diff --git a/news/readline-case-sensitive.rst b/news/readline-case-sensitive.rst
new file mode 100644
index 000000000..40507092a
--- /dev/null
+++ b/news/readline-case-sensitive.rst
@@ -0,0 +1,14 @@
+**Added:** None
+
+**Changed:** None
+
+**Deprecated:** None
+
+**Removed:** None
+
+**Fixed:**
+
+* Fixed a readline shell completion issue that caused by inconsistence between
+  ``$CASE_SENSITIVE_COMPLETIONS`` and readline's inputrc setting.
+
+**Security:** None
diff --git a/xonsh/readline_shell.py b/xonsh/readline_shell.py
index adaaa2b0f..bdc01c962 100644
--- a/xonsh/readline_shell.py
+++ b/xonsh/readline_shell.py
@@ -26,7 +26,7 @@ from xonsh.base_shell import BaseShell
 from xonsh.ansi_colors import partial_color_format, color_style_names, color_style
 from xonsh.environ import partial_format_prompt, multiline_prompt
 from xonsh.tools import print_exception
-from xonsh.platform import HAS_PYGMENTS, ON_WINDOWS, ON_CYGWIN, ON_DARWIN
+from xonsh.platform import ON_WINDOWS, ON_CYGWIN, ON_DARWIN
 
 pygments = LazyObject(lambda: importlib.import_module('pygments'),
                       globals(), 'pygments')
@@ -44,6 +44,9 @@ RL_VARIABLE_VALUE = None
 _RL_STATE_DONE = 0x1000000
 _RL_STATE_ISEARCH = 0x0000080
 
+_RL_PREV_CASE_SENSITIVE_COMPLETIONS = 'to-be-set'
+
+
 def setup_readline():
     """Sets up the readline module and completion suppression, if available."""
     global RL_COMPLETION_SUPPRESS_APPEND, RL_LIB, RL_CAN_RESIZE, RL_STATE, readline
@@ -130,6 +133,20 @@ def teardown_readline():
         return
 
 
+def _rebind_case_sensitive_completions():
+    # handle case sensitive, see Github issue #1342 for details
+    global _RL_PREV_CASE_SENSITIVE_COMPLETIONS
+    env = builtins.__xonsh_env__
+    case_sensitive = env.get('CASE_SENSITIVE_COMPLETIONS')
+    if case_sensitive is _RL_PREV_CASE_SENSITIVE_COMPLETIONS:
+        return
+    if case_sensitive:
+        readline.parse_and_bind("set completion-ignore-case off")
+    else:
+        readline.parse_and_bind("set completion-ignore-case on")
+    _RL_PREV_CASE_SENSITIVE_COMPLETIONS = case_sensitive
+
+
 def fix_readline_state_after_ctrl_c():
     """
     Fix to allow Ctrl-C to exit reverse-i-search.
@@ -235,6 +252,8 @@ class ReadlineShell(BaseShell, Cmd):
     def completedefault(self, text, line, begidx, endidx):
         """Implements tab-completion for text."""
         rl_completion_suppress_append()  # this needs to be called each time
+        _rebind_case_sensitive_completions()
+
         mline = line.partition(' ')[2]
         offs = len(mline) - len(text)
         if self.completer is None: