diff --git a/config.go b/config.go
index 9dae6d1b..125d6584 100644
--- a/config.go
+++ b/config.go
@@ -85,6 +85,20 @@ func btcdHomeDir() string {
 	return "."
 }
 
+// cleanAndExpandPath expands environement variables and leading ~ in the
+// passed path, cleans the result, and returns it.
+func cleanAndExpandPath(path string) string {
+	// Expand initial ~ to OS specific home directory.
+	if strings.HasPrefix(path, "~") {
+		homeDir := filepath.Dir(btcdHomeDir())
+		path = strings.Replace(path, "~", homeDir, 1)
+	}
+
+	// NOTE: The os.ExpandEnv doesn't work with Windows-style %VARIABLE%,
+	// but they variables can still be expanded via POSIX-style $VARIABLE.
+	return filepath.Clean(os.ExpandEnv(path))
+}
+
 // validLogLevel returns whether or not logLevel is a valid debug log level.
 func validLogLevel(logLevel string) bool {
 	switch logLevel {
@@ -302,6 +316,7 @@ func loadConfig() (*config, []string, error) {
 	// All data is specific to a network, so namespacing the data directory
 	// means each individual piece of serialized data does not have to
 	// worry about changing names per network and such.
+	cfg.DataDir = cleanAndExpandPath(cfg.DataDir)
 	cfg.DataDir = filepath.Join(cfg.DataDir, activeNetParams.netName)
 
 	// Don't allow ban durations that are too short.
diff --git a/sample-btcd.conf b/sample-btcd.conf
index f9e9896c..02e370b5 100644
--- a/sample-btcd.conf
+++ b/sample-btcd.conf
@@ -1,5 +1,18 @@
 [Application Options]
 
+; ------------------------------------------------------------------------------
+; Data settings
+; ------------------------------------------------------------------------------
+
+; The directory to store data such as the block chain and peer addresses.  The
+; block chain takes several GB, so this location must have a lot of free space.
+; The default is ~/.btcd/data on POSIX OSes and $APPDATA/btcd/data on Windows.
+; Environment variables are expanded so they may be used.  NOTE: Windows
+; environment variables are typically %VARIABLE%, but they must be accessed with
+; $VARIABLE here.  Also, ~ is expanded to $APPDATA on Windows.
+; datadir=~/.btcd/data
+
+
 ; ------------------------------------------------------------------------------
 ; Network settings
 ; ------------------------------------------------------------------------------