diff --git a/go.mod b/go.mod
index 2f31682..bf09b9e 100644
--- a/go.mod
+++ b/go.mod
@@ -1,3 +1,5 @@
 module github.com/direnv/go-dotenv
 
 go 1.16
+
+require mvdan.cc/sh/v3 v3.7.0
diff --git a/go.sum b/go.sum
new file mode 100644
index 0000000..1137aec
--- /dev/null
+++ b/go.sum
@@ -0,0 +1,40 @@
+github.com/creack/pty v1.1.9/go.mod h1:oKZEueFk5CKHvIhNR5MUki03XCEU+Q6VDXinZuGJ33E=
+github.com/creack/pty v1.1.18/go.mod h1:MOBLtS5ELjhRRrroQr9kyvTxUAFNvYEK993ew/Vr4O4=
+github.com/frankban/quicktest v1.14.5/go.mod h1:4ptaffx2x8+WTWXmUCuVU6aPUX1/Mz7zb5vbUoiM6w0=
+github.com/google/go-cmp v0.5.9/go.mod h1:17dUlkBOakJ0+DkrSSNjCkIjxS6bF9zb3elmeNGIjoY=
+github.com/google/renameio/v2 v2.0.0/go.mod h1:BtmJXm5YlszgC+TD4HOEEUFgkJP3nLxehU6hfe7jRt4=
+github.com/kr/pretty v0.3.1/go.mod h1:hoEshYVHaxMs3cyo3Yncou5ZscifuDolrwPKZanG3xk=
+github.com/kr/text v0.2.0/go.mod h1:eLer722TekiGuMkidMxC/pM04lWEeraHUUmBw8l2grE=
+github.com/pkg/diff v0.0.0-20210226163009-20ebb0f2a09e/go.mod h1:pJLUxLENpZxwdsKMEsNbx1VGcRFpLqf3715MtcvvzbA=
+github.com/rogpeppe/go-internal v1.9.0/go.mod h1:WtVeX8xhTBvf0smdhujwtBcq4Qrzq/fJaraNFVN+nFs=
+github.com/rogpeppe/go-internal v1.10.1-0.20230524175051-ec119421bb97/go.mod h1:ddIwULY96R17DhadqLgMfk9H9tvdUzkipdSkR5nkCZA=
+github.com/yuin/goldmark v1.4.13/go.mod h1:6yULJ656Px+3vBD8DxQVa3kxgyrAnzto9xy5taEt/CY=
+golang.org/x/crypto v0.0.0-20190308221718-c2843e01d9a2/go.mod h1:djNgcEr1/C05ACkg1iLfiJU5Ep61QUkGW8qpdssI0+w=
+golang.org/x/crypto v0.0.0-20210921155107-089bfa567519/go.mod h1:GvvjBRRGRdwPK5ydBHafDWAxML/pGHZbMvKqRZ5+Abc=
+golang.org/x/mod v0.6.0-dev.0.20220419223038-86c51ed26bb4/go.mod h1:jJ57K6gSWd91VN4djpZkiMVwK6gcyfeH4XE8wZrZaV4=
+golang.org/x/mod v0.9.0/go.mod h1:iBbtSCu2XBx23ZKBPSOrRkjjQPZFPuis4dIYUhu/chs=
+golang.org/x/net v0.0.0-20190620200207-3b0461eec859/go.mod h1:z5CRVTTTmAJ677TzLLGU+0bjPO0LkuOLi4/5GtJWs/s=
+golang.org/x/net v0.0.0-20210226172049-e18ecbb05110/go.mod h1:m0MpNAwzfU5UDzcl9v0D8zg8gWTRqZa9RBIspLL5mdg=
+golang.org/x/net v0.0.0-20220722155237-a158d28d115b/go.mod h1:XRhObCWvk6IyKnWLug+ECip1KBveYUHfp+8e9klMJ9c=
+golang.org/x/sync v0.0.0-20190423024810-112230192c58/go.mod h1:RxMgew5VJxzue5/jJTE5uejpjVlOe/izrB70Jof72aM=
+golang.org/x/sync v0.0.0-20220722155255-886fb9371eb4/go.mod h1:RxMgew5VJxzue5/jJTE5uejpjVlOe/izrB70Jof72aM=
+golang.org/x/sync v0.2.0/go.mod h1:RxMgew5VJxzue5/jJTE5uejpjVlOe/izrB70Jof72aM=
+golang.org/x/sys v0.0.0-20190215142949-d0b11bdaac8a/go.mod h1:STP8DvDyc/dI5b8T5hshtkjS+E42TnysNCUPdjciGhY=
+golang.org/x/sys v0.0.0-20201119102817-f84b799fce68/go.mod h1:h1NjWce9XRLGQEsW7wpKNCjG9DtNlClVuFLEZdDNbEs=
+golang.org/x/sys v0.0.0-20210615035016-665e8c7367d1/go.mod h1:oPkhp1MJrh7nUepCBck5+mAzfO9JrbApNNgaTdGDITg=
+golang.org/x/sys v0.0.0-20220520151302-bc2c85ada10a/go.mod h1:oPkhp1MJrh7nUepCBck5+mAzfO9JrbApNNgaTdGDITg=
+golang.org/x/sys v0.0.0-20220722155257-8c9f86f7a55f/go.mod h1:oPkhp1MJrh7nUepCBck5+mAzfO9JrbApNNgaTdGDITg=
+golang.org/x/sys v0.8.0/go.mod h1:oPkhp1MJrh7nUepCBck5+mAzfO9JrbApNNgaTdGDITg=
+golang.org/x/term v0.0.0-20201126162022-7de9c90e9dd1/go.mod h1:bj7SfCRtBDWHUb9snDiAeCFNEtKQo2Wmx5Cou7ajbmo=
+golang.org/x/term v0.0.0-20210927222741-03fcf44c2211/go.mod h1:jbD1KX2456YbFQfuXm/mYQcufACuNUgVhRMnK/tPxf8=
+golang.org/x/term v0.8.0/go.mod h1:xPskH00ivmX89bAKVGSKKtLOWNx2+17Eiy94tnKShWo=
+golang.org/x/text v0.3.0/go.mod h1:NqM8EUOU14njkJ3fqMW+pc6Ldnwhi/IjpwHt7yyuwOQ=
+golang.org/x/text v0.3.3/go.mod h1:5Zoc/QRtKVWzQhOtBMvqHzDpF6irO9z98xDceosuGiQ=
+golang.org/x/text v0.3.7/go.mod h1:u+2+/6zg+i71rQMx5EYifcz6MCKuco9NR6JIITiCfzQ=
+golang.org/x/tools v0.0.0-20180917221912-90fa682c2a6e/go.mod h1:n7NCudcB/nEzxVGmLbDWY5pfWTLqBcC2KZ6jyYvM4mQ=
+golang.org/x/tools v0.0.0-20191119224855-298f0cb1881e/go.mod h1:b+2E5dAYhXwXZwtnZ6UAqBI28+e2cm9otk0dWdXHAEo=
+golang.org/x/tools v0.1.12/go.mod h1:hNGJHUnrk76NpqgfD5Aqm5Crs+Hm0VOH/i9J2+nxYbc=
+golang.org/x/xerrors v0.0.0-20190717185122-a985d3407aa7/go.mod h1:I/5z698sn9Ka8TeJc9MKroUUfqBBauWjQqLJ2OPfmY0=
+mvdan.cc/editorconfig v0.2.0/go.mod h1:lvnnD3BNdBYkhq+B4uBuFFKatfp02eB6HixDvEz91C0=
+mvdan.cc/sh/v3 v3.7.0 h1:lSTjdP/1xsddtaKfGg7Myu7DnlHItd3/M2tomOcNNBg=
+mvdan.cc/sh/v3 v3.7.0/go.mod h1:K2gwkaesF/D7av7Kxl0HbF5kGOd2ArupNTX3X44+8l8=
diff --git a/parse.go b/parse.go
index b8683d2..4d7fe3e 100644
--- a/parse.go
+++ b/parse.go
@@ -6,6 +6,7 @@ package dotenv
 
 import (
 	"fmt"
+	"mvdan.cc/sh/v3/shell"
 	"os"
 	"regexp"
 	"strings"
@@ -129,7 +130,11 @@ func expandEnv(value string, dotenv map[string]string) string {
 		}
 	}
 
-	return os.Expand(value, expander)
+	expanded, err := shell.Expand(value, expander)
+	if err != nil {
+		panic(err)
+	}
+	return expanded
 }
 
 func splitKeyAndDefault(value string, sep string) (string, string, bool) {
diff --git a/parse_test.go b/parse_test.go
index 711e737..1f7290f 100644
--- a/parse_test.go
+++ b/parse_test.go
@@ -292,7 +292,6 @@ OPTION_N="${OPTION_A:-default}"
 OPTION_O='${OPTION_A:-default}'
 OPTION_P="${OPTION_A:-default}/bar"
 OPTION_Q='${OPTION_A:-default}/bar'
-OPTION_R="${:-}"
 OPTION_S="${BAR:-:-}"
 `
 
@@ -322,6 +321,24 @@ func TestVariableExpansionWithDefaults(t *testing.T) {
 	envShouldContain(t, env, "OPTION_O", "${OPTION_A:-default}")
 	envShouldContain(t, env, "OPTION_P", "foo/bar")
 	envShouldContain(t, env, "OPTION_Q", "${OPTION_A:-default}/bar")
-	envShouldContain(t, env, "OPTION_R", "") // this is actually invalid in bash, but what to do here?
 	envShouldContain(t, env, "OPTION_S", ":-")
 }
+
+const TEST_NESTED_VARIABLE_EXPANSION = `
+OPTION_A="${FOO:-${BAR}}"
+OPTION_B="${FOO:-${BAR:-default}}"
+`
+
+func TestNestedVariableExpansion(t *testing.T) {
+	err := os.Setenv("FOO", "")
+	err = os.Setenv("BAR", "bar")
+	if err != nil {
+		t.Fatalf("unable to set environment variable for testing: %s", err)
+	}
+
+	env := dotenv.MustParse(TEST_NESTED_VARIABLE_EXPANSION)
+	shouldNotHaveEmptyKey(t, env)
+
+	envShouldContain(t, env, "OPTION_A", "bar")
+	envShouldContain(t, env, "OPTION_B", "bar")
+}