Rails 4 doesn't like Bundler's binstubs. This is what happens when you upgrade to Rails 4 RC1 with Bundler binstubs installed.

gistfile1.txt

Looks like your app's ./bin/rails is a stub that was generated by Bundler.

In Rails 4, your app's bin/ directory contains executables that are versioned
like any other source code, rather than stubs that are generated on demand.

Here's how to upgrade:

  bundle config --delete bin    # Turn off Bundler's stub generator
  rake rails:update:bin         # Use the new Rails 4 executables
  git add bin                   # Add bin/ to source control

You may need to remove bin/ from your .gitignore as well.

When you install a gem whose executable you want to use in your app,
generate it and add it to source control:

  bundle binstubs some-gem-name
  git add bin/new-executable

This change is problematic for me because I use @tylerhunt's technique to make environment variables accessible to anything that uses bundler.

@schneems recommended dotenv-rails as the solution he uses to manage environment variables.