diff --git a/lib/rscons/environment.rb b/lib/rscons/environment.rb
index 085095d..42fabc5 100644
--- a/lib/rscons/environment.rb
+++ b/lib/rscons/environment.rb
@@ -263,11 +263,13 @@ module Rscons
     #
     # @return [Array, String] Expansion of the variable reference.
     def expand_varref(varref, extra_vars = nil)
-      if extra_vars.nil?
-        @varset
-      else
-        @varset.merge(extra_vars)
-      end.expand_varref(varref)
+      vars = if extra_vars.nil?
+               @varset
+             else
+               @varset.merge(extra_vars)
+             end
+      lambda_args = [env: self, vars: vars]
+      vars.expand_varref(varref, lambda_args)
     end
     alias_method :build_command, :expand_varref
 
diff --git a/lib/rscons/varset.rb b/lib/rscons/varset.rb
index be575d8..0f9eee8 100644
--- a/lib/rscons/varset.rb
+++ b/lib/rscons/varset.rb
@@ -86,29 +86,38 @@ module Rscons
     # Replace "$\{var}" variable references in varref with the expanded
     # variables' values, recursively.
     #
-    # @param varref [String, Array] Value containing references to variables.
+    # @param varref [nil, String, Array, Proc]
+    #   Value containing references to variables.
+    # @param lambda_args [Array]
+    #   Arguments to pass to any lambda variable values to be expanded.
     #
-    # @return [String, Array]
+    # @return [nil, String, Array]
     #   Expanded value with "$\{var}" variable references replaced.
-    def expand_varref(varref)
-      if varref.is_a?(Array)
-        varref.map do |ent|
-          expand_varref(ent)
-        end.flatten
-      else
+    def expand_varref(varref, lambda_args)
+      if varref.is_a?(String)
         if varref =~ /^(.*)\$\{([^}]+)\}(.*)$/
           prefix, varname, suffix = $1, $2, $3
-          varval = expand_varref(self[varname])
+          varval = expand_varref(self[varname], lambda_args)
           if varval.is_a?(String) or varval.nil?
-            expand_varref("#{prefix}#{varval}#{suffix}")
+            expand_varref("#{prefix}#{varval}#{suffix}", lambda_args)
           elsif varval.is_a?(Array)
-            varval.map {|vv| expand_varref("#{prefix}#{vv}#{suffix}")}.flatten
+            varval.map {|vv| expand_varref("#{prefix}#{vv}#{suffix}", lambda_args)}.flatten
           else
             raise "I do not know how to expand a variable reference to a #{varval.class.name} (from #{varname.inspect} => #{self[varname].inspect})"
           end
         else
           varref
         end
+      elsif varref.is_a?(Array)
+        varref.map do |ent|
+          expand_varref(ent, lambda_args)
+        end.flatten
+      elsif varref.is_a?(Proc)
+        expand_varref(varref[*lambda_args], lambda_args)
+      elsif varref.nil?
+        nil
+      else
+        raise "Unknown varref type: #{varref.class} (#{varref.inspect})"
       end
     end
 
diff --git a/spec/build_tests_spec.rb b/spec/build_tests_spec.rb
index 8042c11..bc1d845 100644
--- a/spec/build_tests_spec.rb
+++ b/spec/build_tests_spec.rb
@@ -543,4 +543,23 @@ EOF
     expect(File.exists?('inc.h')).to be_truthy
     expect(`./program`).to eq "The value is 678\n"
   end
+
+  it "supports lambdas as construction variable values" do
+    env = Rscons::Environment.new do |env|
+      env["prefix"] = "-H"
+      env["suffix"] = "xyz"
+      env[:cfg] = {val: 44}
+      env["computed"] = lambda do |args|
+        "#{args[:env]['prefix']}#{args[:env][:cfg][:val]}#{args[:env]['suffix']}"
+      end
+      env["lambda_recurse"] = lambda do |args|
+        "${prefix}ello"
+      end
+    end
+    e2 = env.clone
+    e2[:cfg][:val] = 38
+    expect(env.expand_varref("${computed}")).to eq("-H44xyz")
+    expect(e2.expand_varref("${computed}")).to eq("-H38xyz")
+    expect(env.expand_varref("${lambda_recurse}")).to eq("-Hello")
+  end
 end
diff --git a/spec/rscons/environment_spec.rb b/spec/rscons/environment_spec.rb
index d85b4be..e5033b3 100644
--- a/spec/rscons/environment_spec.rb
+++ b/spec/rscons/environment_spec.rb
@@ -247,7 +247,7 @@ module Rscons
         env["foo"] = {}
         expect(env.expand_varref(["-p${path}", "${flags}"])).to eq ["-pdir1", "-pdir2", "-x", "-y", "-z"]
         expect(env.expand_varref("foo")).to eq "foo"
-        expect {env.expand_varref("${foo}")}.to raise_error /expand.a.variable.reference/
+        expect {env.expand_varref("${foo}")}.to raise_error /Unknown.varref.type/
         expect(env.expand_varref("${specialflag}")).to eq "-z"
         expect(env.expand_varref("${path}")).to eq ["dir1", "dir2"]
       end
diff --git a/spec/rscons/varset_spec.rb b/spec/rscons/varset_spec.rb
index f6651b0..be65cd7 100644
--- a/spec/rscons/varset_spec.rb
+++ b/spec/rscons/varset_spec.rb
@@ -126,26 +126,26 @@ module Rscons
                      "CPPPATH" => ["dir1", "dir2"],
                      "compiler" => "${CC}",
                      "cmd" => ["${CC}", "-c", "${CFLAGS}", "-I${CPPPATH}"],
-                     "hash" => {})
+                     "lambda" => lambda {|args| "#{args[:v]}--12"})
       it "expands to the string itself if the string is not a variable reference" do
-        expect(v.expand_varref("CC")).to eq("CC")
-        expect(v.expand_varref("CPPPATH")).to eq("CPPPATH")
-        expect(v.expand_varref("str")).to eq("str")
+        expect(v.expand_varref("CC", :lambda_args)).to eq("CC")
+        expect(v.expand_varref("CPPPATH", :lambda_args)).to eq("CPPPATH")
+        expect(v.expand_varref("str", :lambda_args)).to eq("str")
       end
       it "expands a single variable reference beginning with a '$'" do
-        expect(v.expand_varref("${CC}")).to eq("gcc")
-        expect(v.expand_varref("${CPPPATH}")).to eq(["dir1", "dir2"])
+        expect(v.expand_varref("${CC}", :lambda_args)).to eq("gcc")
+        expect(v.expand_varref("${CPPPATH}", :lambda_args)).to eq(["dir1", "dir2"])
       end
       it "expands a single variable reference in ${arr} notation" do
-        expect(v.expand_varref("prefix${CFLAGS}suffix")).to eq(["prefix-Wallsuffix", "prefix-O2suffix"])
-        expect(v.expand_varref(v["cmd"])).to eq(["gcc", "-c", "-Wall", "-O2", "-Idir1", "-Idir2"])
+        expect(v.expand_varref("prefix${CFLAGS}suffix", :lambda_args)).to eq(["prefix-Wallsuffix", "prefix-O2suffix"])
+        expect(v.expand_varref(v["cmd"], :lambda_args)).to eq(["gcc", "-c", "-Wall", "-O2", "-Idir1", "-Idir2"])
       end
       it "expands a variable reference recursively" do
-        expect(v.expand_varref("${compiler}")).to eq("gcc")
-        expect(v.expand_varref("${cmd}")).to eq(["gcc", "-c", "-Wall", "-O2", "-Idir1", "-Idir2"])
+        expect(v.expand_varref("${compiler}", :lambda_args)).to eq("gcc")
+        expect(v.expand_varref("${cmd}", :lambda_args)).to eq(["gcc", "-c", "-Wall", "-O2", "-Idir1", "-Idir2"])
       end
       it "resolves multiple variable references in one element by enumerating all combinations" do
-        expect(v.expand_varref("cflag: ${CFLAGS}, cpppath: ${CPPPATH}, compiler: ${compiler}")).to eq([
+        expect(v.expand_varref("cflag: ${CFLAGS}, cpppath: ${CPPPATH}, compiler: ${compiler}", :lambda_args)).to eq([
           "cflag: -Wall, cpppath: dir1, compiler: gcc",
           "cflag: -O2, cpppath: dir1, compiler: gcc",
           "cflag: -Wall, cpppath: dir2, compiler: gcc",
@@ -153,10 +153,19 @@ module Rscons
         ])
       end
       it "returns an empty string when a variable reference refers to a non-existent variable" do
-        expect(v.expand_varref("${not_here}")).to eq("")
+        expect(v.expand_varref("${not_here}", :lambda_args)).to eq("")
       end
-      it "raises an error when a variable reference refers to an unhandled type" do
-        expect { v.expand_varref("${hash}") }.to raise_error /I do not know how to expand a variable reference to a Hash/
+      it "calls a lambda with the given lambda arguments" do
+        expect(v.expand_varref("${lambda}", [v: "fez"])).to eq("fez--12")
+      end
+      it "raises an error when given an invalid argument" do
+        expect { v.expand_varref({a: :b}, :lambda_args) }.to raise_error /Unknown varref type: Hash/
+      end
+      it "raises an error when an expanded variable is an unexpected type" do
+        expect(v).to receive(:[]).at_least(1).times.with("bad").and_return("bad_val")
+        expect(v).to receive(:expand_varref).with("bad_val", :lambda_args).and_return({a: :b})
+        expect(v).to receive(:expand_varref).and_call_original
+        expect { v.expand_varref("${bad}", :lambda_args) }.to raise_error /I do not know how to expand a variable reference to a Hash/
       end
     end
   end