diff --git a/lib/oga/xpath/lexer.rl b/lib/oga/xpath/lexer.rl
index c2e7064..998febf 100644
--- a/lib/oga/xpath/lexer.rl
+++ b/lib/oga/xpath/lexer.rl
@@ -316,6 +316,19 @@ module Oga
           emit(:T_TYPE_TEST, ts, te - 2)
         }
 
+        # Variables
+        #
+        # XPath 1.0 allows the use of variables in expressions. Oddly enough you
+        # can not assign variables in an expression, you can only refer to them.
+        # This means that libraries themselves have to expose an interface for
+        # setting variables.
+        #
+        var = '$' identifier;
+
+        action emit_variable {
+          emit(:T_VAR, ts + 1, te)
+        }
+
         main := |*
           operator;
           whitespace | slash | lparen | rparen | comma | colon;
@@ -325,6 +338,7 @@ module Oga
           '[' => { add_token(:T_LBRACK) };
           ']' => { add_token(:T_RBRACK) };
 
+          var        => emit_variable;
           string     => emit_string;
           integer    => emit_integer;
           float      => emit_float;
diff --git a/lib/oga/xpath/parser.y b/lib/oga/xpath/parser.y
index 4d0c417..4c68743 100644
--- a/lib/oga/xpath/parser.y
+++ b/lib/oga/xpath/parser.y
@@ -6,7 +6,7 @@ class Oga::XPath::Parser
 token T_AXIS T_COLON T_COMMA T_FLOAT T_INT T_IDENT T_TYPE_TEST
 token T_LBRACK T_RBRACK T_LPAREN T_RPAREN T_SLASH T_STRING
 token T_PIPE T_AND T_OR T_ADD T_DIV T_MOD T_EQ T_NEQ T_LT T_GT T_LTE T_GTE
-token T_SUB T_MUL
+token T_SUB T_MUL T_VAR
 
 options no_result_var
 
@@ -42,6 +42,7 @@ rule
     | call
     | path
     | absolute_path
+    | variable
     ;
 
   path_member
@@ -139,6 +140,10 @@ rule
   number
     : T_INT   { s(:int, val[0]) }
     | T_FLOAT { s(:float, val[0]) }
+
+  variable
+    : T_VAR { s(:var, val[0]) }
+    ;
 end
 
 ---- inner
diff --git a/spec/oga/xpath/lexer/variable_spec.rb b/spec/oga/xpath/lexer/variable_spec.rb
new file mode 100644
index 0000000..5f23860
--- /dev/null
+++ b/spec/oga/xpath/lexer/variable_spec.rb
@@ -0,0 +1,9 @@
+require 'spec_helper'
+
+describe Oga::XPath::Lexer do
+  context 'variables' do
+    example 'lex a variable reference' do
+      lex_xpath('$foo').should == [[:T_VAR, 'foo']]
+    end
+  end
+end
diff --git a/spec/oga/xpath/parser/variable_spec.rb b/spec/oga/xpath/parser/variable_spec.rb
new file mode 100644
index 0000000..6935d35
--- /dev/null
+++ b/spec/oga/xpath/parser/variable_spec.rb
@@ -0,0 +1,17 @@
+require 'spec_helper'
+
+describe Oga::XPath::Parser do
+  context 'variables' do
+    example 'parse a variable reference' do
+      parse_xpath('$foo').should == s(:var, 'foo')
+    end
+
+    example 'parse a variable reference in a predicate' do
+      parse_xpath('foo[$bar]').should == s(
+        :axis,
+        'child',
+        s(:test, nil, 'foo', s(:var, 'bar'))
+      )
+    end
+  end
+end