diff --git a/compose/config/config.py b/compose/config/config.py
index cfa8086f09..8df45b8a9f 100644
--- a/compose/config/config.py
+++ b/compose/config/config.py
@@ -10,7 +10,10 @@ from .errors import CircularReference
 from .errors import ComposeFileNotFound
 from .errors import ConfigurationError
 from .interpolation import interpolate_environment_variables
-from .validation import validate_against_schema
+from .validation import validate_against_fields_schema
+from .validation import validate_against_service_schema
+from .validation import validate_extended_service_exists
+from .validation import validate_extends_file_path
 from .validation import validate_service_names
 from .validation import validate_top_level_object
 from compose.cli.utils import find_candidates_in_parent_dirs
@@ -137,13 +140,17 @@ def load(config_details):
     config, working_dir, filename = config_details
 
     processed_config = pre_process_config(config)
-    validate_against_schema(processed_config)
+    validate_against_fields_schema(processed_config)
 
     service_dicts = []
 
     for service_name, service_dict in list(processed_config.items()):
-        loader = ServiceLoader(working_dir=working_dir, filename=filename)
-        service_dict = loader.make_service_dict(service_name, service_dict)
+        loader = ServiceLoader(
+            working_dir=working_dir,
+            filename=filename,
+            service_name=service_name,
+            service_dict=service_dict)
+        service_dict = loader.make_service_dict()
         validate_paths(service_dict)
         service_dicts.append(service_dict)
 
@@ -151,84 +158,117 @@ def load(config_details):
 
 
 class ServiceLoader(object):
-    def __init__(self, working_dir, filename=None, already_seen=None):
+    def __init__(self, working_dir, filename, service_name, service_dict, already_seen=None):
+        if working_dir is None:
+            raise Exception("No working_dir passed to ServiceLoader()")
+
         self.working_dir = os.path.abspath(working_dir)
+
         if filename:
             self.filename = os.path.abspath(filename)
         else:
             self.filename = filename
         self.already_seen = already_seen or []
+        self.service_dict = service_dict.copy()
+        self.service_name = service_name
+        self.service_dict['name'] = service_name
 
     def detect_cycle(self, name):
         if self.signature(name) in self.already_seen:
             raise CircularReference(self.already_seen + [self.signature(name)])
 
-    def make_service_dict(self, name, service_dict):
-        service_dict = service_dict.copy()
-        service_dict['name'] = name
-        service_dict = resolve_environment(service_dict, working_dir=self.working_dir)
-        service_dict = self.resolve_extends(service_dict)
-        return process_container_options(service_dict, working_dir=self.working_dir)
+    def make_service_dict(self):
+        self.resolve_environment()
+        if 'extends' in self.service_dict:
+            self.validate_and_construct_extends()
+            self.service_dict = self.resolve_extends()
 
-    def resolve_extends(self, service_dict):
-        if 'extends' not in service_dict:
-            return service_dict
+        if not self.already_seen:
+            validate_against_service_schema(self.service_dict, self.service_name)
 
-        extends_options = self.validate_extends_options(service_dict['name'], service_dict['extends'])
+        return process_container_options(self.service_dict, working_dir=self.working_dir)
 
-        if self.working_dir is None:
-            raise Exception("No working_dir passed to ServiceLoader()")
+    def resolve_environment(self):
+        """
+        Unpack any environment variables from an env_file, if set.
+        Interpolate environment values if set.
+        """
+        if 'environment' not in self.service_dict and 'env_file' not in self.service_dict:
+            return
 
-        if 'file' in extends_options:
-            extends_from_filename = extends_options['file']
-            other_config_path = expand_path(self.working_dir, extends_from_filename)
-        else:
-            other_config_path = self.filename
+        env = {}
+
+        if 'env_file' in self.service_dict:
+            for f in get_env_files(self.service_dict, working_dir=self.working_dir):
+                env.update(env_vars_from_file(f))
+            del self.service_dict['env_file']
+
+        env.update(parse_environment(self.service_dict.get('environment')))
+        env = dict(resolve_env_var(k, v) for k, v in six.iteritems(env))
+
+        self.service_dict['environment'] = env
+
+    def validate_and_construct_extends(self):
+        validate_extends_file_path(
+            self.service_name,
+            self.service_dict['extends'],
+            self.filename
+        )
+        self.extended_config_path = self.get_extended_config_path(
+            self.service_dict['extends']
+        )
+        self.extended_service_name = self.service_dict['extends']['service']
+
+        full_extended_config = pre_process_config(
+            load_yaml(self.extended_config_path)
+        )
+
+        validate_extended_service_exists(
+            self.extended_service_name,
+            full_extended_config,
+            self.extended_config_path
+        )
+        validate_against_fields_schema(full_extended_config)
+
+        self.extended_config = full_extended_config[self.extended_service_name]
+
+    def resolve_extends(self):
+        other_working_dir = os.path.dirname(self.extended_config_path)
+        other_already_seen = self.already_seen + [self.signature(self.service_name)]
 
-        other_working_dir = os.path.dirname(other_config_path)
-        other_already_seen = self.already_seen + [self.signature(service_dict['name'])]
         other_loader = ServiceLoader(
             working_dir=other_working_dir,
-            filename=other_config_path,
+            filename=self.extended_config_path,
+            service_name=self.service_name,
+            service_dict=self.extended_config,
             already_seen=other_already_seen,
         )
 
-        base_service = extends_options['service']
-        other_config = load_yaml(other_config_path)
-
-        if base_service not in other_config:
-            msg = (
-                "Cannot extend service '%s' in %s: Service not found"
-            ) % (base_service, other_config_path)
-            raise ConfigurationError(msg)
-
-        other_service_dict = other_config[base_service]
-        other_loader.detect_cycle(extends_options['service'])
-        other_service_dict = other_loader.make_service_dict(
-            service_dict['name'],
-            other_service_dict,
-        )
+        other_loader.detect_cycle(self.extended_service_name)
+        other_service_dict = other_loader.make_service_dict()
         validate_extended_service_dict(
             other_service_dict,
-            filename=other_config_path,
-            service=extends_options['service'],
+            filename=self.extended_config_path,
+            service=self.extended_service_name,
         )
 
-        return merge_service_dicts(other_service_dict, service_dict)
+        return merge_service_dicts(other_service_dict, self.service_dict)
+
+    def get_extended_config_path(self, extends_options):
+        """
+        Service we are extending either has a value for 'file' set, which we
+        need to obtain a full path too or we are extending from a service
+        defined in our own file.
+        """
+        if 'file' in extends_options:
+            extends_from_filename = extends_options['file']
+            return expand_path(self.working_dir, extends_from_filename)
+
+        return self.filename
 
     def signature(self, name):
         return (self.filename, name)
 
-    def validate_extends_options(self, service_name, extends_options):
-        error_prefix = "Invalid 'extends' configuration for %s:" % service_name
-
-        if 'file' not in extends_options and self.filename is None:
-            raise ConfigurationError(
-                "%s you need to specify a 'file', e.g. 'file: something.yml'" % error_prefix
-            )
-
-        return extends_options
-
 
 def validate_extended_service_dict(service_dict, filename, service):
     error_prefix = "Cannot extend service '%s' in %s:" % (service, filename)
@@ -320,9 +360,6 @@ def get_env_files(options, working_dir=None):
     if 'env_file' not in options:
         return {}
 
-    if working_dir is None:
-        raise Exception("No working_dir passed to get_env_files()")
-
     env_files = options.get('env_file', [])
     if not isinstance(env_files, list):
         env_files = [env_files]
@@ -330,26 +367,6 @@ def get_env_files(options, working_dir=None):
     return [expand_path(working_dir, path) for path in env_files]
 
 
-def resolve_environment(service_dict, working_dir=None):
-    service_dict = service_dict.copy()
-
-    if 'environment' not in service_dict and 'env_file' not in service_dict:
-        return service_dict
-
-    env = {}
-
-    if 'env_file' in service_dict:
-        for f in get_env_files(service_dict, working_dir=working_dir):
-            env.update(env_vars_from_file(f))
-        del service_dict['env_file']
-
-    env.update(parse_environment(service_dict.get('environment')))
-    env = dict(resolve_env_var(k, v) for k, v in six.iteritems(env))
-
-    service_dict['environment'] = env
-    return service_dict
-
-
 def parse_environment(environment):
     if not environment:
         return {}
diff --git a/compose/config/schema.json b/compose/config/fields_schema.json
similarity index 86%
rename from compose/config/schema.json
rename to compose/config/fields_schema.json
index 94fe4fc522..2a122b7a31 100644
--- a/compose/config/schema.json
+++ b/compose/config/fields_schema.json
@@ -19,7 +19,12 @@
         "cap_drop": {"type": "array", "items": {"type": "string"}, "uniqueItems": true},
         "command": {"$ref": "#/definitions/string_or_list"},
         "container_name": {"type": "string"},
-        "cpu_shares": {"type": "string"},
+        "cpu_shares": {
+          "oneOf": [
+            {"type": "number"},
+            {"type": "string"}
+          ]
+        },
         "cpuset": {"type": "string"},
         "detach": {"type": "boolean"},
         "devices": {"type": "array", "items": {"type": "string"}, "uniqueItems": true},
@@ -27,7 +32,7 @@
         "dns_search": {"$ref": "#/definitions/string_or_list"},
         "dockerfile": {"type": "string"},
         "domainname": {"type": "string"},
-        "entrypoint": {"type": "string"},
+        "entrypoint": {"type": "array", "items": {"type": "string"}, "uniqueItems": true},
         "env_file": {"$ref": "#/definitions/string_or_list"},
 
         "environment": {
@@ -75,7 +80,7 @@
         },
         "name": {"type": "string"},
         "net": {"type": "string"},
-        "pid": {"type": "string"},
+        "pid": {"type": ["string", "null"]},
 
         "ports": {
           "type": "array",
@@ -94,36 +99,19 @@
           "uniqueItems": true
         },
 
-        "privileged": {"type": "string"},
+        "privileged": {"type": "boolean"},
         "read_only": {"type": "boolean"},
         "restart": {"type": "string"},
-        "security_opt": {"type": "string"},
+        "security_opt": {"type": "array", "items": {"type": "string"}, "uniqueItems": true},
         "stdin_open": {"type": "string"},
         "tty": {"type": "string"},
         "user": {"type": "string"},
         "volumes": {"type": "array", "items": {"type": "string"}, "uniqueItems": true},
+        "volume_driver": {"type": "string"},
         "volumes_from": {"type": "array", "items": {"type": "string"}, "uniqueItems": true},
         "working_dir": {"type": "string"}
       },
 
-      "anyOf": [
-        {
-          "required": ["build"],
-          "not": {"required": ["image"]}
-        },
-        {
-          "required": ["image"],
-          "not": {"anyOf": [
-            {"required": ["build"]},
-            {"required": ["dockerfile"]}
-          ]}
-        },
-        {
-          "required": ["extends"],
-          "not": {"required": ["build", "image"]}
-        }
-      ],
-
       "dependencies": {
         "memswap_limit": ["mem_limit"]
       },
diff --git a/compose/config/service_schema.json b/compose/config/service_schema.json
new file mode 100644
index 0000000000..5cb5d6d070
--- /dev/null
+++ b/compose/config/service_schema.json
@@ -0,0 +1,39 @@
+{
+  "$schema": "http://json-schema.org/draft-04/schema#",
+
+  "type": "object",
+
+  "properties": {
+      "name": {"type": "string"}
+  },
+
+  "required": ["name"],
+
+  "allOf": [
+    {"$ref": "fields_schema.json#/definitions/service"},
+    {"$ref": "#/definitions/service_constraints"}
+  ],
+
+  "definitions": {
+    "service_constraints": {
+      "anyOf": [
+        {
+          "required": ["build"],
+          "not": {"required": ["image"]}
+        },
+        {
+          "required": ["image"],
+          "not": {"anyOf": [
+            {"required": ["build"]},
+            {"required": ["dockerfile"]}
+          ]}
+        },
+        {
+          "required": ["extends"],
+          "not": {"required": ["build", "image"]}
+        }
+      ]
+    }
+  }
+
+}
diff --git a/compose/config/validation.py b/compose/config/validation.py
index d83504274c..632bdf03bd 100644
--- a/compose/config/validation.py
+++ b/compose/config/validation.py
@@ -5,6 +5,7 @@ from functools import wraps
 from docker.utils.ports import split_port
 from jsonschema import Draft4Validator
 from jsonschema import FormatChecker
+from jsonschema import RefResolver
 from jsonschema import ValidationError
 
 from .errors import ConfigurationError
@@ -66,6 +67,27 @@ def validate_top_level_object(func):
     return func_wrapper
 
 
+def validate_extends_file_path(service_name, extends_options, filename):
+    """
+    The service to be extended must either be defined in the config key 'file',
+    or within 'filename'.
+    """
+    error_prefix = "Invalid 'extends' configuration for %s:" % service_name
+
+    if 'file' not in extends_options and filename is None:
+        raise ConfigurationError(
+            "%s you need to specify a 'file', e.g. 'file: something.yml'" % error_prefix
+        )
+
+
+def validate_extended_service_exists(extended_service_name, full_extended_config, extended_config_path):
+    if extended_service_name not in full_extended_config:
+        msg = (
+            "Cannot extend service '%s' in %s: Service not found"
+        ) % (extended_service_name, extended_config_path)
+        raise ConfigurationError(msg)
+
+
 def get_unsupported_config_msg(service_name, error_key):
     msg = "Unsupported config option for '{}' service: '{}'".format(service_name, error_key)
     if error_key in DOCKER_CONFIG_HINTS:
@@ -73,7 +95,7 @@ def get_unsupported_config_msg(service_name, error_key):
     return msg
 
 
-def process_errors(errors):
+def process_errors(errors, service_name=None):
     """
     jsonschema gives us an error tree full of information to explain what has
     gone wrong. Process each error and pull out relevant information and re-write
@@ -103,7 +125,7 @@ def process_errors(errors):
 
     for error in errors:
         # handle root level errors
-        if len(error.path) == 0:
+        if len(error.path) == 0 and not error.instance.get('name'):
             if error.validator == 'type':
                 msg = "Top level object needs to be a dictionary. Check your .yml file that you have defined a service at the top level."
                 root_msgs.append(msg)
@@ -115,11 +137,14 @@ def process_errors(errors):
                 root_msgs.append(_clean_error_message(error.message))
 
         else:
-            # handle service level errors
-            service_name = error.path[0]
-
-            # pop the service name off our path
-            error.path.popleft()
+            if not service_name:
+                # field_schema errors will have service name on the path
+                service_name = error.path[0]
+                error.path.popleft()
+            else:
+                # service_schema errors have the service name passed in, as that
+                # is not available on error.path or necessarily error.instance
+                service_name = service_name
 
             if error.validator == 'additionalProperties':
                 invalid_config_key = _parse_key_from_error_msg(error)
@@ -189,16 +214,27 @@ def process_errors(errors):
     return "\n".join(root_msgs + invalid_keys + required + type_errors + other_errors)
 
 
-def validate_against_schema(config):
+def validate_against_fields_schema(config):
+    schema_filename = "fields_schema.json"
+    return _validate_against_schema(config, schema_filename)
+
+
+def validate_against_service_schema(config, service_name):
+    schema_filename = "service_schema.json"
+    return _validate_against_schema(config, schema_filename, service_name)
+
+
+def _validate_against_schema(config, schema_filename, service_name=None):
     config_source_dir = os.path.dirname(os.path.abspath(__file__))
-    schema_file = os.path.join(config_source_dir, "schema.json")
+    schema_file = os.path.join(config_source_dir, schema_filename)
 
     with open(schema_file, "r") as schema_fh:
         schema = json.load(schema_fh)
 
-    validation_output = Draft4Validator(schema, format_checker=FormatChecker(["ports"]))
+    resolver = RefResolver('file://' + config_source_dir + '/', schema)
+    validation_output = Draft4Validator(schema, resolver=resolver, format_checker=FormatChecker(["ports"]))
 
     errors = [error for error in sorted(validation_output.iter_errors(config), key=str)]
     if errors:
-        error_msg = process_errors(errors)
+        error_msg = process_errors(errors, service_name)
         raise ConfigurationError("Validation failed, reason(s):\n{}".format(error_msg))
diff --git a/tests/fixtures/extends/invalid-links.yml b/tests/fixtures/extends/invalid-links.yml
new file mode 100644
index 0000000000..edfeb8b231
--- /dev/null
+++ b/tests/fixtures/extends/invalid-links.yml
@@ -0,0 +1,9 @@
+myweb:
+  build: '.'
+  extends:
+    service: web
+  command: top
+web:
+  build: '.'
+  links:
+    - "mydb:db"
diff --git a/tests/fixtures/extends/invalid-net.yml b/tests/fixtures/extends/invalid-net.yml
new file mode 100644
index 0000000000..fbcd020bcf
--- /dev/null
+++ b/tests/fixtures/extends/invalid-net.yml
@@ -0,0 +1,8 @@
+myweb:
+  build: '.'
+  extends:
+    service: web
+  command: top
+web:
+  build: '.'
+  net: "container:db"
diff --git a/tests/fixtures/extends/invalid-volumes.yml b/tests/fixtures/extends/invalid-volumes.yml
new file mode 100644
index 0000000000..3db0118e0e
--- /dev/null
+++ b/tests/fixtures/extends/invalid-volumes.yml
@@ -0,0 +1,9 @@
+myweb:
+  build: '.'
+  extends:
+    service: web
+  command: top
+web:
+  build: '.'
+  volumes_from:
+    - "db"
diff --git a/tests/fixtures/extends/service-with-invalid-schema.yml b/tests/fixtures/extends/service-with-invalid-schema.yml
new file mode 100644
index 0000000000..00c36647ef
--- /dev/null
+++ b/tests/fixtures/extends/service-with-invalid-schema.yml
@@ -0,0 +1,4 @@
+myweb:
+  extends:
+    file: valid-composite-extends.yml
+    service: web
diff --git a/tests/fixtures/extends/service-with-valid-composite-extends.yml b/tests/fixtures/extends/service-with-valid-composite-extends.yml
new file mode 100644
index 0000000000..6c419ed070
--- /dev/null
+++ b/tests/fixtures/extends/service-with-valid-composite-extends.yml
@@ -0,0 +1,5 @@
+myweb:
+  build: '.'
+  extends:
+    file: 'valid-composite-extends.yml'
+    service: web
diff --git a/tests/fixtures/extends/valid-common-config.yml b/tests/fixtures/extends/valid-common-config.yml
new file mode 100644
index 0000000000..d8f13e7a86
--- /dev/null
+++ b/tests/fixtures/extends/valid-common-config.yml
@@ -0,0 +1,6 @@
+myweb:
+  build: '.'
+  extends:
+    file: valid-common.yml
+    service: common-config
+  command: top
diff --git a/tests/fixtures/extends/valid-common.yml b/tests/fixtures/extends/valid-common.yml
new file mode 100644
index 0000000000..07ad68e3e7
--- /dev/null
+++ b/tests/fixtures/extends/valid-common.yml
@@ -0,0 +1,3 @@
+common-config:
+  environment:
+    - FOO=1
diff --git a/tests/fixtures/extends/valid-composite-extends.yml b/tests/fixtures/extends/valid-composite-extends.yml
new file mode 100644
index 0000000000..8816c3f3b2
--- /dev/null
+++ b/tests/fixtures/extends/valid-composite-extends.yml
@@ -0,0 +1,2 @@
+web:
+  command: top
diff --git a/tests/fixtures/extends/valid-interpolation-2.yml b/tests/fixtures/extends/valid-interpolation-2.yml
new file mode 100644
index 0000000000..cb7bd93fc2
--- /dev/null
+++ b/tests/fixtures/extends/valid-interpolation-2.yml
@@ -0,0 +1,3 @@
+web:
+  build: '.'
+  hostname: "host-${HOSTNAME_VALUE}"
diff --git a/tests/fixtures/extends/valid-interpolation.yml b/tests/fixtures/extends/valid-interpolation.yml
new file mode 100644
index 0000000000..68e8740fb4
--- /dev/null
+++ b/tests/fixtures/extends/valid-interpolation.yml
@@ -0,0 +1,5 @@
+myweb:
+  extends:
+    service: web
+    file: valid-interpolation-2.yml
+  command: top
diff --git a/tests/integration/service_test.py b/tests/integration/service_test.py
index 0cf8cdb0ef..177471ffa9 100644
--- a/tests/integration/service_test.py
+++ b/tests/integration/service_test.py
@@ -165,16 +165,6 @@ class ServiceTest(DockerClientTestCase):
         service.start_container(container)
         self.assertEqual(set(container.get('HostConfig.ExtraHosts')), set(extra_hosts))
 
-    def test_create_container_with_extra_hosts_string(self):
-        extra_hosts = 'somehost:162.242.195.82'
-        service = self.create_service('db', extra_hosts=extra_hosts)
-        self.assertRaises(ConfigError, lambda: service.create_container())
-
-    def test_create_container_with_extra_hosts_list_of_dicts(self):
-        extra_hosts = [{'somehost': '162.242.195.82'}, {'otherhost': '50.31.209.229'}]
-        service = self.create_service('db', extra_hosts=extra_hosts)
-        self.assertRaises(ConfigError, lambda: service.create_container())
-
     def test_create_container_with_extra_hosts_dicts(self):
         extra_hosts = {'somehost': '162.242.195.82', 'otherhost': '50.31.209.229'}
         extra_hosts_list = ['somehost:162.242.195.82', 'otherhost:50.31.209.229']
@@ -515,7 +505,7 @@ class ServiceTest(DockerClientTestCase):
         self.assertEqual(container['HostConfig']['Privileged'], True)
 
     def test_expose_does_not_publish_ports(self):
-        service = self.create_service('web', expose=[8000])
+        service = self.create_service('web', expose=["8000"])
         container = create_and_start_container(service).inspect()
         self.assertEqual(container['NetworkSettings']['Ports'], {'8000/tcp': None})
 
diff --git a/tests/integration/testcases.py b/tests/integration/testcases.py
index 08ef9f272f..4557c07b6a 100644
--- a/tests/integration/testcases.py
+++ b/tests/integration/testcases.py
@@ -31,11 +31,29 @@ class DockerClientTestCase(unittest.TestCase):
         if 'command' not in kwargs:
             kwargs['command'] = ["top"]
 
-        options = ServiceLoader(working_dir='.').make_service_dict(name, kwargs)
+        links = kwargs.get('links', None)
+        volumes_from = kwargs.get('volumes_from', None)
+        net = kwargs.get('net', None)
+
+        workaround_options = ['links', 'volumes_from', 'net']
+        for key in workaround_options:
+            try:
+                del kwargs[key]
+            except KeyError:
+                pass
+
+        options = ServiceLoader(working_dir='.', filename=None, service_name=name, service_dict=kwargs).make_service_dict()
 
         labels = options.setdefault('labels', {})
         labels['com.docker.compose.test-name'] = self.id()
 
+        if links:
+            options['links'] = links
+        if volumes_from:
+            options['volumes_from'] = volumes_from
+        if net:
+            options['net'] = net
+
         return Service(
             project='composetest',
             client=self.client,
diff --git a/tests/unit/config_test.py b/tests/unit/config_test.py
index e488ceb527..21f1261ec0 100644
--- a/tests/unit/config_test.py
+++ b/tests/unit/config_test.py
@@ -11,11 +11,15 @@ from compose.config import config
 from compose.config.errors import ConfigurationError
 
 
-def make_service_dict(name, service_dict, working_dir):
+def make_service_dict(name, service_dict, working_dir, filename=None):
     """
     Test helper function to construct a ServiceLoader
     """
-    return config.ServiceLoader(working_dir=working_dir).make_service_dict(name, service_dict)
+    return config.ServiceLoader(
+        working_dir=working_dir,
+        filename=filename,
+        service_name=name,
+        service_dict=service_dict).make_service_dict()
 
 
 def service_sort(services):
@@ -202,6 +206,39 @@ class ConfigTest(unittest.TestCase):
                 )
             )
 
+    def test_config_extra_hosts_string_raises_validation_error(self):
+        expected_error_msg = "Service 'web' configuration key 'extra_hosts' contains an invalid type"
+
+        with self.assertRaisesRegexp(ConfigurationError, expected_error_msg):
+            config.load(
+                config.ConfigDetails(
+                    {'web': {
+                        'image': 'busybox',
+                        'extra_hosts': 'somehost:162.242.195.82'
+                    }},
+                    'working_dir',
+                    'filename.yml'
+                )
+            )
+
+    def test_config_extra_hosts_list_of_dicts_validation_error(self):
+        expected_error_msg = "Service 'web' configuration key 'extra_hosts' contains an invalid type"
+
+        with self.assertRaisesRegexp(ConfigurationError, expected_error_msg):
+            config.load(
+                config.ConfigDetails(
+                    {'web': {
+                        'image': 'busybox',
+                        'extra_hosts': [
+                            {'somehost': '162.242.195.82'},
+                            {'otherhost': '50.31.209.229'}
+                        ]
+                    }},
+                    'working_dir',
+                    'filename.yml'
+                )
+            )
+
 
 class InterpolationTest(unittest.TestCase):
     @mock.patch.dict(os.environ)
@@ -236,7 +273,7 @@ class InterpolationTest(unittest.TestCase):
                 'web': {
                     'image': '${FOO}',
                     'command': '${BAR}',
-                    'entrypoint': '${BAR}',
+                    'container_name': '${BAR}',
                 },
             },
             working_dir='.',
@@ -282,12 +319,13 @@ class InterpolationTest(unittest.TestCase):
     @mock.patch.dict(os.environ)
     def test_volume_binding_with_home(self):
         os.environ['HOME'] = '/home/user'
-        d = make_service_dict('foo', {'volumes': ['~:/container/path']}, working_dir='.')
+        d = make_service_dict('foo', {'build': '.', 'volumes': ['~:/container/path']}, working_dir='.')
         self.assertEqual(d['volumes'], ['/home/user:/container/path'])
 
     @mock.patch.dict(os.environ)
     def test_volume_binding_with_local_dir_name_raises_warning(self):
         def make_dict(**config):
+            config['build'] = '.'
             make_service_dict('foo', config, working_dir='.')
 
         with mock.patch('compose.config.config.log.warn') as warn:
@@ -332,6 +370,7 @@ class InterpolationTest(unittest.TestCase):
 
     def test_named_volume_with_driver_does_not_expand(self):
         d = make_service_dict('foo', {
+            'build': '.',
             'volumes': ['namedvolume:/data'],
             'volume_driver': 'foodriver',
         }, working_dir='.')
@@ -341,6 +380,7 @@ class InterpolationTest(unittest.TestCase):
     def test_home_directory_with_driver_does_not_expand(self):
         os.environ['NAME'] = 'surprise!'
         d = make_service_dict('foo', {
+            'build': '.',
             'volumes': ['~:/data'],
             'volume_driver': 'foodriver',
         }, working_dir='.')
@@ -500,36 +540,36 @@ class MergeLabelsTest(unittest.TestCase):
 
     def test_no_override(self):
         service_dict = config.merge_service_dicts(
-            make_service_dict('foo', {'labels': ['foo=1', 'bar']}, 'tests/'),
-            make_service_dict('foo', {}, 'tests/'),
+            make_service_dict('foo', {'build': '.', 'labels': ['foo=1', 'bar']}, 'tests/'),
+            make_service_dict('foo', {'build': '.'}, 'tests/'),
         )
         self.assertEqual(service_dict['labels'], {'foo': '1', 'bar': ''})
 
     def test_no_base(self):
         service_dict = config.merge_service_dicts(
-            make_service_dict('foo', {}, 'tests/'),
-            make_service_dict('foo', {'labels': ['foo=2']}, 'tests/'),
+            make_service_dict('foo', {'build': '.'}, 'tests/'),
+            make_service_dict('foo', {'build': '.', 'labels': ['foo=2']}, 'tests/'),
         )
         self.assertEqual(service_dict['labels'], {'foo': '2'})
 
     def test_override_explicit_value(self):
         service_dict = config.merge_service_dicts(
-            make_service_dict('foo', {'labels': ['foo=1', 'bar']}, 'tests/'),
-            make_service_dict('foo', {'labels': ['foo=2']}, 'tests/'),
+            make_service_dict('foo', {'build': '.', 'labels': ['foo=1', 'bar']}, 'tests/'),
+            make_service_dict('foo', {'build': '.', 'labels': ['foo=2']}, 'tests/'),
         )
         self.assertEqual(service_dict['labels'], {'foo': '2', 'bar': ''})
 
     def test_add_explicit_value(self):
         service_dict = config.merge_service_dicts(
-            make_service_dict('foo', {'labels': ['foo=1', 'bar']}, 'tests/'),
-            make_service_dict('foo', {'labels': ['bar=2']}, 'tests/'),
+            make_service_dict('foo', {'build': '.', 'labels': ['foo=1', 'bar']}, 'tests/'),
+            make_service_dict('foo', {'build': '.', 'labels': ['bar=2']}, 'tests/'),
         )
         self.assertEqual(service_dict['labels'], {'foo': '1', 'bar': '2'})
 
     def test_remove_explicit_value(self):
         service_dict = config.merge_service_dicts(
-            make_service_dict('foo', {'labels': ['foo=1', 'bar=2']}, 'tests/'),
-            make_service_dict('foo', {'labels': ['bar']}, 'tests/'),
+            make_service_dict('foo', {'build': '.', 'labels': ['foo=1', 'bar=2']}, 'tests/'),
+            make_service_dict('foo', {'build': '.', 'labels': ['bar']}, 'tests/'),
         )
         self.assertEqual(service_dict['labels'], {'foo': '1', 'bar': ''})
 
@@ -611,6 +651,7 @@ class EnvTest(unittest.TestCase):
 
         service_dict = make_service_dict(
             'foo', {
+                'build': '.',
                 'environment': {
                     'FILE_DEF': 'F1',
                     'FILE_DEF_EMPTY': '',
@@ -629,7 +670,7 @@ class EnvTest(unittest.TestCase):
     def test_env_from_file(self):
         service_dict = make_service_dict(
             'foo',
-            {'env_file': 'one.env'},
+            {'build': '.', 'env_file': 'one.env'},
             'tests/fixtures/env',
         )
         self.assertEqual(
@@ -640,7 +681,7 @@ class EnvTest(unittest.TestCase):
     def test_env_from_multiple_files(self):
         service_dict = make_service_dict(
             'foo',
-            {'env_file': ['one.env', 'two.env']},
+            {'build': '.', 'env_file': ['one.env', 'two.env']},
             'tests/fixtures/env',
         )
         self.assertEqual(
@@ -662,7 +703,7 @@ class EnvTest(unittest.TestCase):
         os.environ['ENV_DEF'] = 'E3'
         service_dict = make_service_dict(
             'foo',
-            {'env_file': 'resolve.env'},
+            {'build': '.', 'env_file': 'resolve.env'},
             'tests/fixtures/env',
         )
         self.assertEqual(
@@ -862,6 +903,17 @@ class ExtendsTest(unittest.TestCase):
 
         self.assertEquals(len(service), 1)
         self.assertIsInstance(service[0], dict)
+        self.assertEquals(service[0]['command'], "/bin/true")
+
+    def test_extended_service_with_invalid_config(self):
+        expected_error_msg = "Service 'myweb' has neither an image nor a build path specified"
+
+        with self.assertRaisesRegexp(ConfigurationError, expected_error_msg):
+            load_from_filename('tests/fixtures/extends/service-with-invalid-schema.yml')
+
+    def test_extended_service_with_valid_config(self):
+        service = load_from_filename('tests/fixtures/extends/service-with-valid-composite-extends.yml')
+        self.assertEquals(service[0]['command'], "top")
 
     def test_extends_file_defaults_to_self(self):
         """
@@ -887,37 +939,33 @@ class ExtendsTest(unittest.TestCase):
             }
         ]))
 
-    def test_blacklisted_options(self):
-        def load_config():
-            return make_service_dict('myweb', {
-                'extends': {
-                    'file': 'whatever',
-                    'service': 'web',
-                }
-            }, '.')
+    def test_invalid_links_in_extended_service(self):
+        expected_error_msg = "services with 'links' cannot be extended"
+        with self.assertRaisesRegexp(ConfigurationError, expected_error_msg):
+            load_from_filename('tests/fixtures/extends/invalid-links.yml')
 
-        with self.assertRaisesRegexp(ConfigurationError, 'links'):
-            other_config = {'web': {'links': ['db']}}
+    def test_invalid_volumes_from_in_extended_service(self):
+        expected_error_msg = "services with 'volumes_from' cannot be extended"
 
-            with mock.patch.object(config, 'load_yaml', return_value=other_config):
-                print(load_config())
+        with self.assertRaisesRegexp(ConfigurationError, expected_error_msg):
+            load_from_filename('tests/fixtures/extends/invalid-volumes.yml')
 
-        with self.assertRaisesRegexp(ConfigurationError, 'volumes_from'):
-            other_config = {'web': {'volumes_from': ['db']}}
+    def test_invalid_net_in_extended_service(self):
+        expected_error_msg = "services with 'net: container' cannot be extended"
 
-            with mock.patch.object(config, 'load_yaml', return_value=other_config):
-                print(load_config())
+        with self.assertRaisesRegexp(ConfigurationError, expected_error_msg):
+            load_from_filename('tests/fixtures/extends/invalid-net.yml')
 
-        with self.assertRaisesRegexp(ConfigurationError, 'net'):
-            other_config = {'web': {'net': 'container:db'}}
+    @mock.patch.dict(os.environ)
+    def test_valid_interpolation_in_extended_service(self):
+        os.environ.update(
+            HOSTNAME_VALUE="penguin",
+        )
+        expected_interpolated_value = "host-penguin"
 
-            with mock.patch.object(config, 'load_yaml', return_value=other_config):
-                print(load_config())
-
-        other_config = {'web': {'net': 'host'}}
-
-        with mock.patch.object(config, 'load_yaml', return_value=other_config):
-            print(load_config())
+        service_dicts = load_from_filename('tests/fixtures/extends/valid-interpolation.yml')
+        for service in service_dicts:
+            self.assertTrue(service['hostname'], expected_interpolated_value)
 
     def test_volume_path(self):
         dicts = load_from_filename('tests/fixtures/volume-path/docker-compose.yml')
@@ -949,6 +997,10 @@ class ExtendsTest(unittest.TestCase):
         with self.assertRaisesRegexp(ConfigurationError, err_msg):
             load_from_filename('tests/fixtures/extends/nonexistent-service.yml')
 
+    def test_partial_service_config_in_extends_is_still_valid(self):
+        dicts = load_from_filename('tests/fixtures/extends/valid-common-config.yml')
+        self.assertEqual(dicts[0]['environment'], {'FOO': '1'})
+
 
 class BuildPathTest(unittest.TestCase):
     def setUp(self):