diff --git a/lib/datastore/dataset.js b/lib/datastore/dataset.js
index 4ed176c659f..62173f961e5 100644
--- a/lib/datastore/dataset.js
+++ b/lib/datastore/dataset.js
@@ -110,20 +110,40 @@ function Dataset(options) {
     email: options.email
   });
 
-  if (options.apiEndpoint && options.apiEndpoint.indexOf('http') !== 0) {
-    options.apiEndpoint = 'http://' + options.apiEndpoint;
-  }
-
-  var trailingSlashes = new RegExp('/*$');
-  this.apiEndpoint = options.apiEndpoint || 'https://www.googleapis.com';
-  this.apiEndpoint = this.apiEndpoint.replace(trailingSlashes, '');
-
+  this.apiEndpoint = Dataset.determineApiEndpoint_(options);
   this.namespace = options.namespace;
   this.projectId = options.projectId;
 }
 
 nodeutil.inherits(Dataset, DatastoreRequest);
 
+/**
+ * Determine the appropriate endpoint to use for API requests. If not explicitly
+ * defined, check for the "DATASTORE_HOST" environment variable, used to connect
+ * to a local Datastore server.
+ *
+ * @private
+ *
+ * @param {object} options - Configuration object.
+ * @param {string=} options.apiEndpoint - Custom API endpoint.
+ */
+Dataset.determineApiEndpoint_ = function(options) {
+  var apiEndpoint = 'https://www.googleapis.com';
+  var trailingSlashes = new RegExp('/*$');
+
+  if (options.apiEndpoint) {
+    apiEndpoint = options.apiEndpoint;
+  } else if (process.env.DATASTORE_HOST) {
+    apiEndpoint = process.env.DATASTORE_HOST;
+  }
+
+  if (apiEndpoint.indexOf('http') !== 0) {
+    apiEndpoint = 'http://' + apiEndpoint;
+  }
+
+  return apiEndpoint.replace(trailingSlashes, '');
+};
+
 /**
  * Helper to create a Key object, scoped to the dataset's namespace by default.
  *
diff --git a/test/datastore/dataset.js b/test/datastore/dataset.js
index 274a129e068..30b49a3715d 100644
--- a/test/datastore/dataset.js
+++ b/test/datastore/dataset.js
@@ -14,39 +14,31 @@
  * limitations under the License.
  */
 
-/*global describe, it, beforeEach */
-
 'use strict';
 
 var assert = require('assert');
-var Dataset = require('../../lib/datastore/dataset');
 var util = require('../../lib/common/util.js');
 
 describe('Dataset', function() {
-  describe('instantiation', function() {
-    it('should set default API connection details', function() {
-      var ds = new Dataset();
-      assert.equal(ds.apiEndpoint, 'https://www.googleapis.com');
-    });
+  var Dataset;
 
-    it('should set API connection details', function() {
-      var ds = new Dataset({ apiEndpoint: 'http://localhost:8080' });
-      assert.equal(ds.apiEndpoint, 'http://localhost:8080');
-    });
+  beforeEach(function() {
+    delete require.cache[require.resolve('../../lib/datastore/dataset')];
+    Dataset = require('../../lib/datastore/dataset');
+  });
 
-    it('should remove slashes from the apiEndpoint', function() {
-      var ds1 = new Dataset({ apiEndpoint: 'http://localhost:8080' });
-      var ds2 = new Dataset({ apiEndpoint: 'http://localhost:8080/' });
-      var ds3 = new Dataset({ apiEndpoint: 'http://localhost:8080//' });
+  describe('instantiation', function() {
+    it('should set default API connection details', function() {
+      var options = { a: 'b', c: 'd' };
+      var mockApiEndpoint = 'http://localhost:8080';
 
-      assert.equal(ds1.apiEndpoint, 'http://localhost:8080');
-      assert.equal(ds2.apiEndpoint, 'http://localhost:8080');
-      assert.equal(ds3.apiEndpoint, 'http://localhost:8080');
-    });
+      Dataset.determineApiEndpoint_ = function (opts) {
+        assert.deepEqual(opts, options);
+        return mockApiEndpoint;
+      };
 
-    it('should default to http if protocol is unspecified', function() {
-      var ds = new Dataset({ apiEndpoint: 'localhost:8080' });
-      assert.equal(ds.apiEndpoint, 'http://localhost:8080');
+      var ds = new Dataset(options);
+      assert.equal(ds.apiEndpoint, mockApiEndpoint);
     });
   });
 
@@ -175,4 +167,59 @@ describe('Dataset', function() {
       assert.strictEqual(query.namespace, null);
     });
   });
+
+  describe('determineApiEndpoint_', function() {
+    it('should default to googleapis.com', function() {
+      delete process.env.DATASTORE_HOST;
+      var expectedApiEndpoint = 'https://www.googleapis.com';
+      assert.equal(Dataset.determineApiEndpoint_({}), expectedApiEndpoint);
+    });
+
+    it('should remove slashes from the apiEndpoint', function() {
+      var expectedApiEndpoint = 'http://localhost:8080';
+
+      assert.equal(Dataset.determineApiEndpoint_({
+        apiEndpoint: expectedApiEndpoint
+      }), expectedApiEndpoint);
+
+      assert.equal(Dataset.determineApiEndpoint_({
+        apiEndpoint: 'http://localhost:8080/'
+      }), expectedApiEndpoint);
+
+      assert.equal(Dataset.determineApiEndpoint_({
+        apiEndpoint: 'http://localhost:8080//'
+      }), expectedApiEndpoint);
+    });
+
+    it('should default to http if protocol is unspecified', function() {
+      var apiEndpoint = Dataset.determineApiEndpoint_({
+        apiEndpoint: 'localhost:8080'
+      });
+      assert.equal(apiEndpoint, 'http://localhost:8080');
+    });
+
+    describe('with DATASTORE_HOST environment variable', function() {
+      var DATASTORE_HOST = 'http://localhost:8080';
+
+      before(function() {
+        process.env.DATASTORE_HOST = DATASTORE_HOST;
+      });
+
+      after(function() {
+        delete process.env.DATASTORE_HOST;
+      });
+
+      it('should use the DATASTORE_HOST env var', function() {
+        assert.equal(Dataset.determineApiEndpoint_({}), DATASTORE_HOST);
+      });
+
+      it('should favor an explicit apiEndpoint option', function() {
+        var expectedApiEndpoint = 'http://apiendpointoverride';
+
+        assert.equal(Dataset.determineApiEndpoint_({
+          apiEndpoint: expectedApiEndpoint
+        }), expectedApiEndpoint);
+      });
+    });
+  });
 });