diff --git a/src/Application.cpp b/src/Application.cpp
index 2f05c39440..7ad1c870e8 100644
--- a/src/Application.cpp
+++ b/src/Application.cpp
@@ -17,10 +17,11 @@
 
 Application* theApp = NULL;
 
-DatabaseCon::DatabaseCon(const std::string& name, const char *initStrings[], int initCount)
+DatabaseCon::DatabaseCon(const std::string& strName, const char *initStrings[], int initCount)
 {
-	std::string path=strprintf("%s%s", theConfig.DATA_DIR.c_str(), name.c_str());
-	mDatabase = new SqliteDatabase(path.c_str());
+	boost::filesystem::path	pPath	= theConfig.DATA_DIR / strName;
+
+	mDatabase = new SqliteDatabase(pPath.c_str());
 	mDatabase->connect();
 	for(int i = 0; i < initCount; ++i)
 		mDatabase->executeSQL(initStrings[i], true);
diff --git a/src/Config.cpp b/src/Config.cpp
index 08b3f36c57..a580d94ea5 100644
--- a/src/Config.cpp
+++ b/src/Config.cpp
@@ -35,8 +35,71 @@ Config theConfig;
 
 Config::Config()
 {
+	boost::system::error_code	ec;
+
+	//
+	// Determine the config and data directories.
+	// If the config file is found in the current working directory, use the current working directory as the config directory and
+	// that with "db" as the data directory.
+	//
+
+	CONFIG_DIR				= boost::filesystem::current_path();
+	CONFIG_FILE				= CONFIG_DIR / CONFIG_FILE_NAME;
+
+	if (exists(CONFIG_FILE)
+		|| (!getenv("HOME") && !getenv("XDG_CONFIG_HOME")))
+	{
+		// Current place is fine, put dbs in a subdir.
+		DATA_DIR				= CONFIG_DIR / "db";
+	}
+	else
+	{
+		// Construct XDG config and data home.
+		// http://standards.freedesktop.org/basedir-spec/basedir-spec-latest.html
+		std::string	strHome				= strGetEnv("HOME");
+		std::string	strXdgConfigHome	= strGetEnv("XDG_CONFIG_HOME");
+		std::string	strXdgDataHome		= strGetEnv("XDG_DATA_HOME");
+
+		if (strXdgConfigHome.empty())
+		{
+			// $XDG_CONFIG_HOME was not set, use default based on $HOME.
+			strXdgConfigHome	= str(boost::format("%s/.config") % strHome);
+		}
+
+		CONFIG_DIR			= str(boost::format("%s/" SYSTEM_NAME) % strXdgConfigHome);
+
+		boost::filesystem::create_directories(CONFIG_DIR, ec);
+
+		if (ec)
+			throw std::runtime_error(str(boost::format("Can not create %s") % CONFIG_DIR));
+
+		if (strXdgDataHome.empty())
+		{
+			// $XDG_DATA_HOME was not set, use default based on $HOME.
+			strXdgDataHome	= str(boost::format("%s/.local/share") % strHome);
+		}
+
+		DATA_DIR			= str(boost::format("%s/" SYSTEM_NAME) % strXdgDataHome);
+
+	}
+
+	boost::filesystem::create_directories(DATA_DIR, ec);
+
+	if (ec)
+		throw std::runtime_error(str(boost::format("Can not create %s") % DATA_DIR));
+
+	std::cerr << "CONFIG DIR: " << CONFIG_DIR << std::endl;
+	std::cerr << "DATA DIR: " << DATA_DIR << std::endl;
+
+	//
+	// Defaults
+	//
+
 	VERSION					= 1;
 
+	CONFIG_FILE				= CONFIG_DIR;
+	CONFIG_FILE				/= CONFIG_FILE_NAME;
+
 	NETWORK_START_TIME		= 1319844908;
 
 	PEER_PORT				= SYSTEM_PEER_PORT;
@@ -50,8 +113,6 @@ Config::Config()
 	RPC_PASSWORD			= "pass";
 	RPC_ALLOW_REMOTE		= false;
 
-	DATA_DIR				= "db/";
-
 	PEER_SSL_CIPHER_LIST	= DEFAULT_PEER_SSL_CIPHER_LIST;
 	PEER_SCAN_INTERVAL_MIN	= DEFAULT_PEER_SCAN_INTERVAL_MIN;
 
diff --git a/src/Config.h b/src/Config.h
index 909f636ebd..74bd42e74a 100644
--- a/src/Config.h
+++ b/src/Config.h
@@ -5,6 +5,7 @@
 #include "SerializedTypes.h"
 
 #include <string>
+#include <boost/filesystem.hpp>
 
 #define SYSTEM_NAME					"newcoin"
 #define VALIDATORS_SITE				"redstem.com"
@@ -38,6 +39,11 @@ public:
 	int			VERSION;
 	std::string	VERSION_STR;
 
+	// Configuration parameters
+	boost::filesystem::path	CONFIG_FILE;
+	boost::filesystem::path	CONFIG_DIR;
+	boost::filesystem::path	DATA_DIR;
+
 	// Network parameters
 	int		NETWORK_START_TIME;		// The Unix time we start ledger 0
 	int		TRANSACTION_FEE_BASE;
@@ -80,9 +86,6 @@ public:
 	uint64		FEE_ACCOUNT_CREATE;		// Fee to create an account.
 	uint64		FEE_NICKNAME_CREATE;	// Fee to create a nickname.
 
-	// Configuration parameters
-	std::string DATA_DIR;
-
 	// Client behavior
 	int			ACCOUNT_PROBE_MAX;	// How far to scan for accounts.
 
diff --git a/src/main.cpp b/src/main.cpp
index 4c6bc5213e..07e1574b88 100644
--- a/src/main.cpp
+++ b/src/main.cpp
@@ -82,6 +82,7 @@ int main(int argc, char* argv[])
 	po::options_description desc("Options");
 	desc.add_options()
 		("help,h", "Display this message.")
+		("conf", "Specify the configuration file.")
 		("rpc", "Perform rpc command (default).")
 		("test,t", "Perform unit tests.")
 		("parameters", po::value< vector<string> >(), "Specify comma separated parameters.")
diff --git a/src/utils.h b/src/utils.h
index ee5ef0b598..721fbff879 100644
--- a/src/utils.h
+++ b/src/utils.h
@@ -94,6 +94,10 @@ DH* DH_der_load_hex(const std::string& strDer);
 void DH_der_gen(std::string& strDer, int iKeyLength);
 void DH_der_gen_hex(std::string& strDer, int iKeyLength);
 
+inline std::string strGetEnv(const std::string& strKey)
+{
+	return getenv(strKey.c_str()) ? getenv(strKey.c_str()) : "";
+}
 #endif
 
 // vim:ts=4