diff --git a/sdk/identity/azure-identity/HISTORY.md b/sdk/identity/azure-identity/HISTORY.md
index df64badcb396..80e0ff93b793 100644
--- a/sdk/identity/azure-identity/HISTORY.md
+++ b/sdk/identity/azure-identity/HISTORY.md
@@ -1,5 +1,12 @@
 # Release History
 
+## 1.0.0b4
+### Fixes and improvements:
+- `UsernamePasswordCredential` correctly handles environment configuration with
+no tenant information (#7260)
+- MSAL's user realm discovery requests are sent through credential
+pipelines (#7260)
+
 ## 1.0.0b3 (2019-09-10)
 ### New features:
 - `SharedTokenCacheCredential` authenticates with tokens stored in a local
diff --git a/sdk/identity/azure-identity/azure/identity/_internal/msal_credentials.py b/sdk/identity/azure-identity/azure/identity/_internal/msal_credentials.py
index bae20de6d3e8..29e3a8f1cd62 100644
--- a/sdk/identity/azure-identity/azure/identity/_internal/msal_credentials.py
+++ b/sdk/identity/azure-identity/azure/identity/_internal/msal_credentials.py
@@ -20,11 +20,6 @@
 except AttributeError:  # Python 2.7, abc exists, but not ABC
     ABC = abc.ABCMeta("ABC", (object,), {"__slots__": ()})  # type: ignore
 
-try:
-    from unittest import mock
-except ImportError:  # python < 3.3
-    import mock  # type: ignore
-
 try:
     from typing import TYPE_CHECKING
 except ImportError:
@@ -64,10 +59,11 @@ def _create_app(self, cls):
         """Creates an MSAL application, patching msal.authority to use an azure-core pipeline during tenant discovery"""
 
         # MSAL application initializers use msal.authority to send AAD tenant discovery requests
-        with mock.patch("msal.authority.requests", self._adapter):
+        with self._adapter:
             app = cls(client_id=self._client_id, client_credential=self._client_credential, authority=self._authority)
 
         # monkeypatch the app to replace requests.Session with MsalTransportAdapter
+        app.client.session.close()
         app.client.session = self._adapter
 
         return app
@@ -106,8 +102,9 @@ class PublicClientCredential(MsalCredential):
 
     def __init__(self, **kwargs):
         # type: (Any) -> None
+        tenant = kwargs.pop("tenant", None) or "organizations"
         super(PublicClientCredential, self).__init__(
-            authority="https://login.microsoftonline.com/" + kwargs.pop("tenant", "organizations"), **kwargs
+            authority="https://login.microsoftonline.com/" + tenant, **kwargs
         )
 
     @abc.abstractmethod
diff --git a/sdk/identity/azure-identity/azure/identity/_internal/msal_transport_adapter.py b/sdk/identity/azure-identity/azure/identity/_internal/msal_transport_adapter.py
index b6b8e96f46af..9cf777424ede 100644
--- a/sdk/identity/azure-identity/azure/identity/_internal/msal_transport_adapter.py
+++ b/sdk/identity/azure-identity/azure/identity/_internal/msal_transport_adapter.py
@@ -12,13 +12,18 @@
 from azure.core.pipeline.policies import ContentDecodePolicy, NetworkTraceLoggingPolicy, ProxyPolicy, RetryPolicy
 from azure.core.pipeline.transport import HttpRequest, RequestsTransport
 
+try:
+    from unittest import mock
+except ImportError:  # python < 3.3
+    import mock  # type: ignore
+
 try:
     from typing import TYPE_CHECKING
 except ImportError:
     TYPE_CHECKING = False
 
 if TYPE_CHECKING:
-    # pylint:disable=unused-import
+    # pylint:disable=unused-import,ungrouped-imports
     from typing import Any, Dict, Mapping, Optional
     from azure.core.pipeline import PipelineResponse
 
@@ -38,17 +43,30 @@ def json(self, **kwargs):
 
     def raise_for_status(self):
         # type: () -> None
-        raise ClientAuthenticationError("authentication failed", self._response)
+        if self.status_code >= 400:
+            raise ClientAuthenticationError("authentication failed", self._response)
 
 
 class MsalTransportAdapter(object):
-    """Wraps an azure-core pipeline with the shape of requests.Session"""
+    """
+    Wraps an azure-core pipeline with the shape of requests.Session.
+
+    Used as a context manager, patches msal.authority to intercept calls to requests.
+    """
 
     def __init__(self, **kwargs):
         # type: (Any) -> None
         super(MsalTransportAdapter, self).__init__()
+        self._patch = mock.patch("msal.authority.requests", self)
         self._pipeline = self._build_pipeline(**kwargs)
 
+    def __enter__(self):
+        self._patch.__enter__()
+        return self
+
+    def __exit__(self, *args):
+        self._patch.__exit__(*args)
+
     @staticmethod
     def _create_config(**kwargs):
         # type: (Any) -> Configuration
diff --git a/sdk/identity/azure-identity/azure/identity/credentials.py b/sdk/identity/azure-identity/azure/identity/credentials.py
index 091b6472c676..2bff4e17102f 100644
--- a/sdk/identity/azure-identity/azure/identity/credentials.py
+++ b/sdk/identity/azure-identity/azure/identity/credentials.py
@@ -433,9 +433,10 @@ def get_token(self, *scopes, **kwargs):  # pylint:disable=unused-argument
 
         if not result:
             # cache miss -> request a new token
-            result = app.acquire_token_by_username_password(
-                username=self._username, password=self._password, scopes=scopes
-            )
+            with self._adapter:
+                result = app.acquire_token_by_username_password(
+                    username=self._username, password=self._password, scopes=scopes
+                )
 
         if "access_token" not in result:
             raise ClientAuthenticationError(message="authentication failed: {}".format(result.get("error_description")))
diff --git a/sdk/identity/azure-identity/tests/test_identity.py b/sdk/identity/azure-identity/tests/test_identity.py
index 799d50476523..2d7c1208a3ba 100644
--- a/sdk/identity/azure-identity/tests/test_identity.py
+++ b/sdk/identity/azure-identity/tests/test_identity.py
@@ -411,10 +411,13 @@ def test_interactive_credential_timeout():
 def test_username_password_credential():
     expected_token = "access-token"
     transport = validating_transport(
-        requests=[Request()] * 2,  # not validating requests because they're formed by MSAL
+        requests=[Request()] * 3,  # not validating requests because they're formed by MSAL
         responses=[
-            # expecting tenant discovery then a token request
+            # tenant discovery
             mock_response(json_payload={"authorization_endpoint": "https://a/b", "token_endpoint": "https://a/b"}),
+            # user realm discovery, interests MSAL only when the response body contains account_type == "Federated"
+            mock_response(json_payload={}),
+            # token request
             mock_response(
                 json_payload={
                     "access_token": expected_token,
@@ -436,3 +439,46 @@ def test_username_password_credential():
 
     token = credential.get_token("scope")
     assert token.token == expected_token
+
+
+def test_username_password_environment_credential(monkeypatch):
+    client_id = "fake-client-id"
+    username = "foo@bar.com"
+    password = "password"
+    expected_token = "***"
+
+    create_transport = functools.partial(
+        validating_transport,
+        requests=[Request()] * 3,  # not validating requests because they're formed by MSAL
+        responses=[
+            # tenant discovery
+            mock_response(json_payload={"authorization_endpoint": "https://a/b", "token_endpoint": "https://a/b"}),
+            # user realm discovery, interests MSAL only when the response body contains account_type == "Federated"
+            mock_response(json_payload={}),
+            # token request
+            mock_response(
+                json_payload={
+                    "access_token": expected_token,
+                    "expires_in": 42,
+                    "token_type": "Bearer",
+                    "ext_expires_in": 42,
+                }
+            ),
+        ],
+    )
+
+    monkeypatch.setenv(EnvironmentVariables.AZURE_CLIENT_ID, client_id)
+    monkeypatch.setenv(EnvironmentVariables.AZURE_USERNAME, username)
+    monkeypatch.setenv(EnvironmentVariables.AZURE_PASSWORD, password)
+
+    token = EnvironmentCredential(transport=create_transport()).get_token("scope")
+
+    # not validating expires_on because doing so requires monkeypatching time, and this is tested elsewhere
+    assert token.token == expected_token
+
+    # now with a tenant id
+    monkeypatch.setenv(EnvironmentVariables.AZURE_TENANT_ID, "tenant_id")
+
+    token = EnvironmentCredential(transport=create_transport()).get_token("scope")
+
+    assert token.token == expected_token