diff --git a/lib/kamal/configuration.rb b/lib/kamal/configuration.rb
index e5ecbb530..14f8d5549 100644
--- a/lib/kamal/configuration.rb
+++ b/lib/kamal/configuration.rb
@@ -34,7 +34,12 @@ def load_config_file(file)
       end
 
       def destination_config_file(base_config_file, destination)
-        base_config_file.sub_ext(".#{destination}.yml") if destination
+        return unless destination
+
+        return base_config_file.sub(/\.yml$/, ".#{destination}.yml") if base_config_file.extname == ".yml"
+        return base_config_file.sub(/\.yml.erb$/, ".#{destination}.yml.erb") if base_config_file.extname == ".erb"
+
+        raise 'Unsupported config file extension. Please use .yml or .yml.erb'
       end
   end
 
diff --git a/test/configuration_test.rb b/test/configuration_test.rb
index 392b6afb9..74408ad58 100644
--- a/test/configuration_test.rb
+++ b/test/configuration_test.rb
@@ -194,10 +194,18 @@ class ConfigurationTest < ActiveSupport::TestCase
   end
 
   test "erb evaluation of yml config" do
-    config = Kamal::Configuration.create_from config_file: Pathname.new(File.expand_path("fixtures/deploy.erb.yml", __dir__))
+    config = Kamal::Configuration.create_from config_file: Pathname.new(File.expand_path("fixtures/deploy.yml.erb", __dir__))
     assert_equal "my-user", config.registry["username"]
   end
 
+  test "erb evaluation of yml config with destinations" do
+    config_file = Pathname.new(File.expand_path("fixtures/deploy.yml.erb", __dir__))
+
+    config = Mrsk::Configuration.create_from config_file: config_file, destination: 'staging'
+    assert_equal "my-user", config.registry["username"]
+    assert_equal "my-password-override", config.registry["password"]
+  end
+
   test "destination yml config merge" do
     dest_config_file = Pathname.new(File.expand_path("fixtures/deploy_for_dest.yml", __dir__))
 
diff --git a/test/fixtures/deploy.staging.yml.erb b/test/fixtures/deploy.staging.yml.erb
new file mode 100644
index 000000000..5b2b81f53
--- /dev/null
+++ b/test/fixtures/deploy.staging.yml.erb
@@ -0,0 +1,2 @@
+registry:
+  password: <%= "my-password-override" %>
diff --git a/test/fixtures/deploy.erb.yml b/test/fixtures/deploy.yml.erb
similarity index 100%
rename from test/fixtures/deploy.erb.yml
rename to test/fixtures/deploy.yml.erb