diff --git a/README.md b/README.md
index ce8629b..6661a08 100644
--- a/README.md
+++ b/README.md
@@ -21,7 +21,7 @@ See the [TypeScript docs][tsconfig] for information on setting up `tsconfig.json
 * **loadSync(cwd: string, path?: string): { path?: string, config: any }** Synchronous `load`.
 * **readFile(filename: string): Promise<any>** Read a JSON file as `tsconfig.json` (strip BOM, parse JSON and support empty contents).
 * **readFileSync(filename: string): any** Synchronous `readFile`.
-* **parse(contents: string, filename: string): any** Parse file contents as `tsconfig.json` (strip BOM, parse JSON and support empty contents).
+* **parse(contents: string): any** Parse file contents as `tsconfig.json` (strip BOM, parse JSON and support empty contents).
 
 ## Contributing
 
diff --git a/src/tsconfig.spec.ts b/src/tsconfig.spec.ts
index 2444e24..188273c 100644
--- a/src/tsconfig.spec.ts
+++ b/src/tsconfig.spec.ts
@@ -95,6 +95,27 @@ describe('tsconfig', function () {
         }
       },
       path: join(TEST_DIR, 'cwd/tsconfig.json')
+    },
+    {
+      args: [TEST_DIR, 'extends/tsconfig-third.json'],
+      config: {
+        compilerOptions: {
+          module: 'commonjs',
+          noImplicitAny: true,
+          outDir: 'dist-third',
+          removeComments: true,
+          sourceMap: true,
+          preserveConstEnums: true,
+          rootDirs: [
+            'src',
+            'test'
+          ]
+        },
+        files: [
+          './src/bar.ts'
+        ]
+      },
+      path: join(TEST_DIR, 'extends/tsconfig-third.json')
     }
   ]
 
diff --git a/src/tsconfig.ts b/src/tsconfig.ts
index c80d8c1..8b578ad 100644
--- a/src/tsconfig.ts
+++ b/src/tsconfig.ts
@@ -163,11 +163,23 @@ export function readFile (filename: string): Promise<any> {
         return reject(err)
       }
 
+      let obj
       try {
-        return resolve(parse(contents, filename))
+        obj = parse(contents)
       } catch (err) {
         return reject(err)
       }
+
+      if (obj.extends !== undefined) {
+        const filepath = filename.replace(path.basename(filename), '')
+        const extendsFilename = resolveSync(filepath, obj.extends) as string
+        const extendsObj = readFileSync(extendsFilename)
+        delete obj.extends
+
+        obj = mergeObjects(extendsObj, obj)
+      }
+
+      return resolve(obj)
     })
   })
 }
@@ -177,14 +189,24 @@ export function readFile (filename: string): Promise<any> {
  */
 export function readFileSync (filename: string): any {
   const contents = fs.readFileSync(filename, 'utf8')
+  let obj = parse(contents)
+
+  if (obj.extends !== undefined) {
+    const filepath = filename.replace(path.basename(filename), '')
+    const extendsFilename = resolveSync(filepath, obj.extends) as string
+    const extendsObj = readFileSync(extendsFilename)
+    delete obj.extends
+
+    obj = mergeObjects(extendsObj, obj)
+  }
 
-  return parse(contents, filename)
+  return obj
 }
 
 /**
  * Parse `tsconfig.json` file.
  */
-export function parse (contents: string, filename: string) {
+export function parse (contents: string) {
   const data = stripComments(stripBom(contents))
 
   // A tsconfig.json file is permitted to be completely empty.
@@ -230,3 +252,16 @@ function isFile (stats: fs.Stats | void) {
 function isDirectory (stats: fs.Stats | void) {
   return stats ? (stats as fs.Stats).isDirectory() : false
 }
+
+/**
+ * Simple object merging
+ */
+function mergeObjects (target: any, source: any): any {
+  for (let key of Object.keys(source)) {
+    if (source[key] instanceof Object) {
+      Object.assign(source[key], mergeObjects(target[key], source[key]))
+    }
+  }
+  Object.assign(target, source)
+  return target
+}
diff --git a/tests/extends/tsconfig-second.json b/tests/extends/tsconfig-second.json
new file mode 100644
index 0000000..137140b
--- /dev/null
+++ b/tests/extends/tsconfig-second.json
@@ -0,0 +1,14 @@
+{
+    "extends": "./tsconfig.json",
+    "compilerOptions": {
+        "outDir": "dist-second",
+        "rootDirs": [
+            "src",
+            "test"
+        ]
+    },
+    "files": [
+        "./src/bar.ts"
+    ]
+}
+
diff --git a/tests/extends/tsconfig-third.json b/tests/extends/tsconfig-third.json
new file mode 100644
index 0000000..32ab6dd
--- /dev/null
+++ b/tests/extends/tsconfig-third.json
@@ -0,0 +1,6 @@
+{
+    "extends": "./tsconfig-second.json",
+    "compilerOptions": {
+        "outDir": "dist-third"
+    }
+}
diff --git a/tests/extends/tsconfig.json b/tests/extends/tsconfig.json
new file mode 100644
index 0000000..776b061
--- /dev/null
+++ b/tests/extends/tsconfig.json
@@ -0,0 +1,18 @@
+{
+    // Compiler options.
+    "compilerOptions": {
+        "module": "commonjs",
+        "noImplicitAny": true,
+        "removeComments": true,
+        "preserveConstEnums": true,
+        "outDir": "dist",
+        "sourceMap": true,
+        "rootDirs": [
+            "src"
+        ]
+    },
+    // These are the files to compile with.
+    "files": [
+        "./src/foo.ts" /* Use `foo.ts` */
+    ]
+}