Index: Lib/distutils/tests/test_sysconfig.py
===================================================================
--- Lib/distutils/tests/test_sysconfig.py	(revision 72571)
+++ Lib/distutils/tests/test_sysconfig.py	(working copy)
@@ -1,5 +1,6 @@
 """Tests for distutils.sysconfig."""
 import os
+import test
 import unittest
 
 from distutils import sysconfig
@@ -9,7 +10,13 @@
 
 class SysconfigTestCase(support.EnvironGuard,
                         unittest.TestCase):
+    def setUp(self):
+        self.makefile = None
 
+    def tearDown(self):
+        if self.makefile is not None:
+            os.unlink(self.makefile)
+
     def test_get_config_h_filename(self):
         config_h = sysconfig.get_config_h_filename()
         self.assert_(os.path.isfile(config_h), config_h)
@@ -56,8 +63,32 @@
         sysconfig.customize_compiler(comp)
         self.assertEquals(comp.exes['archiver'], 'my_ar -arflags')
 
+    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=$OTHER\nOTHER=foo')
+        fd.close()
+        d = sysconfig.parse_makefile(self.makefile)
+        self.assertEquals(d, {'CONFIG_ARGS': r"'--arg1=optarg1' 'ENV=\$LIB'",
+                              'OTHER': 'foo'})
+
+
 def test_suite():
     suite = unittest.TestSuite()
     suite.addTest(unittest.makeSuite(SysconfigTestCase))
     return suite
+
+
+if __name__ == '__main__':
+    test.test_support.run_unittest(test_suite())
Index: Lib/distutils/sysconfig.py
===================================================================
--- Lib/distutils/sysconfig.py	(revision 72571)
+++ Lib/distutils/sysconfig.py	(working copy)
@@ -291,12 +293,16 @@
         if m:
             n, v = m.group(1, 2)
             v = string.strip(v)
-            if "$" in v:
+            tmpv = v.replace("$$", "") # `$$' is a literal `$' in make
+            if "$" in tmpv:
                 notdone[n] = v
             else:
-                try: v = int(v)
-                except ValueError: pass
-                done[n] = v
+                try:
+                    v = int(v)
+                except ValueError:
+                    done[n] = v.replace("$$", "$") # insert literal `$'
+                else:
+                    done[n] = v
 
     # do variable interpolation here
     while notdone: