diff --git a/coreos-cloudinit.go b/coreos-cloudinit.go
index 909e8b8..d82a72d 100644
--- a/coreos-cloudinit.go
+++ b/coreos-cloudinit.go
@@ -15,8 +15,11 @@
 package main
 
 import (
+	"bytes"
+	"compress/gzip"
 	"flag"
 	"fmt"
+	"io/ioutil"
 	"log"
 	"os"
 	"runtime"
@@ -185,6 +188,11 @@ func main() {
 		log.Printf("Failed fetching user-data from datasource: %v. Continuing...\n", err)
 		failure = true
 	}
+	userdataBytes, err = decompressIfGzip(userdataBytes)
+	if err != nil {
+		log.Printf("Failed decompressing user-data from datasource: %v. Continuing...\n", err)
+		failure = true
+	}
 
 	if report, err := validate.Validate(userdataBytes); err == nil {
 		ret := 0
@@ -399,3 +407,17 @@ func runScript(script config.Script, env *initialize.Environment) error {
 	}
 	return err
 }
+
+const gzipMagicBytes = "\x1f\x8b"
+
+func decompressIfGzip(userdataBytes []byte) ([]byte, error) {
+	if !bytes.HasPrefix(userdataBytes, []byte(gzipMagicBytes)) {
+		return userdataBytes, nil
+	}
+	gzr, err := gzip.NewReader(bytes.NewReader(userdataBytes))
+	if err != nil {
+		return nil, err
+	}
+	defer gzr.Close()
+	return ioutil.ReadAll(gzr)
+}
diff --git a/coreos-cloudinit_test.go b/coreos-cloudinit_test.go
index cd87d5f..cd5c6da 100644
--- a/coreos-cloudinit_test.go
+++ b/coreos-cloudinit_test.go
@@ -15,6 +15,9 @@
 package main
 
 import (
+	"bytes"
+	"encoding/base64"
+	"errors"
 	"reflect"
 	"testing"
 
@@ -87,3 +90,58 @@ func TestMergeConfigs(t *testing.T) {
 		}
 	}
 }
+
+func mustDecode(in string) []byte {
+	out, err := base64.StdEncoding.DecodeString(in)
+	if err != nil {
+		panic(err)
+	}
+	return out
+}
+
+func TestDecompressIfGzip(t *testing.T) {
+	tests := []struct {
+		in []byte
+
+		out []byte
+		err error
+	}{
+		{
+			in: nil,
+
+			out: nil,
+			err: nil,
+		},
+		{
+			in: []byte{},
+
+			out: []byte{},
+			err: nil,
+		},
+		{
+			in: mustDecode("H4sIAJWV/VUAA1NOzskvTdFNzs9Ly0wHABt6mQENAAAA"),
+
+			out: []byte("#cloud-config"),
+			err: nil,
+		},
+		{
+			in: []byte("#cloud-config"),
+
+			out: []byte("#cloud-config"),
+			err: nil,
+		},
+		{
+			in: mustDecode("H4sCORRUPT=="),
+
+			out: nil,
+			err: errors.New("any error"),
+		},
+	}
+	for i, tt := range tests {
+		out, err := decompressIfGzip(tt.in)
+		if !bytes.Equal(out, tt.out) || (tt.err != nil && err == nil) {
+			t.Errorf("bad gzip (%d): want (%s, %#v), got (%s, %#v)", i, string(tt.out), tt.err, string(out), err)
+		}
+	}
+
+}
diff --git a/test b/test
index 95daad5..645e967 100755
--- a/test
+++ b/test
@@ -21,6 +21,7 @@ SRC="
 	network
 	pkg
 	system
+	.
 "
 
 echo "Checking gofix..."