diff --git a/gcloud/datastore/connection.py b/gcloud/datastore/connection.py
index 0810d3303b26..d949b696b88d 100644
--- a/gcloud/datastore/connection.py
+++ b/gcloud/datastore/connection.py
@@ -56,8 +56,12 @@ class Connection(connection.Connection):
     def __init__(self, credentials=None, http=None, api_base_url=None):
         super(Connection, self).__init__(credentials=credentials, http=http)
         if api_base_url is None:
-            api_base_url = os.getenv(GCD_HOST,
-                                     self.__class__.API_BASE_URL)
+            try:
+                # gcd.sh has /datastore/ in the path still since it supports
+                # v1beta2 and v1beta3 simultaneously.
+                api_base_url = '%s/datastore' % (os.environ[GCD_HOST],)
+            except KeyError:
+                api_base_url = self.__class__.API_BASE_URL
         self.api_base_url = api_base_url
 
     def _request(self, project, method, data):
diff --git a/gcloud/datastore/test_connection.py b/gcloud/datastore/test_connection.py
index ab8beacc24e9..f7a036bd4796 100644
--- a/gcloud/datastore/test_connection.py
+++ b/gcloud/datastore/test_connection.py
@@ -57,14 +57,14 @@ def test_custom_url_from_env(self):
         from gcloud.connection import API_BASE_URL
         from gcloud.environment_vars import GCD_HOST
 
-        HOST = object()
+        HOST = 'CURR_HOST'
         fake_environ = {GCD_HOST: HOST}
 
-        with _Monkey(os, getenv=fake_environ.get):
+        with _Monkey(os, environ=fake_environ):
             conn = self._makeOne()
 
         self.assertNotEqual(conn.api_base_url, API_BASE_URL)
-        self.assertEqual(conn.api_base_url, HOST)
+        self.assertEqual(conn.api_base_url, HOST + '/datastore')
 
     def test_custom_url_from_constructor(self):
         from gcloud.connection import API_BASE_URL
@@ -84,7 +84,7 @@ def test_custom_url_constructor_and_env(self):
         HOST2 = object()
         fake_environ = {GCD_HOST: HOST1}
 
-        with _Monkey(os, getenv=fake_environ.get):
+        with _Monkey(os, environ=fake_environ):
             conn = self._makeOne(api_base_url=HOST2)
 
         self.assertNotEqual(conn.api_base_url, API_BASE_URL)