You can also create an .sbtopts file in the root of your SBT project using the same syntax as in the /usr/local/etc/sbtopts file. This makes the project self-contained.
Before sbt 0.13.6 you could set the options in .sbtconfig for non forked processes:
If you want to set SBT_OPTS only for the current run of sbt you can use env SBT_OPTS=".." sbt as suggested by Googol Shan. Or you can use the option added in Sbt 12: sbt -mem 2048. This gets unwieldy for longer lists of options, but it might help if you have different projects with different needs.
Note that CMSClassUnloadingEnabled in concert with UseConcMarkSweepGC helps keep the PermGen space clean, but depending on what frameworks you use you might have an actual leak on PermGen, which eventually forces a restart.
The javaOptions += "-XX:MaxPermSize=1024" in our build.sbt as referenced by @iwein above worked for us when we were seeing a java.lang.OutOfMemoryError thrown while running Specs2 tests through sbt.
The environment variable is _JAVA_OPTIONS, which needs to be set.
Once you set _JAVA_OPTIONS, and when you sbt, sbt will show the message using JAVA_OPTIONS and the values.
Alternatively you could set javaOption in the sbt or .scala file
e.g
javaOptions += "-Xmx1G"
From sbt shell you could run show javaOptions to see the values that are set.