diff --git a/lib/ansible/plugins/lookup/template.py b/lib/ansible/plugins/lookup/template.py
index 4ab0ad1ed02..e335b9339f3 100644
--- a/lib/ansible/plugins/lookup/template.py
+++ b/lib/ansible/plugins/lookup/template.py
@@ -49,6 +49,14 @@ class LookupModule(LookupBase):
                     # set jinja2 internal search path for includes
                     if 'ansible_search_path' in variables:
                         searchpath = variables['ansible_search_path']
+                        # our search paths aren't actually the proper ones for jinja includes.
+                        # We want to search into the 'templates' subdir of each search path in
+                        # addition to our original search paths.
+                        newsearchpath = []
+                        for p in searchpath:
+                            newsearchpath.append(os.path.join(p, 'templates'))
+                            newsearchpath.append(p)
+                        searchpath = newsearchpath
                     else:
                         searchpath = [self._loader._basedir, os.path.dirname(lookupfile)]
                     self._templar.environment.loader.searchpath = searchpath
diff --git a/test/integration/targets/lookups/tasks/main.yml b/test/integration/targets/lookups/tasks/main.yml
index 86a627b33c5..ddea035d1b2 100644
--- a/test/integration/targets/lookups/tasks/main.yml
+++ b/test/integration/targets/lookups/tasks/main.yml
@@ -268,3 +268,14 @@
         - product.results[6]['item'] == ["C", "1"]
         - product.results[7]['item'] == ["C", "2"]
         - product.results[8]['item'] == ["C", "3"]
+
+# Template lookups
+
+# ref #18526
+- name: Test that we have a proper jinja search path in template lookup
+  set_fact:
+    hello_world: "{{ lookup('template', 'hello.txt') }}"
+
+- assert:
+    that:
+      - "hello_world|trim == 'Hello world!'"
diff --git a/test/integration/targets/lookups/templates/hello.txt b/test/integration/targets/lookups/templates/hello.txt
new file mode 100644
index 00000000000..be15a4f3334
--- /dev/null
+++ b/test/integration/targets/lookups/templates/hello.txt
@@ -0,0 +1 @@
+Hello {% include 'world.txt' %}!
diff --git a/test/integration/targets/lookups/templates/world.txt b/test/integration/targets/lookups/templates/world.txt
new file mode 100644
index 00000000000..cc628ccd107
--- /dev/null
+++ b/test/integration/targets/lookups/templates/world.txt
@@ -0,0 +1 @@
+world