diff --git a/runtime/doc/terminal.txt b/runtime/doc/terminal.txt
index f575c82..8dc19cb 100644
--- a/runtime/doc/terminal.txt
+++ b/runtime/doc/terminal.txt
@@ -352,7 +352,9 @@
 can even run Vim in the terminal!  That's used for debugging, see below.
 
 Environment variables are used to pass information to the running job:
-    TERM		name of the terminal, from the 'term' option
+    TERM		the name of the terminal, from the 'term' option or
+			$TERM in the GUI; falls back to "xterm" if it does not
+			start with "xterm"
     ROWS		number of rows in the terminal initially
     LINES		same as ROWS
     COLUMNS		number of columns in the terminal initially
diff --git a/src/os_unix.c b/src/os_unix.c
index b811ac3..42917c2 100644
--- a/src/os_unix.c
+++ b/src/os_unix.c
@@ -5579,11 +5579,23 @@
 
 # ifdef FEAT_TERMINAL
 	if (options->jo_term_rows > 0)
+	{
+	    char *term = (char *)T_NAME;
+
+#ifdef FEAT_GUI
+	    if (term_is_gui(T_NAME))
+		/* In the GUI 'term' is not what we want, use $TERM. */
+		term = getenv("TERM");
+#endif
+	    /* Use 'term' or $TERM if it starts with "xterm", otherwise fall
+	     * back to "xterm". */
+	    if (term == NULL || *term == NUL || STRNCMP(term, "xterm", 5) != 0)
+		term = "xterm";
 	    set_child_environment(
 		    (long)options->jo_term_rows,
 		    (long)options->jo_term_cols,
-		    STRNCMP(T_NAME, "xterm", 5) == 0
-						   ? (char *)T_NAME : "xterm");
+		    term);
+	}
 	else
 # endif
 	    set_default_child_environment();
diff --git a/src/version.c b/src/version.c
index a9b4dca..b29d64c 100644
--- a/src/version.c
+++ b/src/version.c
@@ -763,6 +763,8 @@
 static int included_patches[] =
 {   /* Add new patch number below this line */
 /**/
+    1665,
+/**/
     1664,
 /**/
     1663,