diff --git a/examples/postgres/README.md b/examples/postgres/README.md
index 6dbb9add..13cb9f5f 100644
--- a/examples/postgres/README.md
+++ b/examples/postgres/README.md
@@ -4,9 +4,9 @@ This example shows how you can connect Jupyterhub to a Postgres database
 instead of the default SQLite backend.
 
 ### Running Postgres with Jupyterhub on the host.
-0. Replace `ENV JPY_PSQL_PASSWORD arglebargle` with your own password in the
-   Dockerfile for `examples/postgres/db`. (Alternatively you can pass -e
-   `JPY_PSQL_PASSWORD=<password>` when you start the db container.)
+0. Uncomment and replace `ENV JPY_PSQL_PASSWORD arglebargle` with your own
+   password in the Dockerfile for `examples/postgres/db`. (Alternatively, pass
+   -e `JPY_PSQL_PASSWORD=<password>` when you start the db container.)
 
 1. `cd` to the root of your jupyterhub repo.
 
@@ -21,26 +21,27 @@ instead of the default SQLite backend.
 4. Run jupyterhub with
    `jupyterhub --db=postgresql://jupyterhub:<password>@localhost:5433/jupyterhub`.
 
-### Running Postgres with Containerized Jupyterhub.
-0. Replace `ENV JPY_PSQL_PASSWORD arglebargle` with your own password in the
-   Dockerfile for `examples/postgres/hub`. (Alternatively you can pass -e
-   `JPY_PSQL_PASSWORD=<password>` when you start the hub container.)
+5. Log in as the user running jupyterhub on your host machine.
 
-1. Do steps 0-2 in from the above section, ensuring that the values set/passed
+### Running Postgres with Containerized Jupyterhub.
+0. Do steps 0-2 in from the above section, ensuring that the values set/passed
    for `JPY_PSQL_PASSWORD` match for the hub and db containers.
 
-2. Build the hub image with `docker build -t jupyterhub-postgres-db
-   examples/postgres/db`.  This may take a minute or two the first time it's run.
+1. Build the hub image with `docker build -t jupyterhub-postgres-hub
+   examples/postgres/hub`.  This may take a minute or two the first time it's
+   run.
 
-3. Run the db image with `docker run -d --name=jpy-db
+2. Run the db image with `docker run -d --name=jpy-db
    jupyterhub-postgres`. Note that, unlike when connecting to a host machine
    jupyterhub, we don't specify a port-forwarding scheme here, but we do need
    to specify a name for the container.
 
-4. Run the containerized hub with `docker run -it --link jpy-db:postgres
-   jupyterhub-postgres-hub`.
+3. Run the containerized hub with `docker run -it --link jpy-db:postgres
+   jupyterhub-postgres-hub`.  This instructs docker to run the hub container
+   with a link to the already-running db container, which will forward
+   environment and connection information from the DB to the hub.
 
-5. Log in as one of the users defined in the `examples/postgres/hub/`
+4. Log in as one of the users defined in the `examples/postgres/hub/`
    Dockerfile.  By default `rhea` is the server's admin user, `io` and
    `ganymede` are non-admin users, and all users' passwords are their
    usernames.
diff --git a/examples/postgres/db/Dockerfile b/examples/postgres/db/Dockerfile
index 346f37df..844614ff 100644
--- a/examples/postgres/db/Dockerfile
+++ b/examples/postgres/db/Dockerfile
@@ -6,5 +6,5 @@ RUN mkdir /docker-entrypoint-initdb.d
 # startup, prior to the the database being started.
 COPY initdb.sh /docker-entrypoint-initdb.d/init.sh
 
-# Replace this with your own password.
-ENV JPY_PSQL_PASSWORD arglebargle
+# Uncomment and replace this with your own password.
+# ENV JPY_PSQL_PASSWORD arglebargle
diff --git a/examples/postgres/db/initdb.sh b/examples/postgres/db/initdb.sh
index 3d326c01..808354b4 100644
--- a/examples/postgres/db/initdb.sh
+++ b/examples/postgres/db/initdb.sh
@@ -1,5 +1,16 @@
 #!/bin/bash
 
+echo "";
+echo "Running initdb.sh.";
+if [ -z "$JPY_PSQL_PASSWORD" ]; then
+    echo "Need to set JPY_PSQL_PASSWORD in Dockerfile via command line";
+    exit 1;
+elif [ "$JPY_PSQL_PASSWORD" == "arglebargle" ]; then
+    echo "WARNING: Running with password!"
+    echo "You are STRONGLY ADVISED to use your own password.";
+fi
+echo "";
+
 # Start a postgres daemon, ignoring log output.
 gosu postgres pg_ctl start -w -l /dev/null
 
diff --git a/examples/postgres/hub/Dockerfile b/examples/postgres/hub/Dockerfile
index 4264480e..28ef1a8c 100644
--- a/examples/postgres/hub/Dockerfile
+++ b/examples/postgres/hub/Dockerfile
@@ -7,9 +7,6 @@ RUN apt-get install -y libpq-dev \
     && apt-get clean -y \
     && pip3 install psycopg2
 
-# Replace this with your own password.
-ENV JPY_PSQL_PASSWORD arglebargle
-
 RUN useradd -m -G shadow -p $(openssl passwd -1 rhea) rhea
 RUN chown rhea .
 
diff --git a/examples/postgres/hub/jupyter_hub_config.py b/examples/postgres/hub/jupyter_hub_config.py
index 81832703..f883cea7 100644
--- a/examples/postgres/hub/jupyter_hub_config.py
+++ b/examples/postgres/hub/jupyter_hub_config.py
@@ -6,9 +6,10 @@ c = get_config()
 c.JupyterHubApp.admin_users = {'rhea'}
 c.Authenticator.whitelist = {'ganymede', 'io', 'rhea'}
 
-# Set up the database url.
+# These environment variables are automatically supplied by the linked postgres
+# container.
 import os;
-pg_pass = os.getenv('JPY_PSQL_PASSWORD')
+pg_pass = os.getenv('POSTGRES_ENV_JPY_PSQL_PASSWORD')
 pg_host = os.getenv('POSTGRES_PORT_5432_TCP_ADDR')
 c.JupyterHubApp.db_url = 'postgresql://jupyterhub:{}@{}:5432/jupyterhub'.format(
     pg_pass,