diff --git a/CHANGELOG.md b/CHANGELOG.md
index b56448153c..26bd433dcb 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -2,6 +2,15 @@
 
 To install or update CocoaPods see this [guide](http://docs.cocoapods.org/guides/installing_cocoapods.html).
 
+## Master
+[CocoaPods](https://github.com/jverkoey/CocoaPods/compare/0.30.0...master)
+
+###### Enhancements
+
+* Unset the `CDPATH` env variable before shelling-out on `prepare_command`  
+  [Marc Boquet](https://github.com/apalancat)
+  [#1943](https://github.com/CocoaPods/CocoaPods/pull/1943)
+
 ## 0.30.0
 [CocoaPods](https://github.com/jverkoey/CocoaPods/compare/0.29.0...0.30.0)
 
diff --git a/lib/cocoapods/installer/pod_source_installer.rb b/lib/cocoapods/installer/pod_source_installer.rb
index 074de7ef09..adee165e2d 100644
--- a/lib/cocoapods/installer/pod_source_installer.rb
+++ b/lib/cocoapods/installer/pod_source_installer.rb
@@ -114,12 +114,17 @@ def download_source
 
       # Runs the prepare command bash script of the spec.
       #
+      # @note   Unsets the `CDPATH` env variable before running the
+      #         shell script to avoid issues with relative paths
+      #         (issue #1694).
+      #
       # @return [void]
       #
       def run_prepare_command
         return unless root_spec.prepare_command
         UI.section(" > Running prepare command", '', 1) do
           Dir.chdir(root) do
+            ENV.delete('CDPATH')
             prepare_command = root_spec.prepare_command.strip_heredoc.chomp
             full_command = "\nset -e\n" + prepare_command
             bash!(full_command)
diff --git a/spec/unit/installer/pod_source_installer_spec.rb b/spec/unit/installer/pod_source_installer_spec.rb
index 94c20496f4..33d7058d09 100644
--- a/spec/unit/installer/pod_source_installer_spec.rb
+++ b/spec/unit/installer/pod_source_installer_spec.rb
@@ -83,6 +83,13 @@ module Pod
             @installer.install!
           end.message.should.match /command not found/
         end
+
+        it "unsets $CDPATH environment variable" do
+          ENV['CDPATH'] = "BogusPath"
+          @spec.prepare_command = "cd Classes;ls Banana.h"
+          lambda { @installer.install! }.should.not.raise
+        end
+        
       end
 
       #--------------------------------------#