diff --git a/lib/cli/options.js b/lib/cli/options.js
index 95428c4f96..473d17a91d 100644
--- a/lib/cli/options.js
+++ b/lib/cli/options.js
@@ -8,7 +8,10 @@
  */
 
 const fs = require('fs');
+const path = require('path');
 const ansi = require('ansi-colors');
+const {cwd} = require('../utils');
+const {applyExtends} = require('yargs/helpers');
 const yargsParser = require('yargs-parser');
 const {types, aliases} = require('./run-option-metadata');
 const {ONE_AND_DONE_ARGS} = require('./one-and-dones');
@@ -124,7 +127,19 @@ const parse = (args = [], defaultValues = {}, ...configObjects) => {
 
   const result = yargsParser.detailed(args, {
     configuration,
-    configObjects,
+    configObjects: configObjects.map(configObject => {
+      // '_configPath' gets set by config.loadConfig()
+      const config = configObject || {};
+      const configPath =
+        typeof config._configPath === 'string'
+          ? path.dirname(config._configPath)
+          : cwd();
+
+      // Remove the internal property
+      delete config._configPath;
+
+      return applyExtends(config, configPath, true);
+    }),
     default: defaultValues,
     coerce: coerceOpts,
     narg: nargOpts,
@@ -158,7 +173,12 @@ const parse = (args = [], defaultValues = {}, ...configObjects) => {
 const loadRc = (args = {}) => {
   if (args.config !== false) {
     const config = args.config || findConfig();
-    return config ? loadConfig(config) : {};
+    const configObject = config ? loadConfig(config) : {};
+
+    // Set _configPath for use by parse()
+    configObject._configPath = config;
+
+    return configObject;
   }
 };
 
diff --git a/test/integration/fixtures/config/mocharc-extended/base.json b/test/integration/fixtures/config/mocharc-extended/base.json
new file mode 100644
index 0000000000..89c92825f9
--- /dev/null
+++ b/test/integration/fixtures/config/mocharc-extended/base.json
@@ -0,0 +1,6 @@
+{
+  "require": ["foo", "bar"],
+  "bail": true,
+  "reporter": "dot",
+  "slow": 60
+}
diff --git a/test/integration/fixtures/config/mocharc-extended/extends.json b/test/integration/fixtures/config/mocharc-extended/extends.json
new file mode 100644
index 0000000000..715639efd7
--- /dev/null
+++ b/test/integration/fixtures/config/mocharc-extended/extends.json
@@ -0,0 +1,3 @@
+{
+  "extends": "./modifiers.json"
+}
diff --git a/test/integration/fixtures/config/mocharc-extended/modifiers.json b/test/integration/fixtures/config/mocharc-extended/modifiers.json
new file mode 100644
index 0000000000..8e6dcb1d3c
--- /dev/null
+++ b/test/integration/fixtures/config/mocharc-extended/modifiers.json
@@ -0,0 +1,5 @@
+{
+  "extends": "./base.json",
+  "reporter": "html",
+  "slow": 30
+}
diff --git a/test/integration/options.spec.js b/test/integration/options.spec.js
new file mode 100644
index 0000000000..f4674b7543
--- /dev/null
+++ b/test/integration/options.spec.js
@@ -0,0 +1,23 @@
+'use strict';
+
+var path = require('path');
+var loadOptions = require('../../lib/cli/options').loadOptions;
+
+describe('options', function() {
+  it('Should support extended options', function() {
+    var configDir = path.join(
+      __dirname,
+      'fixtures',
+      'config',
+      'mocharc-extended'
+    );
+    var extended = loadOptions([
+      '--config',
+      path.join(configDir, 'extends.json')
+    ]);
+    expect(extended.require, 'to equal', ['foo', 'bar']);
+    expect(extended.bail, 'to equal', true);
+    expect(extended.reporter, 'to equal', 'html');
+    expect(extended.slow, 'to equal', 30);
+  });
+});