diff --git a/Sources/ProjectSpec/SpecLoader.swift b/Sources/ProjectSpec/SpecLoader.swift
index 0542081a..8c5c0507 100644
--- a/Sources/ProjectSpec/SpecLoader.swift
+++ b/Sources/ProjectSpec/SpecLoader.swift
@@ -43,6 +43,42 @@ extension Project {
             }
             json = merge(dictionary: json, onto: includeDictionary)
         }
+
+        let basePath = path.parent()
+        json = expandPaths(in: json, basePath: basePath)
+
         return json
     }
+
+    private static func expandPaths(in source: Dictionary<String, Any>, basePath: Path) -> Dictionary<String, Any> {
+        var result = source
+
+        for (key, value) in source {
+            if let value = value as? String {
+                result[key] = value.replacingOccurrences(of: "$(CURDIR)", with: basePath.string)
+            } else if let value = value as? Array<Any> {
+                result[key] = expandPaths(in: value, basePath: basePath)
+            } else if let value = value as? Dictionary<String, Any> {
+                result[key] = expandPaths(in: value, basePath: basePath)
+            }
+        }
+
+        return result
+    }
+
+    private static func expandPaths(in source: Array<Any>, basePath: Path) -> Array<Any> {
+        var result = source
+
+        for (index, value) in source.enumerated() {
+            if let value = value as? String {
+                result[index] = value.replacingOccurrences(of: "$(CURDIR)", with: basePath.string)
+            } else if let value = value as? Array<Any> {
+                result[index] = expandPaths(in: value, basePath: basePath)
+            } else if let value = value as? Dictionary<String, Any> {
+                result[index] = expandPaths(in: value, basePath: basePath)
+            }
+        }
+
+        return result
+    }
 }
diff --git a/Tests/Fixtures/paths_test.yml b/Tests/Fixtures/paths_test.yml
new file mode 100644
index 00000000..3f209401
--- /dev/null
+++ b/Tests/Fixtures/paths_test.yml
@@ -0,0 +1,8 @@
+include: paths_test/included_paths_test.yml
+name: NewName
+targets:
+  NewTarget:
+    type: application
+    platform: iOS
+    sources:
+      - $(CURDIR)/source
diff --git a/Tests/Fixtures/paths_test/included_paths_test.yml b/Tests/Fixtures/paths_test/included_paths_test.yml
new file mode 100644
index 00000000..f04bece6
--- /dev/null
+++ b/Tests/Fixtures/paths_test/included_paths_test.yml
@@ -0,0 +1,6 @@
+targets:
+  IncludedTarget:
+    type: application
+    platform: iOS
+    sources:
+      - $(CURDIR)/source
diff --git a/Tests/XcodeGenKitTests/SpecLoadingTests.swift b/Tests/XcodeGenKitTests/SpecLoadingTests.swift
index 565599e7..7a13de6b 100644
--- a/Tests/XcodeGenKitTests/SpecLoadingTests.swift
+++ b/Tests/XcodeGenKitTests/SpecLoadingTests.swift
@@ -10,6 +10,14 @@ class SpecLoadingTests: XCTestCase {
 
     func testSpecLoader() {
         describe {
+            $0.it("expands directories") {
+                let path = fixturePath + "paths_test.yml"
+                let project = try Project(path: path)
+
+                try expect(project.targets.first!.sources.first!.path) == (fixturePath + "paths_test" + "source").string
+                try expect(project.targets.last!.sources.first!.path) == (fixturePath + "source").string
+            }
+
             $0.it("merges includes") {
                 let path = fixturePath + "include_test.yml"
                 let project = try Project(path: path)