArgs;
-    InstallSourceInfo() : autoArgs(128) { };
+    InstallSourceInfo() : autoArgs() { };
 };
 
 
@@ -1122,10 +1123,9 @@ static void opDefaultExpr(Globals & globals,
 static string needArg(Strings::iterator & i,
     Strings & args, const string & arg)
 {
-    ++i;
     if (i == args.end()) throw UsageError(
         format("`%1%' requires an argument") % arg);
-    return *i;
+    return *i++;
 }
 
 
@@ -1146,8 +1146,8 @@ void run(Strings args)
     globals.keepDerivations =
         queryBoolSetting("env-keep-derivations", false);
     
-    for (Strings::iterator i = args.begin(); i != args.end(); ++i) {
-        string arg = *i;
+    for (Strings::iterator i = args.begin(); i != args.end(); ) {
+        string arg = *i++;
 
         Operation oldOp = op;
 
@@ -1161,16 +1161,9 @@ void run(Strings args)
         }
         else if (arg == "--attr" || arg == "-A")
             globals.instSource.type = srcAttrPath;
-        else if (arg == "--arg") { /* !!! code duplication from nix-instantiate */
-            i++;
-            if (i == args.end())
-                throw UsageError("`--arg' requires two arguments");
-            string name = *i++;
-            if (i == args.end())
-                throw UsageError("`--arg' requires two arguments");
-            Expr value = parseExprFromString(globals.state, *i, absPath("."));
-            globals.instSource.autoArgs.set(toATerm(name), value);
-        }
+        else if (parseOptionArg(arg, i, args.end(),
+                     globals.state, globals.instSource.autoArgs))
+            ;
         else if (arg == "--force-name") // undocumented flag for nix-install-package
             globals.forceName = needArg(i, args, arg);
         else if (arg == "--uninstall" || arg == "-e")
diff --git a/src/nix-instantiate/nix-instantiate.cc b/src/nix-instantiate/nix-instantiate.cc
index b49b84e36..3822de5c6 100644
--- a/src/nix-instantiate/nix-instantiate.cc
+++ b/src/nix-instantiate/nix-instantiate.cc
@@ -10,6 +10,7 @@
 #include "expr-to-xml.hh"
 #include "util.hh"
 #include "store-api.hh"
+#include "common-opts.hh"
 #include "help.txt.hh"
 
 
@@ -112,15 +113,8 @@ void run(Strings args)
                 throw UsageError("`--attr' requires an argument");
             attrPaths.push_back(*i++);
         }
-        else if (arg == "--arg") {
-            if (i == args.end())
-                throw UsageError("`--arg' requires two arguments");
-            string name = *i++;
-            if (i == args.end())
-                throw UsageError("`--arg' requires two arguments");
-            Expr value = parseExprFromString(state, *i++, absPath("."));
-            autoArgs.set(toATerm(name), value);
-        }
+        else if (parseOptionArg(arg, i, args.end(), state, autoArgs))
+            ;
         else if (arg == "--add-root") {
             if (i == args.end())
                 throw UsageError("`--add-root' requires an argument");
diff --git a/tests/lang.sh b/tests/lang.sh
index 851d89136..18eb0278c 100644
--- a/tests/lang.sh
+++ b/tests/lang.sh
@@ -40,7 +40,11 @@ for i in lang/eval-okay-*.nix; do
     i=$(basename $i .nix)
 
     if test -e lang/$i.exp; then
-        if ! $nixinstantiate --eval-only lang/$i.nix > lang/$i.out; then
+        flags=
+        if test -e lang/$i.flags; then
+            flags=$(cat lang/$i.flags)
+        fi
+        if ! $nixinstantiate $flags --eval-only lang/$i.nix > lang/$i.out; then
             echo "FAIL: $i should evaluate"
             fail=1
         elif ! $aterm_bin/atdiff lang/$i.out lang/$i.exp; then
diff --git a/tests/lang/eval-okay-autoargs.exp b/tests/lang/eval-okay-autoargs.exp
new file mode 100644
index 000000000..3b12bdd5e
--- /dev/null
+++ b/tests/lang/eval-okay-autoargs.exp
@@ -0,0 +1 @@
+Str("xyzzy!xyzzy!foobar",[])
diff --git a/tests/lang/eval-okay-autoargs.flags b/tests/lang/eval-okay-autoargs.flags
new file mode 100644
index 000000000..ae3762254
--- /dev/null
+++ b/tests/lang/eval-okay-autoargs.flags
@@ -0,0 +1 @@
+--arg lib import(lang/lib.nix) --argstr xyzzy xyzzy! -A result
diff --git a/tests/lang/eval-okay-autoargs.nix b/tests/lang/eval-okay-autoargs.nix
new file mode 100644
index 000000000..1356bb5aa
--- /dev/null
+++ b/tests/lang/eval-okay-autoargs.nix
@@ -0,0 +1,15 @@
+let
+
+  foobar = "foobar";
+
+in
+
+{ xyzzy2 ? xyzzy # mutually recursive args
+, xyzzy ? "blaat" # will be overriden by --argstr
+, fb ? foobar
+, lib # will be set by --arg
+}:
+
+{
+  result = lib.concat [xyzzy xyzzy2 fb];
+}