diff --git a/lib/vagrant/environment.rb b/lib/vagrant/environment.rb
index 126667dc6..cee3c9e5e 100644
--- a/lib/vagrant/environment.rb
+++ b/lib/vagrant/environment.rb
@@ -1,4 +1,5 @@
 require 'fileutils'
+require 'json'
 require 'pathname'
 require 'set'
 
@@ -517,7 +518,61 @@ module Vagrant
     #
     # @param [Pathname] path The path to the dotfile
     def upgrade_v1_dotfile(path)
-      raise "V1 environment detected. An auto-upgrade process will be made soon."
+      @logger.info("Upgrading V1 dotfile to V2 directory structure...")
+
+      # First, verify the file isn't empty. If it is an empty file, we
+      # just delete it and go on with life.
+      contents = path.read.strip
+      if contents.strip == ""
+        @logger.info("V1 dotfile was empty. Removing and moving on.")
+        path.delete
+        return
+      end
+
+      # Otherwise, verify there is valid JSON in here since a Vagrant
+      # environment would always ensure valid JSON. This is a sanity check
+      # to make sure we don't nuke a dotfile that is not ours...
+      @logger.debug("Attempting to parse JSON of V1 file")
+      json_data = nil
+      begin
+        json_data = JSON.parse(contents)
+        @logger.debug("JSON parsed successfully. Things are okay.")
+      rescue JSON::ParserError
+        # The file could've been tampered with since Vagrant 1.0.x is
+        # supposed to ensure that the contents are valid JSON. Show an error.
+        raise Errors::DotfileUpgradeJSONError,
+          :state_file => path.to_s
+      end
+
+      # Alright, let's upgrade this guy to the new structure. Start by
+      # backing up the old dotfile.
+      backup_file = path.dirname.join(".vagrant.v1.#{Time.now.to_i}")
+      @logger.info("Renaming old dotfile to: #{backup_file}")
+      path.rename(backup_file)
+
+      # Now, we create the actual local data directory. This should succeed
+      # this time since we renamed the old conflicting V1.
+      setup_local_data_path
+
+      if json_data["active"]
+        @logger.debug("Upgrading to V2 style for each active VM")
+        json_data["active"].each do |name, id|
+          @logger.info("Upgrading dotfile: #{name} (#{id})")
+
+          # Create the machine configuration directory
+          directory = @local_data_path.join("machines/#{name}/virtualbox")
+          FileUtils.mkdir_p(directory)
+
+          # Write the ID file
+          directory.join("id").open("w+") do |f|
+            f.write(id)
+          end
+        end
+      end
+
+      # Upgrade complete! Let the user know
+      @ui.info(I18n.t("vagrant.general.upgraded_v1_dotfile",
+                     :backup_path => backup_file.to_s))
     end
   end
 end
diff --git a/lib/vagrant/errors.rb b/lib/vagrant/errors.rb
index f4961b45e..7d333a39d 100644
--- a/lib/vagrant/errors.rb
+++ b/lib/vagrant/errors.rb
@@ -166,6 +166,10 @@ module Vagrant
       error_key(:dotfile_is_directory)
     end
 
+    class DotfileUpgradeJSONError < VagrantError
+      error_key(:dotfile_upgrade_json_error)
+    end
+
     class DownloaderFileDoesntExist < VagrantError
       status_code(37)
       error_key(:file_missing, "vagrant.downloaders.file")
diff --git a/templates/locales/en.yml b/templates/locales/en.yml
index 6adf62cf4..de5be88be 100644
--- a/templates/locales/en.yml
+++ b/templates/locales/en.yml
@@ -9,6 +9,17 @@ en:
 
         Old: %{old}
         New: %{new}
+      upgraded_v1_dotfile: |-
+        A Vagrant 1.0.x state file was found for this environment. Vagrant has
+        gone ahead and auto-upgraded this to the latest format. Everything
+        should continue working as normal. Beware, however, that older versions
+        of Vagrant may no longer be used with this environment.
+
+        However, in case anything went wrong, the old dotfile was backed up
+        to the location below. If everything is okay, it is safe to remove
+        this backup.
+
+        Backup: %{backup_path}
 
 #-------------------------------------------------------------------------------
 # Translations for exception classes
@@ -55,6 +66,24 @@ en:
         this command in another directory. If you aren't in a home directory,
         then please rename ".vagrant" to something else, or configure Vagrant
         to use another filename by modifying `config.vagrant.dotfile_name`.
+      dotfile_upgrade_json_error: |-
+        A Vagrant 1.0.x local state file was found. Vagrant is able to upgrade
+        this to the latest format automatically, however various checks are
+        put in place to verify data isn't incorrectly deleted. In this case,
+        the old state file was not valid JSON. Vagrant 1.0.x would store state
+        as valid JSON, meaning that this file was probably tampered with or
+        manually edited. Vagrant's auto-upgrade process cannot continue in this
+        case.
+
+        In most cases, this can be resolve by simply removing the state file.
+        Note however though that if Vagrant was previously managing virtual
+        machines, they may be left in an "orphan" state. That is, if they are
+        running or exist, they'll have to manually be removed.
+
+        If you're unsure what to do, ask the Vagrant mailing list or contact
+        support.
+
+        State file path: %{state_file}
       environment_locked: |-
         An instance of Vagrant is already running. Only one instance of Vagrant
         may run at any given time to avoid problems with VirtualBox inconsistencies
diff --git a/test/unit/vagrant/environment_test.rb b/test/unit/vagrant/environment_test.rb
index e44d6b8da..78f3a5dbb 100644
--- a/test/unit/vagrant/environment_test.rb
+++ b/test/unit/vagrant/environment_test.rb
@@ -1,5 +1,7 @@
 require File.expand_path("../../base", __FILE__)
+require "json"
 require "pathname"
+require "tempfile"
 
 require "vagrant/util/file_mode"
 
@@ -91,6 +93,55 @@ describe Vagrant::Environment do
       instance = described_class.new(:local_data_path => dir)
       instance.local_data_path.to_s.should == dir
     end
+
+    describe "upgrading V1 dotfiles" do
+      let(:v1_dotfile_tempfile) { Tempfile.new("vagrant") }
+      let(:v1_dotfile)          { Pathname.new(v1_dotfile_tempfile.path) }
+      let(:local_data_path)     { v1_dotfile_tempfile.path }
+      let(:instance) { described_class.new(:local_data_path => local_data_path) }
+
+      it "should be fine if dotfile is empty" do
+        v1_dotfile.open("w+") do |f|
+          f.write("")
+        end
+
+        expect { instance }.to_not raise_error
+        Pathname.new(local_data_path).should be_directory
+      end
+
+      it "should upgrade all active VMs" do
+        active_vms = {
+          "foo" => "foo_id",
+          "bar" => "bar_id"
+        }
+
+        v1_dotfile.open("w+") do |f|
+          f.write(JSON.dump({
+            "active" => active_vms
+          }))
+        end
+
+        expect { instance }.to_not raise_error
+
+        local_data_pathname = Pathname.new(local_data_path)
+        foo_id_file = local_data_pathname.join("machines/foo/virtualbox/id")
+        foo_id_file.should be_file
+        foo_id_file.read.should == "foo_id"
+
+        bar_id_file = local_data_pathname.join("machines/bar/virtualbox/id")
+        bar_id_file.should be_file
+        bar_id_file.read.should == "bar_id"
+      end
+
+      it "should raise an error if invalid JSON" do
+        v1_dotfile.open("w+") do |f|
+          f.write("bad")
+        end
+
+        expect { instance }.
+          to raise_error(Vagrant::Errors::DotfileUpgradeJSONError)
+      end
+    end
   end
 
   describe "default provider" do
@@ -239,7 +290,7 @@ VF
 
     it "should return a machine object with the machine configuration" do
       # Create a provider
-      foo_config = Class.new do
+      foo_config = Class.new(Vagrant.plugin("2", :config)) do
         attr_accessor :value
       end