diff --git a/builtin/providers/template/resource.go b/builtin/providers/template/resource.go
index 9019dcfc9..8022c064b 100644
--- a/builtin/providers/template/resource.go
+++ b/builtin/providers/template/resource.go
@@ -4,7 +4,6 @@ import (
 	"crypto/sha256"
 	"encoding/hex"
 	"fmt"
-	"io/ioutil"
 	"log"
 	"os"
 	"path/filepath"
@@ -12,8 +11,8 @@ import (
 	"github.com/hashicorp/terraform/config"
 	"github.com/hashicorp/terraform/config/lang"
 	"github.com/hashicorp/terraform/config/lang/ast"
+	"github.com/hashicorp/terraform/helper/pathorcontents"
 	"github.com/hashicorp/terraform/helper/schema"
-	"github.com/mitchellh/go-homedir"
 )
 
 func resource() *schema.Resource {
@@ -24,13 +23,23 @@ func resource() *schema.Resource {
 		Read:   Read,
 
 		Schema: map[string]*schema.Schema{
+			"template": &schema.Schema{
+				Type:          schema.TypeString,
+				Optional:      true,
+				Description:   "Contents of the template",
+				ForceNew:      true,
+				ConflictsWith: []string{"filename"},
+			},
 			"filename": &schema.Schema{
 				Type:        schema.TypeString,
-				Required:    true,
+				Optional:    true,
 				Description: "file to read template from",
 				ForceNew:    true,
 				// Make a "best effort" attempt to relativize the file path.
 				StateFunc: func(v interface{}) string {
+					if v == nil || v.(string) == "" {
+						return ""
+					}
 					pwd, err := os.Getwd()
 					if err != nil {
 						return v.(string)
@@ -41,6 +50,8 @@ func resource() *schema.Resource {
 					}
 					return rel
 				},
+				Deprecated:    "Use the 'template' attribute instead.",
+				ConflictsWith: []string{"template"},
 			},
 			"vars": &schema.Schema{
 				Type:        schema.TypeMap,
@@ -96,23 +107,21 @@ func Read(d *schema.ResourceData, meta interface{}) error {
 
 type templateRenderError error
 
-var readfile func(string) ([]byte, error) = ioutil.ReadFile // testing hook
-
 func render(d *schema.ResourceData) (string, error) {
+	template := d.Get("template").(string)
 	filename := d.Get("filename").(string)
 	vars := d.Get("vars").(map[string]interface{})
 
-	path, err := homedir.Expand(filename)
+	if template == "" && filename != "" {
+		template = filename
+	}
+
+	contents, _, err := pathorcontents.Read(template)
 	if err != nil {
 		return "", err
 	}
 
-	buf, err := readfile(path)
-	if err != nil {
-		return "", err
-	}
-
-	rendered, err := execute(string(buf), vars)
+	rendered, err := execute(contents, vars)
 	if err != nil {
 		return "", templateRenderError(
 			fmt.Errorf("failed to render %v: %v", filename, err),
diff --git a/builtin/providers/template/resource_test.go b/builtin/providers/template/resource_test.go
index 7f461325a..91882d9d3 100644
--- a/builtin/providers/template/resource_test.go
+++ b/builtin/providers/template/resource_test.go
@@ -26,15 +26,10 @@ func TestTemplateRendering(t *testing.T) {
 
 	for _, tt := range cases {
 		r.Test(t, r.TestCase{
-			PreCheck: func() {
-				readfile = func(string) ([]byte, error) {
-					return []byte(tt.template), nil
-				}
-			},
 			Providers: testProviders,
 			Steps: []r.TestStep{
 				r.TestStep{
-					Config: testTemplateConfig(tt.vars),
+					Config: testTemplateConfig(tt.template, tt.vars),
 					Check: func(s *terraform.State) error {
 						got := s.RootModule().Outputs["rendered"]
 						if tt.want != got {
@@ -62,14 +57,7 @@ func TestTemplateVariableChange(t *testing.T) {
 	var testSteps []r.TestStep
 	for i, step := range steps {
 		testSteps = append(testSteps, r.TestStep{
-			PreConfig: func(template string) func() {
-				return func() {
-					readfile = func(string) ([]byte, error) {
-						return []byte(template), nil
-					}
-				}
-			}(step.template),
-			Config: testTemplateConfig(step.vars),
+			Config: testTemplateConfig(step.template, step.vars),
 			Check: func(i int, want string) r.TestCheckFunc {
 				return func(s *terraform.State) error {
 					got := s.RootModule().Outputs["rendered"]
@@ -88,14 +76,13 @@ func TestTemplateVariableChange(t *testing.T) {
 	})
 }
 
-func testTemplateConfig(vars string) string {
-	return `
-resource "template_file" "t0" {
-	filename = "mock"
-	vars = ` + vars + `
-}
-output "rendered" {
-    value = "${template_file.t0.rendered}"
-}
-	`
+func testTemplateConfig(template, vars string) string {
+	return fmt.Sprintf(`
+		resource "template_file" "t0" {
+			template = "%s"
+			vars = %s
+		}
+		output "rendered" {
+				value = "${template_file.t0.rendered}"
+		}`, template, vars)
 }
diff --git a/config/interpolate.go b/config/interpolate.go
index af0a84da4..1ccf4b0eb 100644
--- a/config/interpolate.go
+++ b/config/interpolate.go
@@ -76,6 +76,13 @@ type SelfVariable struct {
 	key string
 }
 
+// SimpleVariable is an unprefixed variable, which can show up when users have
+// strings they are passing down to resources that use interpolation
+// internally. The template_file resource is an example of this.
+type SimpleVariable struct {
+	Key string
+}
+
 // A UserVariable is a variable that is referencing a user variable
 // that is inputted from outside the configuration. This looks like
 // "${var.foo}"
@@ -97,6 +104,8 @@ func NewInterpolatedVariable(v string) (InterpolatedVariable, error) {
 		return NewUserVariable(v)
 	} else if strings.HasPrefix(v, "module.") {
 		return NewModuleVariable(v)
+	} else if !strings.ContainsRune(v, '.') {
+		return NewSimpleVariable(v)
 	} else {
 		return NewResourceVariable(v)
 	}
@@ -227,6 +236,18 @@ func (v *SelfVariable) GoString() string {
 	return fmt.Sprintf("*%#v", *v)
 }
 
+func NewSimpleVariable(key string) (*SimpleVariable, error) {
+	return &SimpleVariable{key}, nil
+}
+
+func (v *SimpleVariable) FullKey() string {
+	return v.Key
+}
+
+func (v *SimpleVariable) GoString() string {
+	return fmt.Sprintf("*%#v", *v)
+}
+
 func NewUserVariable(key string) (*UserVariable, error) {
 	name := key[len("var."):]
 	elem := ""
diff --git a/terraform/interpolate.go b/terraform/interpolate.go
index 31c366eab..0ee61901c 100644
--- a/terraform/interpolate.go
+++ b/terraform/interpolate.go
@@ -73,6 +73,8 @@ func (i *Interpolater) Values(
 			err = i.valueResourceVar(scope, n, v, result)
 		case *config.SelfVariable:
 			err = i.valueSelfVar(scope, n, v, result)
+		case *config.SimpleVariable:
+			err = i.valueSimpleVar(scope, n, v, result)
 		case *config.UserVariable:
 			err = i.valueUserVar(scope, n, v, result)
 		default:
@@ -249,6 +251,19 @@ func (i *Interpolater) valueSelfVar(
 	return i.valueResourceVar(scope, n, rv, result)
 }
 
+func (i *Interpolater) valueSimpleVar(
+	scope *InterpolationScope,
+	n string,
+	v *config.SimpleVariable,
+	result map[string]ast.Variable) error {
+	// SimpleVars are never handled by Terraform's interpolator
+	result[n] = ast.Variable{
+		Value: config.UnknownVariableValue,
+		Type:  ast.TypeString,
+	}
+	return nil
+}
+
 func (i *Interpolater) valueUserVar(
 	scope *InterpolationScope,
 	n string,
diff --git a/website/source/docs/providers/template/r/file.html.md b/website/source/docs/providers/template/r/file.html.md
index b46e55a80..7c9e2c59e 100644
--- a/website/source/docs/providers/template/r/file.html.md
+++ b/website/source/docs/providers/template/r/file.html.md
@@ -14,7 +14,7 @@ Renders a template from a file.
 
 ```
 resource "template_file" "init" {
-    filename = "${path.module}/init.tpl"
+    template = "${file(${path.module}/init.tpl)}"
 
     vars {
         consul_address = "${aws_instance.consul.private_ip}"
@@ -27,17 +27,24 @@ resource "template_file" "init" {
 
 The following arguments are supported:
 
-* `filename` - (Required) The filename for the template. Use [path
-    variables](/docs/configuration/interpolation.html#path-variables) to make
-    this path relative to different path roots.
+* `template` - (Required) The contents of the template. These can be loaded
+  from a file on disk using the [`file()` interpolation
+  function](/docs/configuration/interpolation.html#file_path_).
 
 * `vars` - (Optional) Variables for interpolation within the template.
 
+The following arguments are maintained for backwards compatibility and may be
+removed in a future version:
+
+* `filename` - __Deprecated, please use `template` instead_. The filename for
+  the template. Use [path variables](/docs/configuration/interpolation.html#path-variables) to make
+  this path relative to different path roots.
+
 ## Attributes Reference
 
 The following attributes are exported:
 
-* `filename` - See Argument Reference above.
+* `template` - See Argument Reference above.
 * `vars` - See Argument Reference above.
 * `rendered` - The final rendered template.