diff --git a/README.md b/README.md
index 90dd7c7..0734354 100644
--- a/README.md
+++ b/README.md
@@ -260,7 +260,7 @@ The action supports the following inputs:
    for available range specifications). Examples are: `"<1.2.0"`, `"~1.1.0"`, `"1.1.7"` (all three installing
    the latest available `1.1` version). Prerelease versions can be specified and a range will stay within the
    given tag such as `beta` or `rc`. If no version is given, it will default to `latest`.
-- `terraform_version_file` - (optional) The path to a file containing terraform version. Supported file types are `.tool-versions` or anything else. See more details in [about version-file](#Terraform-version-file).
+- `terraform_version_file` - (optional) The path to a file containing terraform version. Supported file types are `.tool-versions` or `.terraform-version`. See more details in [about version-file](#Terraform-version-file).
 - `terraform_wrapper` - (optional) Whether to install a wrapper to wrap subsequent calls of
    the `terraform` binary and expose its STDOUT, STDERR, and exit code as outputs
    named `stdout`, `stderr`, and `exitcode` respectively. Defaults to `true`.
@@ -269,7 +269,7 @@ The action supports the following inputs:
 
 If the `terraform_version_file` input is specified, the action will extract the version from the file and install it.
 
-Supported files names are `.tool-versions` or anything else.
+Supported files names are `.tool-versions` or `.terraform-version`.
 In `.tool-versions` file, terraform version should be preceded by the terraform keyword (e.g., `terraform 1.13.0`).
 The `.tool-versions` file supports version specifications in accordance with Semantic Versioning ([semver](https://semver.org/)) and [Semver Ranges](https://www.npmjs.com/package/semver#ranges).
 In other files, the version should be specified as explainied in the `terraform_version` input.
diff --git a/lib/setup-terraform.js b/lib/setup-terraform.js
index f6d937e..5155931 100644
--- a/lib/setup-terraform.js
+++ b/lib/setup-terraform.js
@@ -130,7 +130,7 @@ async function getVersionFromFileContent (versionFile) {
   const versionFileName = path.basename(versionFile);
   if (versionFileName === '.tool-versions') {
     versionRegExp = /^(terraform\s+)(?<version>[^\s]+)$/m;
-  } else if (versionFileName) {
+  } else if (versionFileName === '.terraform-version') {
     versionRegExp = /(?<version>[^\s]+)/;
   } else {
     return;
diff --git a/test/setup-terraform.test.js b/test/setup-terraform.test.js
index 1f1712c..8670808 100644
--- a/test/setup-terraform.test.js
+++ b/test/setup-terraform.test.js
@@ -663,7 +663,7 @@ describe('Setup Terraform', () => {
     expect(ioCp).toHaveBeenCalledWith(wrapperPath, `file${path.sep}terraform`);
   });
 
-  test('gets version from .tool-versions file and adds token and hostname on linux, amd64', async () => {
+  test('gets version from .tool-versions file', async () => {
     const version = '';
     const versionFile = '.tool-versions';
     const credentialsHostname = 'app.terraform.io';
@@ -697,10 +697,10 @@ describe('Setup Terraform', () => {
 
     fs.readFileSync = jest
       .fn()
-      .mockReturnValueOnce('terraform 0.10.0');
+      .mockReturnValueOnce('terraform 0.1.1');
 
     const versionObj = await setup();
-    expect(versionObj.version).toEqual('0.10.0');
+    expect(versionObj.version).toEqual('0.1.1');
   });
 
   test('gets version from version if both (version and .tool-versions file) are set', async () => {
@@ -780,4 +780,87 @@ describe('Setup Terraform', () => {
     const versionObj = await setup();
     expect(versionObj.version).toEqual('0.10.0');
   });
+
+  test('gets version from .terraform-version file', async () => {
+    const version = '';
+    const versionFile = '.terraform-version';
+    const credentialsHostname = 'app.terraform.io';
+    const credentialsToken = 'asdfjkl';
+
+    core.getInput = jest
+      .fn()
+      .mockReturnValueOnce(version)
+      .mockReturnValueOnce(versionFile)
+      .mockReturnValueOnce(credentialsHostname)
+      .mockReturnValueOnce(credentialsToken);
+
+    tc.downloadTool = jest
+      .fn()
+      .mockReturnValueOnce('file.zip');
+    tc.extractZip = jest
+      .fn()
+      .mockReturnValueOnce('file');
+
+    os.platform = jest
+      .fn()
+      .mockReturnValue('linux');
+
+    os.arch = jest
+      .fn()
+      .mockReturnValue('amd64');
+
+    nock('https://releases.hashicorp.com')
+      .get('/terraform/index.json')
+      .reply(200, json);
+
+    fs.readFileSync = jest
+      .fn()
+      .mockReturnValueOnce('0.1.1');
+
+    const versionObj = await setup();
+    expect(versionObj.version).toEqual('0.1.1');
+  });
+
+  test('fails when unsupported terraform version file', async () => {
+    const version = '';
+    const versionFile = 'unsupported-file';
+    const credentialsHostname = 'app.terraform.io';
+    const credentialsToken = 'asdfjkl';
+
+    core.getInput = jest
+      .fn()
+      .mockReturnValueOnce(version)
+      .mockReturnValueOnce(versionFile)
+      .mockReturnValueOnce(credentialsHostname)
+      .mockReturnValueOnce(credentialsToken);
+
+    tc.downloadTool = jest
+      .fn()
+      .mockReturnValueOnce('file.zip');
+    tc.extractZip = jest
+      .fn()
+      .mockReturnValueOnce('file');
+
+    os.platform = jest
+      .fn()
+      .mockReturnValue('linux');
+
+    os.arch = jest
+      .fn()
+      .mockReturnValue('amd64');
+
+    nock('https://releases.hashicorp.com')
+      .get('/terraform/index.json')
+      .reply(200, json);
+
+    fs.readFileSync = jest
+      .fn()
+      .mockReturnValueOnce('0.10.0');
+
+    try {
+      await setup();
+    } catch (e) {
+      expect(core.error).toHaveBeenCalled();
+    }
+  });
 });