diff --git a/.gitignore b/.gitignore
index bff8718..ec7a8f1 100644
--- a/.gitignore
+++ b/.gitignore
@@ -10,6 +10,7 @@
 *.pid
 *.swp
 *.swo
+*.iml
 node_modules
 checkstyle.xml
 loopback-boot-*.tgz
diff --git a/lib/config-loader.js b/lib/config-loader.js
index d9b503f..17834eb 100644
--- a/lib/config-loader.js
+++ b/lib/config-loader.js
@@ -112,7 +112,7 @@ function mergeConfigurations(configObjects, mergeFn) {
 
 function mergeDataSourceConfig(target, config, fileName) {
   for (var ds in target) {
-    var err = applyCustomConfig(target[ds], config[ds]);
+    var err = mergeObjects(target[ds], config[ds]);
     if (err) {
       throw new Error('Cannot apply ' + fileName + ' to `'  + ds + '`: ' + err);
     }
@@ -120,23 +120,73 @@ function mergeDataSourceConfig(target, config, fileName) {
 }
 
 function mergeAppConfig(target, config, fileName) {
-  var err = applyCustomConfig(target, config);
+  var err = mergeObjects(target, config);
   if (err) {
     throw new Error('Cannot apply ' + fileName + ': ' + err);
   }
 }
 
-function applyCustomConfig(target, config) {
+function mergeObjects(target, config, keyPrefix) {
   for (var key in config) {
-    var value = config[key];
-    if (typeof value === 'object') {
-      return 'override for the option `' + key + '` is not a value type.';
-    }
-    target[key] = value;
+    var fullKey = keyPrefix ? keyPrefix + '.' + key : key;
+    var err = mergeSingleItemOrProperty(target, config, key, fullKey);
+    if (err) return err;
+  }
+  return null; // no error
+}
+
+function mergeSingleItemOrProperty(target, config, key, fullKey) {
+  var origValue = target[key];
+  var newValue = config[key];
+
+  if (!hasCompatibleType(origValue, newValue)) {
+    return 'Cannot merge values of incompatible types for the option `' +
+      fullKey + '`.';
   }
+
+  if (Array.isArray(origValue)) {
+    return mergeArrays(origValue, newValue, fullKey);
+  }
+
+  if (typeof origValue === 'object') {
+    return mergeObjects(origValue, newValue, fullKey);
+  }
+
+  target[key] = newValue;
   return null; // no error
 }
 
+function mergeArrays(target, config, keyPrefix) {
+  if (target.length !== config.length) {
+    return 'Cannot merge array values of different length' +
+      ' for the option `' + keyPrefix + '`.';
+  }
+
+  // Use for(;;) to iterate over undefined items, for(in) would skip them.
+  for (var ix=0; ix < target.length; ix++) {
+    var fullKey = keyPrefix + '[' + ix + ']';
+    var err = mergeSingleItemOrProperty(target, config, ix, fullKey);
+    if (err) return err;
+  }
+
+  return null; // no error
+}
+
+function hasCompatibleType(origValue, newValue) {
+  if (origValue === null || origValue === undefined)
+    return true;
+
+  if (Array.isArray(origValue))
+    return Array.isArray(newValue);
+
+  if (typeof origValue === 'object')
+    return typeof newValue === 'object';
+
+  // Note: typeof Array() is 'object' too,
+  // we don't need to explicitly check array types
+  return typeof newValue !== 'object';
+}
+
 /**
  * Try to read a config file with .json extension
  * @param cwd Dirname of the file
diff --git a/test/compiler.test.js b/test/compiler.test.js
index ee712d1..73d812b 100644
--- a/test/compiler.test.js
+++ b/test/compiler.test.js
@@ -125,24 +125,168 @@ describe('compiler', function() {
       expect(db).to.have.property('fromJs', true);
     });
 
-    it('refuses to merge Object properties', function() {
+    it('merges new Object values', function() {
+      var objectValue = { key: 'value' };
       appdir.createConfigFilesSync();
       appdir.writeConfigFileSync('datasources.local.json', {
-        db: { nested: { key: 'value' } }
+        db: { nested: objectValue }
       });
 
-      expect(function() { boot.compile(appdir.PATH); })
-        .to.throw(/`nested` is not a value type/);
+      var instructions = boot.compile(appdir.PATH);
+
+      var db = instructions.dataSources.db;
+      expect(db).to.have.property('nested');
+      expect(db.nested).to.eql(objectValue);
     });
 
-    it('refuses to merge Array properties', function() {
+    it('deeply merges Object values', function() {
+      appdir.createConfigFilesSync({}, {
+        email: {
+          transport: {
+            host: 'localhost'
+          }
+        }
+      });
+
+      appdir.writeConfigFileSync('datasources.local.json', {
+        email: {
+          transport: {
+            host: 'mail.example.com'
+          }
+        }
+      });
+
+      var instructions = boot.compile(appdir.PATH);
+      var email = instructions.dataSources.email;
+      expect(email.transport.host).to.equal('mail.example.com');
+    });
+
+    it('deeply merges Array values of the same length', function() {
+      appdir.createConfigFilesSync({}, {
+        rest: {
+          operations: [
+            {
+              template: {
+                method: 'POST',
+                url: 'http://localhost:12345'
+              }
+            }
+          ]
+        }
+
+      });
+      appdir.writeConfigFileSync('datasources.local.json', {
+        rest: {
+          operations: [
+            {
+              template: {
+                url: 'http://api.example.com'
+              }
+            }
+          ]
+        }
+      });
+
+      var instructions = boot.compile(appdir.PATH);
+
+      var rest = instructions.dataSources.rest;
+      expect(rest.operations[0].template).to.eql({
+        method: 'POST', // the value from datasources.json
+        url: 'http://api.example.com' // overriden in datasources.local.json
+      });
+    });
+
+    it('merges Array properties', function() {
+      var arrayValue = ['value'];
       appdir.createConfigFilesSync();
       appdir.writeConfigFileSync('datasources.local.json', {
-        db: { nested: ['value'] }
+        db: { nested: arrayValue }
+      });
+
+      var instructions = boot.compile(appdir.PATH);
+
+      var db = instructions.dataSources.db;
+      expect(db).to.have.property('nested');
+      expect(db.nested).to.eql(arrayValue);
+    });
+
+    it('refuses to merge Array properties of different length', function() {
+      appdir.createConfigFilesSync({
+        nest: {
+          array: []
+        }
+      });
+
+      appdir.writeConfigFileSync('config.local.json', {
+        nest: {
+          array: [
+            {
+              key: 'value'
+            }
+          ]
+        }
+      });
+
+      expect(function() { boot.compile(appdir.PATH); })
+        .to.throw(/array values of different length.*nest\.array/);
+    });
+
+    it('refuses to merge Array of different length in Array', function() {
+      appdir.createConfigFilesSync({
+        key: [[]]
+      });
+
+      appdir.writeConfigFileSync('config.local.json', {
+        key: [['value']]
+      });
+
+      expect(function() { boot.compile(appdir.PATH); })
+        .to.throw(/array values of different length.*key\[0\]/);
+    });
+
+    it('returns full key of an incorrect Array value', function() {
+      appdir.createConfigFilesSync({
+        toplevel: [
+          {
+            nested: []
+          }
+        ]
+      });
+
+      appdir.writeConfigFileSync('config.local.json', {
+        toplevel: [
+          {
+            nested: [ 'value' ]
+          }
+        ]
+      });
+
+      expect(function() { boot.compile(appdir.PATH); })
+        .to.throw(/array values of different length.*toplevel\[0\]\.nested/);
+    });
+
+    it('refuses to merge incompatible object properties', function() {
+      appdir.createConfigFilesSync({
+        key: []
+      });
+      appdir.writeConfigFileSync('config.local.json', {
+        key: {}
+      });
+
+      expect(function() { boot.compile(appdir.PATH); })
+        .to.throw(/incompatible types.*key/);
+    });
+
+    it('refuses to merge incompatible array items', function() {
+      appdir.createConfigFilesSync({
+        key: [[]]
+      });
+      appdir.writeConfigFileSync('config.local.json', {
+        key: [{}]
       });
 
       expect(function() { boot.compile(appdir.PATH); })
-        .to.throw(/`nested` is not a value type/);
+        .to.throw(/incompatible types.*key\[0\]/);
     });
 
     it('merges app configs from multiple files', function() {