diff --git a/addon/ng2/blueprints/ng2/files/config/environment.dev.ts b/addon/ng2/blueprints/ng2/files/__path__/app/environments/environment.dev.ts
similarity index 100%
rename from addon/ng2/blueprints/ng2/files/config/environment.dev.ts
rename to addon/ng2/blueprints/ng2/files/__path__/app/environments/environment.dev.ts
diff --git a/addon/ng2/blueprints/ng2/files/config/environment.prod.ts b/addon/ng2/blueprints/ng2/files/__path__/app/environments/environment.prod.ts
similarity index 100%
rename from addon/ng2/blueprints/ng2/files/config/environment.prod.ts
rename to addon/ng2/blueprints/ng2/files/__path__/app/environments/environment.prod.ts
diff --git a/addon/ng2/blueprints/ng2/files/__path__/app/environment.ts b/addon/ng2/blueprints/ng2/files/__path__/app/environments/environment.ts
similarity index 100%
rename from addon/ng2/blueprints/ng2/files/__path__/app/environment.ts
rename to addon/ng2/blueprints/ng2/files/__path__/app/environments/environment.ts
diff --git a/addon/ng2/blueprints/ng2/files/__path__/app/index.ts b/addon/ng2/blueprints/ng2/files/__path__/app/index.ts
index 30c9dfb021b8..7aa84b623989 100644
--- a/addon/ng2/blueprints/ng2/files/__path__/app/index.ts
+++ b/addon/ng2/blueprints/ng2/files/__path__/app/index.ts
@@ -1,2 +1,2 @@
-export * from './environment';
+export * from './environments/environment';
 export * from './app.component';
diff --git a/addon/ng2/models/webpack-config.ts b/addon/ng2/models/webpack-config.ts
index e5cd3e00f294..95e3ddb3d0d6 100644
--- a/addon/ng2/models/webpack-config.ts
+++ b/addon/ng2/models/webpack-config.ts
@@ -1,4 +1,5 @@
 import { CliConfig } from './config';
+import { NgCliEnvironmentPlugin } from '../utilities/environment-plugin';
 import {
   getWebpackCommonConfig,
   getWebpackDevConfigPartial,
@@ -35,6 +36,7 @@ export class NgCliWebpackConfig {
     }
 
     this.generateConfig();
+    this.config.plugins.unshift(new NgCliEnvironmentPlugin({env: this.environment}));
   }
 
   generateConfig(): void {
@@ -59,4 +61,3 @@ export class NgCliWebpackConfig {
     }
   }
 }
-
diff --git a/addon/ng2/utilities/environment-plugin.ts b/addon/ng2/utilities/environment-plugin.ts
new file mode 100644
index 000000000000..6825769d8f95
--- /dev/null
+++ b/addon/ng2/utilities/environment-plugin.ts
@@ -0,0 +1,79 @@
+import * as fs from 'fs';
+
+interface WebpackPlugin {
+  apply(compiler: any): void;
+}
+
+export class NgCliEnvironmentPlugin implements WebpackPlugin {
+  _file: string;
+  _alias: string;
+  _env: string;
+
+  constructor(config: any) {
+    if (typeof config === 'string') {
+      config = {env: config};
+    }
+    if (typeof config.env !== 'string') {
+      throw new Error('must provide env')
+    }
+    const ALIAS = {
+      '"dev"':         'dev',
+      'development':   'dev',
+      '"development"': 'dev',
+      '"prod"':        'prod',
+      'production':    'prod',
+      '"production"':  'prod',
+      '"test"':        'test',
+      'testing':       'test',
+      '"testing"':     'test',
+    };
+    const ENV = config.env.toLowerCase();
+
+    this._file = config.file || 'environment';
+    this._alias = config.alias || ALIAS;
+    this._env =  this._alias[ENV] || ENV;
+  }
+
+  isEnvFile(file: string): boolean {
+    return file.indexOf(this._file + '.') !== -1;
+  }
+
+  replaceFile(file: string): any {
+    return file
+      .replace(this._file, this._file + '.' + this._env);
+  }
+
+  updateResult(result: any): any {
+    ['request', 'userRequest', 'resource']
+      .filter((key) => { return result[key]; })
+      .forEach((key) => {
+        result[key] = this.replaceFile(result[key]);
+      });
+
+    return result;
+  }
+
+  apply(compiler: any): void {
+    compiler.plugin('normal-module-factory', (normalModuleFactory: any) => {
+        normalModuleFactory.plugin('after-resolve', (result, callback) => {
+          var _resource = result['resource'];
+          if (!this.isEnvFile(_resource)) {
+            return callback(null, result);
+          }
+          var envFile = this.replaceFile(_resource);
+
+          fs.stat(envFile, (err, stats) => {
+            if (err || !stats.isFile()) {
+              var errorText = (!err && stats.isFile()) ? 'Is not a file.' : 'Does not exist.';
+              console.log('\nWARNING:\n' + envFile + '\n' + errorText + ' ' + 'Using file\n' + _resource + '\n');
+              return callback(null, result);
+            }
+            // mutate result
+            var newResult = this.updateResult(result);
+            return callback(null, newResult);
+          });
+
+        });
+    });
+  }
+}
diff --git a/tests/e2e/e2e_workflow.spec.js b/tests/e2e/e2e_workflow.spec.js
index 3864e7fc9c89..053a4d714360 100644
--- a/tests/e2e/e2e_workflow.spec.js
+++ b/tests/e2e/e2e_workflow.spec.js
@@ -82,13 +82,6 @@ describe('Basic end-to-end Workflow', function () {
     expect(sh.exec('git status --porcelain').output).to.be.equal(undefined);
   });
 
-  xit('Supports production builds config file replacement', function() {
-    var mainBundlePath = path.join(process.cwd(), 'dist', 'main.js');
-    var mainBundleContent = fs.readFileSync(mainBundlePath, { encoding: 'utf8' });
-    // production: true minimized turns into production:!0
-    expect(mainBundleContent).to.include('production:!0');
-  });
-
   it_mobile('Enables mobile-specific production features in prod builds', () => {
     let indexHtml = fs.readFileSync(path.join(process.cwd(), 'dist/index.html'), 'utf-8');
     // Service Worker
@@ -106,6 +99,16 @@ describe('Basic end-to-end Workflow', function () {
     expect(indexHtml).to.match(/app works!/);
   });
 
+  it('Supports build config file replacement', function() {
+    this.timeout(420000);
+
+    sh.exec(`${ngBin} build --dev`);
+    var mainBundlePath = path.join(process.cwd(), 'dist', 'main.bundle.js');
+    var mainBundleContent = fs.readFileSync(mainBundlePath, { encoding: 'utf8' });
+
+    expect(mainBundleContent).to.include('production: false');
+  });
+
   it('Can run `ng build` in created project', function () {
     this.timeout(420000);