diff --git a/src/languageservice/services/dollarUtils.ts b/src/languageservice/services/dollarUtils.ts
new file mode 100644
index 00000000..54285360
--- /dev/null
+++ b/src/languageservice/services/dollarUtils.ts
@@ -0,0 +1,31 @@
+/*---------------------------------------------------------------------------------------------
+ *  Copyright (c) Red Hat, Inc. All rights reserved.
+ *  Licensed under the MIT License. See License.txt in the project root for license information.
+ *--------------------------------------------------------------------------------------------*/
+
+import { SingleYAMLDocument } from '../parser/yamlParser07';
+import { JSONDocument } from '../parser/jsonParser07';
+
+/**
+ * Retrieve schema if declared by `$schema`.
+ * Public for testing purpose, not part of the API.
+ * @param doc
+ */
+export function getDollarSchema(doc: SingleYAMLDocument | JSONDocument): string | undefined {
+  if ((doc instanceof SingleYAMLDocument || doc instanceof JSONDocument) && doc.root?.type === 'object') {
+    let dollarSchema: string | undefined = undefined;
+    for (const property of doc.root.properties) {
+      if (property.keyNode?.value === '$schema' && typeof property.valueNode?.value === 'string') {
+        dollarSchema = property.valueNode?.value;
+        break;
+      }
+    }
+    if (typeof dollarSchema === 'string') {
+      return dollarSchema;
+    }
+    if (dollarSchema) {
+      console.log('The $schema attribute is not a string, and will be ignored');
+    }
+  }
+  return undefined;
+}
diff --git a/src/languageservice/services/yamlSchemaService.ts b/src/languageservice/services/yamlSchemaService.ts
index 453b74eb..338bbe54 100644
--- a/src/languageservice/services/yamlSchemaService.ts
+++ b/src/languageservice/services/yamlSchemaService.ts
@@ -29,6 +29,7 @@ import { SchemaVersions } from '../yamlTypes';
 
 import Ajv, { DefinedError } from 'ajv';
 import { getSchemaTitle } from '../utils/schemaUtils';
+import { getDollarSchema } from './dollarUtils';
 
 const localize = nls.loadMessageBundle();
 
@@ -343,33 +344,46 @@ export class YAMLSchemaService extends JSONSchemaService {
   }
 
   public getSchemaForResource(resource: string, doc: JSONDocument): Promise<ResolvedSchema> {
+    const normalizeSchemaRef = (schemaRef: string): string | undefined => {
+      if (!schemaRef.startsWith('file:') && !schemaRef.startsWith('http')) {
+        // If path contains a fragment and it is left intact, "#" will be
+        // considered part of the filename and converted to "%23" by
+        // path.resolve() -> take it out and add back after path.resolve
+        let appendix = '';
+        if (schemaRef.indexOf('#') > 0) {
+          const segments = schemaRef.split('#', 2);
+          schemaRef = segments[0];
+          appendix = segments[1];
+        }
+        if (!path.isAbsolute(schemaRef)) {
+          const resUri = URI.parse(resource);
+          schemaRef = URI.file(path.resolve(path.parse(resUri.fsPath).dir, schemaRef)).toString();
+        } else {
+          schemaRef = URI.file(schemaRef).toString();
+        }
+        if (appendix.length > 0) {
+          schemaRef += '#' + appendix;
+        }
+      }
+      return schemaRef;
+    };
+
     const resolveModelineSchema = (): string | undefined => {
       let schemaFromModeline = getSchemaFromModeline(doc);
       if (schemaFromModeline !== undefined) {
-        if (!schemaFromModeline.startsWith('file:') && !schemaFromModeline.startsWith('http')) {
-          // If path contains a fragment and it is left intact, "#" will be
-          // considered part of the filename and converted to "%23" by
-          // path.resolve() -> take it out and add back after path.resolve
-          let appendix = '';
-          if (schemaFromModeline.indexOf('#') > 0) {
-            const segments = schemaFromModeline.split('#', 2);
-            schemaFromModeline = segments[0];
-            appendix = segments[1];
-          }
-          if (!path.isAbsolute(schemaFromModeline)) {
-            const resUri = URI.parse(resource);
-            schemaFromModeline = URI.file(path.resolve(path.parse(resUri.fsPath).dir, schemaFromModeline)).toString();
-          } else {
-            schemaFromModeline = URI.file(schemaFromModeline).toString();
-          }
-          if (appendix.length > 0) {
-            schemaFromModeline += '#' + appendix;
-          }
-        }
+        schemaFromModeline = normalizeSchemaRef(schemaFromModeline);
         return schemaFromModeline;
       }
     };
 
+    const resolveDollarSchema = (): string | undefined => {
+      let dollarSchema = getDollarSchema(doc);
+      if (dollarSchema !== undefined) {
+        dollarSchema = normalizeSchemaRef(dollarSchema);
+        return dollarSchema;
+      }
+    };
+
     const resolveSchemaForResource = (schemas: string[]): Promise<ResolvedSchema> => {
       const schemaHandle = super.createCombinedSchema(resource, schemas);
       return schemaHandle.getResolvedSchema().then((schema) => {
@@ -416,6 +430,10 @@ export class YAMLSchemaService extends JSONSchemaService {
     if (modelineSchema) {
       return resolveSchemaForResource([modelineSchema]);
     }
+    const dollarSchema = resolveDollarSchema();
+    if (dollarSchema) {
+      return resolveSchemaForResource([dollarSchema]);
+    }
     if (this.customSchemaProvider) {
       return this.customSchemaProvider(resource)
         .then((schemaUri) => {
diff --git a/test/fixtures/sample-dollar-schema.json b/test/fixtures/sample-dollar-schema.json
new file mode 100644
index 00000000..22f9ecb7
--- /dev/null
+++ b/test/fixtures/sample-dollar-schema.json
@@ -0,0 +1,8 @@
+{
+    "$schema": "http://json-schema.org/draft-07/schema",
+    "properties": {
+        "dollar-schema": {
+            "type":"string"
+        }
+    }
+}
diff --git a/test/schema.test.ts b/test/schema.test.ts
index 1747b1c4..4ab901eb 100644
--- a/test/schema.test.ts
+++ b/test/schema.test.ts
@@ -590,6 +590,8 @@ describe('JSON Schema', () => {
     // eslint-disable-next-line @typescript-eslint/no-var-requires
     const schemaModelineSample = path.join(__dirname, './fixtures/sample-modeline.json');
     // eslint-disable-next-line @typescript-eslint/no-var-requires
+    const schemaDollarSample = path.join(__dirname, './fixtures/sample-dollar-schema.json');
+    // eslint-disable-next-line @typescript-eslint/no-var-requires
     const schemaDefaultSnippetSample = require(path.join(__dirname, './fixtures/defaultSnippets-const-if-else.json'));
     const languageSettingsSetup = new ServiceSetup().withCompletion();
 
@@ -615,12 +617,42 @@ describe('JSON Schema', () => {
         });
       languageService.configure(languageSettingsSetup.languageSettings);
       languageService.registerCustomSchemaProvider((uri: string) => Promise.resolve(uri));
-      const testTextDocument = setupTextDocument(`# yaml-language-server: $schema=${schemaModelineSample}\n\n`);
+      const testTextDocument = setupTextDocument(
+        `# yaml-language-server: $schema=${schemaModelineSample}\n$schema: ${schemaDollarSample}\n\n`
+      );
       const result = await languageService.doComplete(testTextDocument, Position.create(1, 0), false);
       assert.strictEqual(result.items.length, 1);
       assert.strictEqual(result.items[0].label, 'modeline');
     });
 
+    it('Explicit $schema takes precedence over all other lower priority schemas', async () => {
+      languageSettingsSetup
+        .withSchemaFileMatch({
+          fileMatch: ['test.yaml'],
+          uri: TEST_URI,
+          priority: SchemaPriority.SchemaStore,
+          schema: schemaStoreSample,
+        })
+        .withSchemaFileMatch({
+          fileMatch: ['test.yaml'],
+          uri: TEST_URI,
+          priority: SchemaPriority.SchemaAssociation,
+          schema: schemaAssociationSample,
+        })
+        .withSchemaFileMatch({
+          fileMatch: ['test.yaml'],
+          uri: TEST_URI,
+          priority: SchemaPriority.Settings,
+          schema: schemaSettingsSample,
+        });
+      languageService.configure(languageSettingsSetup.languageSettings);
+      languageService.registerCustomSchemaProvider((uri: string) => Promise.resolve(uri));
+      const testTextDocument = setupTextDocument(`$schema: ${schemaDollarSample}\n\n`);
+      const result = await languageService.doComplete(testTextDocument, Position.create(1, 0), false);
+      assert.strictEqual(result.items.length, 1);
+      assert.strictEqual(result.items[0].label, 'dollar-schema');
+    });
+
     it('Manually setting schema takes precendence over all other lower priority schemas', async () => {
       languageSettingsSetup
         .withSchemaFileMatch({