diff --git a/bake/bake.go b/bake/bake.go
index 9263f5ba..14028ad0 100644
--- a/bake/bake.go
+++ b/bake/bake.go
@@ -70,8 +70,9 @@ func ParseFile(fn string) (*Config, error) {
 }
 
 type Config struct {
-	Groups  []*Group  `hcl:"group,block"`
-	Targets []*Target `hcl:"target,block"`
+	Variables []*Variable `json:"-" hcl:"variable,block"`
+	Groups    []*Group    `json:"groups" hcl:"group,block"`
+	Targets   []*Target   `json:"targets" hcl:"target,block"`
 }
 
 func mergeConfig(c1, c2 Config) Config {
@@ -316,6 +317,11 @@ func (c Config) target(name string, visited map[string]struct{}, overrides map[s
 	return tt, nil
 }
 
+type Variable struct {
+	Name    string `json:"-" hcl:"name,label"`
+	Default string `json:"default,omitempty" hcl:"default,optional"`
+}
+
 type Group struct {
 	Name    string   `json:"-" hcl:"name,label"`
 	Targets []string `json:"targets" hcl:"targets"`
diff --git a/bake/hcl.go b/bake/hcl.go
index bed4d995..75ae768f 100644
--- a/bake/hcl.go
+++ b/bake/hcl.go
@@ -11,9 +11,8 @@ import (
 	"github.com/zclconf/go-cty/cty/function/stdlib"
 )
 
-// Collection of functions expected to be generally useful in cty-using
-// applications, which HCL supports. This set of functions will be available to
-// be called in HCL files.
+// Collection of generally useful functions in cty-using applications, which
+// HCL supports. These functions are available for use in HCL files.
 var (
 	functions = map[string]function.Function{
 		"absolute":               stdlib.AbsoluteFunc,
@@ -64,11 +63,35 @@ var (
 	}
 )
 
+// Used in the first pass of decoding instead of the Config struct to disallow
+// interpolation while parsing variable blocks.
+type staticConfig struct {
+	Variables []*Variable `hcl:"variable,block"`
+	Remain    hcl.Body    `hcl:",remain"`
+}
+
 func ParseHCL(dt []byte, fn string) (*Config, error) {
+	var sc staticConfig
+
+	// Decode only variable blocks without interpolation.
+	if err := hclsimple.Decode(fn, dt, nil, &sc); err != nil {
+		return nil, err
+	}
+
 	variables := make(map[string]cty.Value)
+
+	// Set all variables to their default value if defined.
+	for _, variable := range sc.Variables {
+		variables[variable.Name] = cty.StringVal(variable.Default)
+	}
+
+	// Override default with values from environment.
 	for _, env := range os.Environ() {
 		parts := strings.SplitN(env, "=", 2)
-		variables[parts[0]] = cty.StringVal(parts[1])
+		name, value := parts[0], parts[1]
+		if _, ok := variables[name]; ok {
+			variables[name] = cty.StringVal(value)
+		}
 	}
 
 	ctx := &hcl.EvalContext{
@@ -77,6 +100,8 @@ func ParseHCL(dt []byte, fn string) (*Config, error) {
 	}
 
 	var c Config
+
+	// Decode with variables and functions.
 	if err := hclsimple.Decode(fn, dt, ctx, &c); err != nil {
 		return nil, err
 	}
diff --git a/bake/hcl_test.go b/bake/hcl_test.go
index e34ca3fb..c18c5286 100644
--- a/bake/hcl_test.go
+++ b/bake/hcl_test.go
@@ -8,9 +8,13 @@ import (
 )
 
 func TestParseHCL(t *testing.T) {
-	os.Setenv("IAMCROSS", "true")
+	os.Setenv("BUILD_NUMBER", "456")
 
 	var dt = []byte(`
+	variable "BUILD_NUMBER" {
+		default = "123"
+	}
+
 	group "default" {
 		targets = ["db", "webapp"]
 	}
@@ -24,7 +28,7 @@ func TestParseHCL(t *testing.T) {
 		context = "./dir"
 		dockerfile = "Dockerfile-alternate"
 		args = {
-			buildno = "123"
+			buildno = "${BUILD_NUMBER}"
 		}
 	}
 
@@ -38,7 +42,7 @@ func TestParseHCL(t *testing.T) {
 	target "webapp-plus" {
 		inherits = ["webapp", "cross"]
 		args = {
-			IAMCROSS = "${IAMCROSS}"
+			IAMCROSS = "true"
 		}
 	}
 	`)
@@ -56,7 +60,7 @@ func TestParseHCL(t *testing.T) {
 
 	require.Equal(t, c.Targets[1].Name, "webapp")
 	require.Equal(t, 1, len(c.Targets[1].Args))
-	require.Equal(t, "123", c.Targets[1].Args["buildno"])
+	require.Equal(t, "456", c.Targets[1].Args["buildno"])
 
 	require.Equal(t, c.Targets[2].Name, "cross")
 	require.Equal(t, 2, len(c.Targets[2].Platforms))