diff --git a/mercurial/dirstate.py b/mercurial/dirstate.py
--- a/mercurial/dirstate.py
+++ b/mercurial/dirstate.py
@@ -100,7 +100,7 @@ class dirstate(object):
         files = [self._join('.hgignore')]
         for name, path in self._ui.configitems("ui"):
             if name == 'ignore' or name.startswith('ignore.'):
-                files.append(os.path.expanduser(path))
+                files.append(util.expandpath(path))
         return ignore.ignore(self._root, files, self._ui.warn)
 
     @propertycache
diff --git a/mercurial/dispatch.py b/mercurial/dispatch.py
--- a/mercurial/dispatch.py
+++ b/mercurial/dispatch.py
@@ -248,7 +248,7 @@ def _parse(ui, args):
         args = aliasargs(i[0]) + args
         defaults = ui.config("defaults", cmd)
         if defaults:
-            args = shlex.split(defaults) + args
+            args = map(util.expandpath, shlex.split(defaults)) + args
         c = list(i[1])
     else:
         cmd = None
@@ -477,8 +477,7 @@ def _runcommand(ui, options, cmd, cmdfun
         output = ui.config('profiling', 'output')
 
         if output:
-            path = os.path.expanduser(output)
-            path = ui.expandpath(path)
+            path = ui.expandpath(output)
             ostream = open(path, 'wb')
         else:
             ostream = sys.stderr
diff --git a/mercurial/extensions.py b/mercurial/extensions.py
--- a/mercurial/extensions.py
+++ b/mercurial/extensions.py
@@ -30,7 +30,7 @@ def find(name):
 
 def loadpath(path, module_name):
     module_name = module_name.replace('.', '_')
-    path = os.path.expanduser(path)
+    path = util.expandpath(path)
     if os.path.isdir(path):
         # module/__init__.py style
         d, f = os.path.split(path.rstrip('/'))
diff --git a/mercurial/ui.py b/mercurial/ui.py
--- a/mercurial/ui.py
+++ b/mercurial/ui.py
@@ -198,10 +198,12 @@ class ui(object):
 
     def _path(self, loc):
         p = self.config('paths', loc)
-        if p and '%%' in p:
-            self.warn("(deprecated '%%' in path %s=%s from %s)\n" %
-                    (loc, p, self.configsource('paths', loc)))
-            p = p.replace('%%', '%')
+        if p:
+            if '%%' in p:
+                self.warn("(deprecated '%%' in path %s=%s from %s)\n" %
+                          (loc, p, self.configsource('paths', loc)))
+                p = p.replace('%%', '%')
+            p = util.expandpath(p)
         return p
 
     def expandpath(self, loc, default=None):
diff --git a/mercurial/util.py b/mercurial/util.py
--- a/mercurial/util.py
+++ b/mercurial/util.py
@@ -1158,6 +1158,7 @@ def rcpath():
             _rcpath = []
             for p in os.environ['HGRCPATH'].split(os.pathsep):
                 if not p: continue
+                p = expandpath(p)
                 if os.path.isdir(p):
                     for f, kind in osutil.listdir(p):
                         if f.endswith('.rc'):
@@ -1250,3 +1251,6 @@ def iterlines(iterator):
     for chunk in iterator:
         for line in chunk.splitlines():
             yield line
+
+def expandpath(path):
+    return os.path.expanduser(os.path.expandvars(path))