Index: Lib/distutils/tests/test_sysconfig.py
===================================================================
--- Lib/distutils/tests/test_sysconfig.py	(revision 72223)
+++ Lib/distutils/tests/test_sysconfig.py	(working copy)
@@ -4,6 +4,7 @@
 from distutils.ccompiler import get_default_compiler
 
 import os
+import test
 import unittest
 
 from test.test_support import TESTFN
@@ -12,10 +13,13 @@
 
     def setUp(self):
         self.old_AR = os.environ.get('AR')
+        self.makefile = None
 
     def tearDown(self):
         if self.old_AR is not None:
             os.environ['AR'] = self.old_AR
+        if self.makefile is not None:
+            os.unlink(self.makefile)
 
     def test_get_config_h_filename(self):
         config_h = sysconfig.get_config_h_filename()
@@ -62,8 +66,32 @@
         sysconfig.customize_compiler(comp)
         self.assertEquals(comp.exes['archiver'], 'xxx')
 
+    def test_parse_makefile_base(self):
+        self.makefile = test.test_support.TESTFN
+        fd = open(self.makefile, 'w')
+        fd.write(r"CONFIG_ARGS=  '--arg1=optarg1' 'ENV=LIB'" '\n')
+        fd.write('VAR=$OTHER\nOTHER=foo')
+        fd.close()
+        d = sysconfig.parse_makefile(self.makefile)
+        self.assertEquals(d, {'CONFIG_ARGS': "'--arg1=optarg1' 'ENV=LIB'",
+                              'OTHER': 'foo'})
 
+    def test_parse_makefile_literal_dollar(self):
+        self.makefile = test.test_support.TESTFN
+        fd = open(self.makefile, 'w')
+        fd.write(r"CONFIG_ARGS=  '--arg1=optarg1' 'ENV=\$$LIB'" '\n')
+        fd.write('VAR=$OTHER\nOTHER=foo')
+        fd.close()
+        d = sysconfig.parse_makefile(self.makefile)
+        self.assertEquals(d, {'CONFIG_ARGS': r"'--arg1=optarg1' 'ENV=\$$LIB'",
+                              'OTHER': 'foo'})
+
+
 def test_suite():
     suite = unittest.TestSuite()
     suite.addTest(unittest.makeSuite(SysconfigTestCase))
     return suite
+
+
+if __name__ == '__main__':
+    test.test_support.run_unittest(test_suite())
Index: Lib/distutils/sysconfig.py
===================================================================
--- Lib/distutils/sysconfig.py	(revision 72223)
+++ Lib/distutils/sysconfig.py	(working copy)
@@ -287,7 +287,8 @@
         if m:
             n, v = m.group(1, 2)
             v = string.strip(v)
-            if "$" in v:
+            tmpv = v.replace("$$", "") # `$$' is a literaly `$' in make
+            if "$" in tmpv:
                 notdone[n] = v
             else:
                 try: v = int(v)