diff --git a/command/apply.go b/command/apply.go
index 448258dec..13b1b7167 100644
--- a/command/apply.go
+++ b/command/apply.go
@@ -20,36 +20,39 @@ type ApplyCommand struct {
 
 func (c *ApplyCommand) Run(args []string) int {
 	var init bool
-	var stateOutPath string
+	var statePath, stateOutPath string
 
 	cmdFlags := flag.NewFlagSet("apply", flag.ContinueOnError)
 	cmdFlags.BoolVar(&init, "init", false, "init")
-	cmdFlags.StringVar(&stateOutPath, "out", "", "path")
+	cmdFlags.StringVar(&statePath, "state", DefaultStateFilename, "path")
+	cmdFlags.StringVar(&stateOutPath, "state-out", "", "path")
 	cmdFlags.Usage = func() { c.Ui.Error(c.Help()) }
 	if err := cmdFlags.Parse(args); err != nil {
 		return 1
 	}
 
 	args = cmdFlags.Args()
-	if len(args) != 2 {
-		c.Ui.Error("The apply command expects two arguments.\n")
+	if len(args) > 1 {
+		c.Ui.Error("The apply command expacts at most one argument.")
 		cmdFlags.Usage()
 		return 1
 	}
+	configPath := args[0]
 
-	statePath := args[0]
-	configPath := args[1]
-
+	// If we don't specify an output path, default to out normal state
+	// path.
 	if stateOutPath == "" {
 		stateOutPath = statePath
 	}
 
+	// The state path to use to generate a plan. If we're initializing
+	// a new infrastructure, then we don't use a state path.
 	planStatePath := statePath
 	if init {
 		planStatePath = ""
 	}
 
-	// Initialize Terraform right away
+	// Build the context based on the arguments given
 	c.ContextOpts.Hooks = append(c.ContextOpts.Hooks, &UiHook{Ui: c.Ui})
 	ctx, err := ContextArg(configPath, planStatePath, c.ContextOpts)
 	if err != nil {
@@ -113,18 +116,24 @@ func (c *ApplyCommand) Run(args []string) int {
 
 func (c *ApplyCommand) Help() string {
 	helpText := `
-Usage: terraform apply [options] STATE PATH
+Usage: terraform apply [options] [dir]
 
-  Builds or changes infrastructure according to the Terraform configuration
-  file.
+  Builds or changes infrastructure according to Terraform configuration
+  files .
 
 Options:
 
-  -init                     If specified, it is okay to build brand new
-                            infrastructure (with no state file specified).
+  -init                  If specified, new infrastructure can be built (no
+                         previous state). This is just a safety switch
+                         to prevent accidentally spinning up a new
+                         infrastructure.
 
-  -out=file.tfstate         Path to save the new state. If not specified, the
-                            state path argument will be used.
+  -state=path            Path to read and save state (unless state-out
+                         is specified). Defaults to "terraform.tfstate".
+
+  -state-out=path        Path to write state to that is different than
+                         "-state". This can be used to preserve the old
+                         state.
 
 `
 	return strings.TrimSpace(helpText)
diff --git a/command/apply_test.go b/command/apply_test.go
index 750e533f5..b068e7600 100644
--- a/command/apply_test.go
+++ b/command/apply_test.go
@@ -2,7 +2,9 @@ package command
 
 import (
 	"fmt"
+	"io/ioutil"
 	"os"
+	"path/filepath"
 	"reflect"
 	"sync"
 	"testing"
@@ -25,7 +27,7 @@ func TestApply(t *testing.T) {
 
 	args := []string{
 		"-init",
-		statePath,
+		"-state", statePath,
 		testFixturePath("apply"),
 	}
 	if code := c.Run(args); code != 0 {
@@ -61,7 +63,7 @@ func TestApply_configInvalid(t *testing.T) {
 
 	args := []string{
 		"-init",
-		testTempFile(t),
+		"-state", testTempFile(t),
 		testFixturePath("apply-config-invalid"),
 	}
 	if code := c.Run(args); code != 1 {
@@ -69,6 +71,57 @@ func TestApply_configInvalid(t *testing.T) {
 	}
 }
 
+func TestApply_defaultState(t *testing.T) {
+	td, err := ioutil.TempDir("", "tf")
+	if err != nil {
+		t.Fatalf("err: %s", err)
+	}
+	statePath := filepath.Join(td, DefaultStateFilename)
+
+	// Change to the temporary directory
+	cwd, err := os.Getwd()
+	if err != nil {
+		t.Fatalf("err: %s", err)
+	}
+	if err := os.Chdir(filepath.Dir(statePath)); err != nil {
+		t.Fatalf("err: %s", err)
+	}
+	defer os.Chdir(cwd)
+
+	p := testProvider()
+	ui := new(cli.MockUi)
+	c := &ApplyCommand{
+		ContextOpts: testCtxConfig(p),
+		Ui:          ui,
+	}
+
+	args := []string{
+		"-init",
+		testFixturePath("apply"),
+	}
+	if code := c.Run(args); code != 0 {
+		t.Fatalf("bad: %d\n\n%s", code, ui.ErrorWriter.String())
+	}
+
+	if _, err := os.Stat(statePath); err != nil {
+		t.Fatalf("err: %s", err)
+	}
+
+	f, err := os.Open(statePath)
+	if err != nil {
+		t.Fatalf("err: %s", err)
+	}
+	defer f.Close()
+
+	state, err := terraform.ReadState(f)
+	if err != nil {
+		t.Fatalf("err: %s", err)
+	}
+	if state == nil {
+		t.Fatal("state should not be nil")
+	}
+}
+
 func TestApply_error(t *testing.T) {
 	statePath := testTempFile(t)
 
@@ -108,7 +161,7 @@ func TestApply_error(t *testing.T) {
 
 	args := []string{
 		"-init",
-		statePath,
+		"-state", statePath,
 		testFixturePath("apply-error"),
 	}
 	if code := c.Run(args); code != 1 {
@@ -151,7 +204,7 @@ func TestApply_plan(t *testing.T) {
 	}
 
 	args := []string{
-		statePath,
+		"-state", statePath,
 		planPath,
 	}
 	if code := c.Run(args); code != 0 {
@@ -235,7 +288,7 @@ func TestApply_shutdown(t *testing.T) {
 
 	args := []string{
 		"-init",
-		statePath,
+		"-state", statePath,
 		testFixturePath("apply-shutdown"),
 	}
 	if code := c.Run(args); code != 0 {
@@ -294,7 +347,7 @@ func TestApply_state(t *testing.T) {
 
 	// Run the apply command pointing to our existing state
 	args := []string{
-		statePath,
+		"-state", statePath,
 		testFixturePath("apply"),
 	}
 	if code := c.Run(args); code != 0 {
diff --git a/command/command.go b/command/command.go
index 6ca862d83..b8f4aab9d 100644
--- a/command/command.go
+++ b/command/command.go
@@ -55,7 +55,7 @@ func ContextArg(
 		}
 	}
 
-	config, err := config.Load(path)
+	config, err := config.LoadDir(path)
 	if err != nil {
 		return nil, fmt.Errorf("Error loading config: %s", err)
 	}