diff --git a/pkgs/stdenv/generic/builder.sh b/pkgs/stdenv/generic/builder.sh
index fc41976b7d17b..4fa722a73dd26 100644
--- a/pkgs/stdenv/generic/builder.sh
+++ b/pkgs/stdenv/generic/builder.sh
@@ -6,14 +6,11 @@ done
 
 mkdir $out
 
-echo "$preHook" > $out/setup
+echo "export SHELL=$shell" > $out/setup
+echo "initialPath=\"$initialPath\"" >> $out/setup
+echo "$preHook" >> $out/setup
 cat "$setup" >> $out/setup
 
-sed -e "s^@initialPath@^$initialPath^g" \
-    -e "s^@shell@^$shell^g" \
-    < $out/setup > $out/setup.tmp
-mv $out/setup.tmp $out/setup
-
 # Allow the user to install stdenv using nix-env and get the packages
 # in stdenv.
 mkdir $out/nix-support
diff --git a/pkgs/stdenv/generic/default.nix b/pkgs/stdenv/generic/default.nix
index 2c9ede898defe..0ff0bcebbd467 100644
--- a/pkgs/stdenv/generic/default.nix
+++ b/pkgs/stdenv/generic/default.nix
@@ -112,11 +112,6 @@ let
       builder = shell;
 
       args = ["-e" ./builder.sh];
-      /* TODO: special-cased @var@ substitutions are ugly.
-          However, using substituteAll* from setup.sh seems difficult,
-          as setup.sh can't be directly sourced.
-          Suggestion: split similar utility functions into a separate script.
-      */
 
       setup = setupScript;
 
diff --git a/pkgs/stdenv/generic/setup.sh b/pkgs/stdenv/generic/setup.sh
index 675d8ce797d18..6ed94673ae708 100644
--- a/pkgs/stdenv/generic/setup.sh
+++ b/pkgs/stdenv/generic/setup.sh
@@ -163,7 +163,7 @@ shopt -s nullglob
 
 # Set up the initial path.
 PATH=
-for i in @initialPath@; do
+for i in $initialPath; do
     if [ "$i" = / ]; then i=; fi
     addToSearchPath PATH $i/bin
     addToSearchPath PATH $i/sbin
@@ -174,17 +174,15 @@ if [ "$NIX_DEBUG" = 1 ]; then
 fi
 
 
-# Execute the pre-hook.
-export SHELL=@shell@
-export CONFIG_SHELL="$SHELL"
-if [ -z "$shell" ]; then export shell=@shell@; fi
-runHook preHook
-
-
 # Check that the pre-hook initialised SHELL.
 if [ -z "$SHELL" ]; then echo "SHELL not set"; exit 1; fi
 
 
+# Execute the pre-hook.
+export CONFIG_SHELL="$SHELL"
+if [ -z "$shell" ]; then export shell=$SHELL; fi
+
+
 envHooks=()
 crossEnvHooks=()