diff --git a/src/libexpr/eval-settings.cc b/src/libexpr/eval-settings.cc
index 85d8485b14e..e70f942ea3d 100644
--- a/src/libexpr/eval-settings.cc
+++ b/src/libexpr/eval-settings.cc
@@ -7,44 +7,6 @@
 
 namespace nix {
 
-/* Very hacky way to parse $NIX_PATH, which is colon-separated, but
-   can contain URLs (e.g. "nixpkgs=https://bla...:foo=https://"). */
-static Strings parseNixPath(const std::string & s)
-{
-    Strings res;
-
-    auto p = s.begin();
-
-    while (p != s.end()) {
-        auto start = p;
-        auto start2 = p;
-
-        while (p != s.end() && *p != ':') {
-            if (*p == '=') start2 = p + 1;
-            ++p;
-        }
-
-        if (p == s.end()) {
-            if (p != start) res.push_back(std::string(start, p));
-            break;
-        }
-
-        if (*p == ':') {
-            auto prefix = std::string(start2, s.end());
-            if (EvalSettings::isPseudoUrl(prefix) || hasPrefix(prefix, "flake:")) {
-                ++p;
-                while (p != s.end() && *p != ':') ++p;
-            }
-            res.push_back(std::string(start, p));
-            if (p == s.end()) break;
-        }
-
-        ++p;
-    }
-
-    return res;
-}
-
 EvalSettings::EvalSettings(bool & readOnlyMode, EvalSettings::LookupPathHooks lookupPathHooks)
     : readOnlyMode{readOnlyMode}
     , lookupPathHooks{lookupPathHooks}
diff --git a/src/libexpr/eval.cc b/src/libexpr/eval.cc
index 2a08621231f..407fc5bc172 100644
--- a/src/libexpr/eval.cc
+++ b/src/libexpr/eval.cc
@@ -212,10 +212,48 @@ static Symbol getName(const AttrName & name, EvalState & state, Env & env)
     }
 }
 
+/* Very hacky way to parse $NIX_PATH, which is colon-separated, but
+   can contain URLs (e.g. "nixpkgs=https://bla...:foo=https://"). */
+static Strings parseNixPath(const std::string & s)
+{
+    Strings res;
+
+    auto p = s.begin();
+
+    while (p != s.end()) {
+        auto start = p;
+        auto start2 = p;
+
+        while (p != s.end() && *p != ':') {
+            if (*p == '=') start2 = p + 1;
+            ++p;
+        }
+
+        if (p == s.end()) {
+            if (p != start) res.push_back(std::string(start, p));
+            break;
+        }
+
+        if (*p == ':') {
+            auto prefix = std::string(start2, s.end());
+            if (EvalSettings::isPseudoUrl(prefix) || hasPrefix(prefix, "flake:")) {
+                ++p;
+                while (p != s.end() && *p != ':') ++p;
+            }
+            res.push_back(std::string(start, p));
+            if (p == s.end()) break;
+        }
+
+        ++p;
+    }
+
+    return res;
+}
+
 static constexpr size_t BASE_ENV_SIZE = 128;
 
 EvalState::EvalState(
-    const LookupPath & _lookupPath,
+    const LookupPath & lookupPathFromArguments,
     ref<Store> store,
     const EvalSettings & settings,
     std::shared_ptr<Store> buildStore)
@@ -329,12 +367,37 @@ EvalState::EvalState(
     vStringSymlink.mkString("symlink");
     vStringUnknown.mkString("unknown");
 
-    /* Initialise the Nix expression search path. */
+    /*
+     * Initialise the Nix expression search path.
+     *
+     * We're implementing the logic of command-line arguments overriding
+     * environment variables here, because the settings mechanism doesn't
+     * have a way to deal with that.
+     * It needs to be cleaned up, but that would be a bigger endeavor.
+     * As a first step, the following should be a separate function.
+    */
+    //assert(lookupPath.empty());
     if (!settings.pureEval) {
-        for (auto & i : _lookupPath.elements)
+        /* Add elements from `-I` arguments first */
+        for (auto & i : lookupPathFromArguments.elements) {
             lookupPath.elements.emplace_back(LookupPath::Elem {i});
-        for (auto & i : settings.nixPath.get())
-            lookupPath.elements.emplace_back(LookupPath::Elem::parse(i));
+        }
+        /* The environment variable takes lower priority by appending */
+        if (auto var = getEnv("NIX_PATH")) {
+            for (auto & i : parseNixPath(*var))
+                lookupPath.elements.emplace_back(LookupPath::Elem {i});
+        }
+
+        /* Configuration values take lowest precedence.
+         * FIXME: Currently one can't override `NIX_PATH` with `--nix-path`
+         * because that's indistiguishable from `nix-path` in the
+         * configurationf file. We could add hack in the argument parsing logic
+         * that checks if `NIX_PATH` is set.
+         */
+        if (!settings.restrictEval) {
+            for (auto & i : settings.nixPath.get())
+                lookupPath.elements.emplace_back(LookupPath::Elem {i});
+        }
     }
 
     /* Allow access to all paths in the search path. */
diff --git a/src/libexpr/eval.hh b/src/libexpr/eval.hh
index e45358055ed..da3582207f7 100644
--- a/src/libexpr/eval.hh
+++ b/src/libexpr/eval.hh
@@ -40,6 +40,8 @@ namespace eval_cache {
     class EvalCache;
 }
 
+static Strings parseNixPath(const std::string &);
+
 /**
  * Function that implements a primop.
  */
diff --git a/tests/functional/nix_path.sh b/tests/functional/nix_path.sh
index 2c1889a4734..b407ef4c188 100755
--- a/tests/functional/nix_path.sh
+++ b/tests/functional/nix_path.sh
@@ -77,6 +77,7 @@ echo "nix-path = foo=$TEST_ROOT/from-nix-path-file" >> $NIX_CONF_DIR/nix.conf
 [[ $(NIX_PATH=$TEST_ROOT/from-NIX_PATH nix-instantiate --extra-nix-path foo=$TEST_ROOT --find-file foo/bar.nix) = $TEST_ROOT/from-NIX_PATH/bar.nix ]]
 
 # --nix-path overrides NIX_PATH
+# TODO: this will likely fail
 [[ $(NIX_PATH=foo=$TEST_ROOT/from-NIX_PATH nix-instantiate --nix-path foo=$TEST_ROOT/from-nix-path --find-file foo/bar.nix) = $TEST_ROOT/from-nix-path/bar.nix ]]
 # if --nix-path does not have the desired entry, it fails
 (! NIX_PATH=$TEST_ROOT/from-NIX_PATH nix-instantiate --nix-path foo=$TEST_ROOT --find-file foo/bar.nix)