Genome-wide association studies have thus far failed to explain the observed heritability of complex human diseases. This is referred to as the "missing heritability" problem. However, these analyses have usually neglected to consider a role for epigenetic variation, which has been associated with many human diseases. We extend models of epigenetic inheritance to investigate whether environment-sensitive epigenetic modifications of DNA might explain observed patterns of familial aggregation. We find that variation in epigenetic state and environmental state can result in highly heritable phenotypes through a combination of epigenetic and environmental inheritance. These two inheritance processes together can produce familial covariances significantly higher than those predicted by models of purely epigenetic inheritance and similar to those expected from genetic effects. The results suggest that epigenetic variation, inherited both directly and through shared environmental effects, may make a key contribution to the missing heritability.