diff --git a/lib/ansible/plugins/lookup/file.py b/lib/ansible/plugins/lookup/file.py
index efb039497dd..ea53c37e039 100644
--- a/lib/ansible/plugins/lookup/file.py
+++ b/lib/ansible/plugins/lookup/file.py
@@ -42,18 +42,22 @@ class LookupModule(LookupBase):
             # role/files/ directory, and finally the playbook directory
             # itself (which will be relative to the current working dir)
 
+            if 'role_path' in variables:
+                relative_path = self._loader.path_dwim_relative(variables['role_path'], 'files', term, check=False)
+
             # FIXME: the original file stuff still needs to be worked out, but the
             #        playbook_dir stuff should be able to be removed as it should
             #        be covered by the fact that the loader contains that info
-            #if '_original_file' in variables:
-            #    relative_path = self._loader.path_dwim_relative(variables['_original_file'], 'files', term, self.basedir, check=False)
             #if 'playbook_dir' in variables:
             #    playbook_path = os.path.join(variables['playbook_dir'], term)
 
             for path in (basedir_path, relative_path, playbook_path):
-                if path and os.path.exists(path):
-                    ret.append(codecs.open(path, encoding="utf8").read().rstrip())
+                try:
+                    contents = self._loader._get_file_contents(path)
+                    ret.append(contents.rstrip())
                     break
+                except AnsibleParserError:
+                    continue
             else:
                 raise AnsibleError("could not locate file in lookup: %s" % term)
 
diff --git a/lib/ansible/template/__init__.py b/lib/ansible/template/__init__.py
index 19e091b9b27..8ad9917d602 100644
--- a/lib/ansible/template/__init__.py
+++ b/lib/ansible/template/__init__.py
@@ -218,7 +218,7 @@ class Templar:
             # safely catch run failures per #5059
             try:
                 ran = instance.run(*args, variables=self._available_variables, **kwargs)
-            except AnsibleUndefinedVariable:
+            except (AnsibleUndefinedVariable, UndefinedError):
                 raise
             except Exception, e:
                 if self._fail_on_lookup_errors:
diff --git a/test/units/mock/loader.py b/test/units/mock/loader.py
index cf9d7ea72d0..078ca3f0e6c 100644
--- a/test/units/mock/loader.py
+++ b/test/units/mock/loader.py
@@ -38,6 +38,12 @@ class DictDataLoader(DataLoader):
             return self.load(self._file_mapping[path], path)
         return None
 
+    def _get_file_contents(self, path):
+        if path in self._file_mapping:
+            return self._file_mapping[path]
+        else:
+            raise AnsibleParserError("file not found: %s" % path)
+
     def path_exists(self, path):
         return path in self._file_mapping or path in self._known_directories
 
diff --git a/test/units/template/test_templar.py b/test/units/template/test_templar.py
index f2f727d1c79..eb634994fd7 100644
--- a/test/units/template/test_templar.py
+++ b/test/units/template/test_templar.py
@@ -19,10 +19,13 @@
 from __future__ import (absolute_import, division, print_function)
 __metaclass__ = type
 
+from jinja2.exceptions import UndefinedError
+
 from ansible.compat.tests import unittest
 from ansible.compat.tests.mock import patch, MagicMock
 
 from ansible import constants as C
+from ansible.errors import *
 from ansible.plugins import filter_loader, lookup_loader, module_loader
 from ansible.plugins.strategies import SharedPluginLoaderObj
 from ansible.template import Templar
@@ -38,9 +41,11 @@ class TestTemplar(unittest.TestCase):
         pass
 
     def test_templar_simple(self):
-        fake_loader = DictDataLoader({})
+        fake_loader = DictDataLoader({
+          "/path/to/my_file.txt": "foo\n",
+        })
         shared_loader = SharedPluginLoaderObj()
-        templar = Templar(loader=fake_loader, variables=dict(foo="bar", bam="{{foo}}", num=1, var_true=True, var_false=False, var_dict=dict(a="b"), bad_dict="{a='b'", var_list=[1]))
+        templar = Templar(loader=fake_loader, variables=dict(foo="bar", bam="{{foo}}", num=1, var_true=True, var_false=False, var_dict=dict(a="b"), bad_dict="{a='b'", var_list=[1], recursive="{{recursive}}"))
 
         # test some basic templating
         self.assertEqual(templar.template("{{foo}}"), "bar")
@@ -54,6 +59,17 @@ class TestTemplar(unittest.TestCase):
         self.assertEqual(templar.template("{{var_dict}}"), dict(a="b"))
         self.assertEqual(templar.template("{{bad_dict}}"), "{a='b'")
         self.assertEqual(templar.template("{{var_list}}"), [1])
+        self.assertEqual(templar.template(1, convert_bare=True), 1)
+        self.assertRaises(UndefinedError, templar.template, "{{bad_var}}")
+        self.assertEqual(templar.template("{{lookup('file', '/path/to/my_file.txt')}}"), "foo")
+        self.assertRaises(UndefinedError, templar.template, "{{lookup('file', bad_var)}}")
+        self.assertRaises(AnsibleError, templar.template, "{{lookup('bad_lookup')}}")
+        self.assertRaises(AnsibleError, templar.template, "{{recursive}}")
+        self.assertRaises(AnsibleUndefinedVariable, templar.template, "{{foo-bar}}")
+
+        # test with fail_on_undefined=False
+        templar = Templar(loader=fake_loader, fail_on_undefined=False)
+        self.assertEqual(templar.template("{{bad_var}}"), "{{bad_var}}")
 
         # test set_available_variables()
         templar.set_available_variables(variables=dict(foo="bam"))