diff --git a/nshlib/CMakeLists.txt b/nshlib/CMakeLists.txt
index e1a20db17..ae3b8dcd8 100644
--- a/nshlib/CMakeLists.txt
+++ b/nshlib/CMakeLists.txt
@@ -37,6 +37,7 @@ if(CONFIG_NSH_LIBRARY)
     nsh_mmcmds.c
     nsh_timcmds.c
     nsh_envcmds.c
+    nsh_prompt.c
     nsh_syscmds.c
     nsh_dbgcmds.c)
 
diff --git a/nshlib/Kconfig b/nshlib/Kconfig
index 21db92e51..c1974c5f2 100644
--- a/nshlib/Kconfig
+++ b/nshlib/Kconfig
@@ -66,7 +66,31 @@ config NSH_PROMPT_STRING
 	string "Prompt String"
 	default "nsh> "
 	---help---
-		Provide the shell prompt string, default is "nsh> ".
+		Provide the shell prompt string with size limit NSH_PROMPT_MAX.
+		default is "nsh> ".
+
+config NSH_PROMPT_MAX
+	int "Maximum Size of Prompt String"
+	default NAME_MAX
+	---help---
+		The maximum size of shell prompt string, including ending null.
+
+config NSH_PROMPT_ENV
+	string "Prompt String Environment Variable"
+	default "PS1"
+	depends on !DISABLE_ENVIRON
+	---help---
+		The environment variable name containing prompt string.
+		Only used when NSH_PROMPT_STRING is empty.
+
+config NSH_PROMPT_SUFFIX
+	string "Suffix used to derive fallback prompt string"
+	default "> "
+	---help---
+		When NSH_PROMPT_STRING is empty, the environment variable defined
+		by NSH_PROMPT_ENV or hostname will be used to derive the prompt
+		at runtime. This suffix is a part of the final prompt that serves
+		to clearly separate prompt from user inputs.
 
 config NSH_DISABLE_ECHOBACK
 	bool "Disable echoback"
diff --git a/nshlib/Makefile b/nshlib/Makefile
index 6ee4f8998..fb7aed89c 100644
--- a/nshlib/Makefile
+++ b/nshlib/Makefile
@@ -24,7 +24,7 @@ include $(APPDIR)/Make.defs
 
 CSRCS  = nsh_init.c nsh_parse.c nsh_console.c nsh_script.c nsh_system.c
 CSRCS += nsh_command.c nsh_fscmds.c nsh_ddcmd.c nsh_proccmds.c nsh_mmcmds.c
-CSRCS += nsh_timcmds.c nsh_envcmds.c nsh_syscmds.c nsh_dbgcmds.c
+CSRCS += nsh_timcmds.c nsh_envcmds.c nsh_syscmds.c nsh_dbgcmds.c nsh_prompt.c
 
 CSRCS += nsh_session.c
 ifeq ($(CONFIG_NSH_CONSOLE_LOGIN),y)
diff --git a/nshlib/nsh.h b/nshlib/nsh.h
index 96346ee9e..24bc6c802 100644
--- a/nshlib/nsh.h
+++ b/nshlib/nsh.h
@@ -748,7 +748,6 @@ extern const char g_loginsuccess[];
 extern const char g_badcredentials[];
 extern const char g_loginfailure[];
 #endif
-extern const char g_nshprompt[];
 extern const char g_fmtsyntax[];
 extern const char g_fmtargrequired[];
 extern const char g_fmtnomatching[];
@@ -825,6 +824,11 @@ int nsh_session(FAR struct console_stdio_s *pstate,
                 int login, int argc, FAR char *argv[]);
 int nsh_parse(FAR struct nsh_vtbl_s *vtbl, FAR char *cmdline);
 
+/* Prompt string handling */
+
+FAR const char *nsh_prompt(void);
+void nsh_update_prompt(void);
+
 /****************************************************************************
  * Name: nsh_login
  *
diff --git a/nshlib/nsh_init.c b/nshlib/nsh_init.c
index b84b06d3e..5904269e4 100644
--- a/nshlib/nsh_init.c
+++ b/nshlib/nsh_init.c
@@ -110,10 +110,14 @@ void nsh_initialize(void)
   FAR struct console_stdio_s *pstate;
 #endif
 
-#if defined(CONFIG_NSH_READLINE) && defined(CONFIG_READLINE_TABCOMPLETION)
-  /* Configure the NSH prompt */
+  /* populate NSH prompt string */
 
-  readline_prompt(g_nshprompt);
+  nsh_update_prompt();
+
+#if defined(CONFIG_NSH_READLINE) && defined(CONFIG_READLINE_TABCOMPLETION)
+  /* Configure readline prompt */
+
+  readline_prompt(nsh_prompt());
 
 #  ifdef CONFIG_READLINE_HAVE_EXTMATCH
   /* Set up for tab completion on NSH commands */
diff --git a/nshlib/nsh_parse.c b/nshlib/nsh_parse.c
index 1ea88d846..4709bd901 100644
--- a/nshlib/nsh_parse.c
+++ b/nshlib/nsh_parse.c
@@ -321,10 +321,6 @@ const char g_badcredentials[]    = "\nInvalid username or password\n";
 const char g_loginfailure[]      = "Login failed!\n";
 #endif
 
-/* The NSH prompt */
-
-const char g_nshprompt[]         = CONFIG_NSH_PROMPT_STRING;
-
 /* Common, message formats */
 
 const char g_fmtsyntax[]         = "nsh: %s: syntax error\n";
diff --git a/nshlib/nsh_prompt.c b/nshlib/nsh_prompt.c
new file mode 100644
index 000000000..964534e1c
--- /dev/null
+++ b/nshlib/nsh_prompt.c
@@ -0,0 +1,105 @@
+/****************************************************************************
+ * apps/nshlib/nsh_prompt.c
+ *
+ * Licensed to the Apache Software Foundation (ASF) under one or more
+ * contributor license agreements.  See the NOTICE file distributed with
+ * this work for additional information regarding copyright ownership.  The
+ * ASF licenses this file to you under the Apache License, Version 2.0 (the
+ * "License"); you may not use this file except in compliance with the
+ * License.  You may obtain a copy of the License at
+ *
+ *   http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS, WITHOUT
+ * WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.  See the
+ * License for the specific language governing permissions and limitations
+ * under the License.
+ *
+ ****************************************************************************/
+
+/****************************************************************************
+ * Included Files
+ ****************************************************************************/
+
+#include <nuttx/config.h>
+
+#include <string.h>
+#include <stdlib.h>
+#include <assert.h>
+
+#include "nsh.h"
+
+/****************************************************************************
+ * Preprocessor Macros
+ ****************************************************************************/
+
+#define NSH_PROMPT_SIZE      (CONFIG_NSH_PROMPT_MAX + 1 - \
+                              sizeof(CONFIG_NSH_PROMPT_SUFFIX))
+
+/****************************************************************************
+ * Private Variables
+ ****************************************************************************/
+
+static char g_nshprompt[CONFIG_NSH_PROMPT_MAX] = CONFIG_NSH_PROMPT_STRING;
+
+/****************************************************************************
+ * Public Functions
+ ****************************************************************************/
+
+/****************************************************************************
+ * Name: nsh_update_prompt
+ *
+ * Description:
+ *   This updates g_nshprompt from multiple sources, in the following order:
+ *
+ *   - non-empty NSH_PROMPT_ENV variable and suffix
+ *   - non-empty NSH_PROMPT_STRING
+ *   - non-empty HOSTNAME and suffix
+ *
+ * Note that suffix has higher priority when used to help clearly separate
+ * prompts from command line inputs.
+ *
+ * Results:
+ *   - updated g_nsh_prompt value.
+ *
+ ****************************************************************************/
+
+void nsh_update_prompt(void)
+{
+  static_assert(CONFIG_NSH_PROMPT_MAX > sizeof(CONFIG_NSH_PROMPT_STRING),
+                                          "NSH_PROMPT_STRING too long!");
+  static_assert(CONFIG_NSH_PROMPT_MAX > sizeof(CONFIG_NSH_PROMPT_SUFFIX),
+                                          "NSH_PROMPT_SUFFIX too long!");
+  #ifndef CONFIG_DISABLE_ENVIRON
+  if (getenv(CONFIG_NSH_PROMPT_ENV))
+    {
+      strlcpy(g_nshprompt, getenv(CONFIG_NSH_PROMPT_ENV), NSH_PROMPT_SIZE);
+      strcat(g_nshprompt, CONFIG_NSH_PROMPT_SUFFIX);
+    }
+  else
+  #endif
+  if (CONFIG_NSH_PROMPT_STRING[0])
+    {
+      strcpy(g_nshprompt, CONFIG_NSH_PROMPT_STRING);
+    }
+  else
+    {
+      gethostname(g_nshprompt, NSH_PROMPT_SIZE);
+      strcat(g_nshprompt, CONFIG_NSH_PROMPT_SUFFIX);
+    }
+}
+
+/****************************************************************************
+ * Name: nsh_prompt
+ *
+ * Description:
+ *   This function returns latest prompt string.
+ *   It is needed as g_nshprompt is no longer public.
+ *
+ ****************************************************************************/
+
+FAR const char *nsh_prompt(void)
+{
+  return g_nshprompt;
+}
diff --git a/nshlib/nsh_session.c b/nshlib/nsh_session.c
index 8327df7c2..b9ac839c0 100644
--- a/nshlib/nsh_session.c
+++ b/nshlib/nsh_session.c
@@ -207,7 +207,7 @@ int nsh_session(FAR struct console_stdio_s *pstate,
        * occurs. Either  will cause the session to terminate.
        */
 
-      ret = cle_fd(pstate->cn_line, g_nshprompt, CONFIG_NSH_LINELEN,
+      ret = cle_fd(pstate->cn_line, nsh_prompt(), CONFIG_NSH_LINELEN,
                    INFD(pstate), OUTFD(pstate));
       if (ret < 0)
         {
@@ -218,7 +218,7 @@ int nsh_session(FAR struct console_stdio_s *pstate,
 #else
       /* Display the prompt string */
 
-      write(OUTFD(pstate), g_nshprompt, strlen(g_nshprompt));
+      write(OUTFD(pstate), nsh_prompt(), strlen(nsh_prompt()));
 
       /* readline() normally returns the number of characters read, but
        * will return EOF on end of file or if an error occurs.  EOF
@@ -243,6 +243,7 @@ int nsh_session(FAR struct console_stdio_s *pstate,
       /* Parse process the command */
 
       nsh_parse(vtbl, pstate->cn_line);
+      nsh_update_prompt();
     }
 
   return ret;