diff --git a/README.md b/README.md
index f4d9905..066fcaf 100644
--- a/README.md
+++ b/README.md
@@ -9,7 +9,7 @@ $ npm install --save-dev string-replace-loader
 ```
 
 With release of 2.0.0 the loader is expected to be used in Node v4+ environment.
-Support for Node v3 and lower was dropped, but you can install and use the loader version of 1.3.0 in older environments. 
+Support for Node v3 and lower was dropped, but you can install and use the loader version of 1.3.0 in older environments.
 
 ## Usage:
 
@@ -120,6 +120,33 @@ module.exports = {
 }
 ```
 
+### Callback replacement:
+
+You can specify a callback function to dynamically replace a match.
+
+In your `webpack.config.js`:
+
+ ```javascript
+module.exports = {
+  // ...
+  module: {
+    rules: [
+      {
+        test: /\.js$/,
+        loader: 'string-replace-loader',
+        options: {
+          search: '^Hello, (.*)!$',
+          replace: function(match, p1, offset, string){
+            return 'Bonjour, ' + p1.toUpperCase() + '!!!';
+          },
+          flags: 'gi'
+        }
+      }
+    ]
+  }
+}
+```
+
 ## Contributing:
 
 Feel free to open issues to propose stuff and participate. Pull requests are also welcome.
diff --git a/lib/getOptionsArray.js b/lib/getOptionsArray.js
index 3e8cef7..5051e60 100644
--- a/lib/getOptionsArray.js
+++ b/lib/getOptionsArray.js
@@ -10,7 +10,10 @@ const optionsSchema = {
       type: 'string'
     },
     replace: {
-      type: 'string'
+      'anyOf': [
+        { 'typeof': 'function' },
+        { 'type': 'string' }
+      ]
     },
     flags: {
       type: 'string',
diff --git a/test/index.test.js b/test/index.test.js
index 21e52c2..a334ee0 100644
--- a/test/index.test.js
+++ b/test/index.test.js
@@ -166,6 +166,30 @@ describe('Webpack replace loader ...', () => {
     )
   })
 
+  it('should replace when using callback', done => {
+    webpack(getTestWebPackConfig(
+      {
+        test: /\.js$/,
+        loader: '__this-loader',
+        options: {
+          search: 'var value',
+          replace: () => ('var a')
+        }
+      }),
+      (error, stats) => {
+        expect(error).to.equal(null)
+
+        fs.readFile(outputFilePath, 'utf8', (error, contents) => {
+          expect(error).to.equal(null)
+          expect(contents).to.be.a('string')
+          expect(contents).to.not.include('var value')
+          expect(contents).to.include('var a')
+          done()
+        })
+      }
+    )
+  })
+
   it('should not throw error when cannot replace in single mode', done => {
     webpack(getTestWebPackConfig(
       {