diff --git a/lib/ansible/playbook/play.py b/lib/ansible/playbook/play.py
index d02cfc0d130..2d1f8856c04 100644
--- a/lib/ansible/playbook/play.py
+++ b/lib/ansible/playbook/play.py
@@ -101,23 +101,29 @@ class Play(object):
         tasks = ds.get(keyname, [])
         results = []
         for x in tasks:
-            task_vars = self.vars.copy()
             if 'include' in x:
+                task_vars = self.vars.copy()
                 tokens = shlex.split(x['include'])
-                for t in tokens[1:]:
-                    (k,v) = t.split("=", 1)
-                    task_vars[k] = utils.template(self.basedir, v, task_vars)
-                include_file = utils.template(self.basedir, tokens[0], task_vars)
-                data = utils.parse_yaml_from_file(utils.path_dwim(self.basedir, include_file))
+                if 'with_items' in x:
+                    items = utils.varReplaceWithItems(self.basedir, x['with_items'], task_vars)
+                else:
+                    items = ['']
+                for item in items:
+                    mv = task_vars.copy()
+                    mv['item'] = item
+                    for t in tokens[1:]:
+                        (k,v) = t.split("=", 1)
+                        mv[k] = utils.varReplaceWithItems(self.basedir, v, mv)
+                    include_file = utils.template(self.basedir, tokens[0], mv)
+                    data = utils.parse_yaml_from_file(utils.path_dwim(self.basedir, include_file))
+                    for y in data:
+                         results.append(Task(self,y,module_vars=mv))
             elif type(x) == dict:
-                data = [x]
+                task_vars = self.vars.copy()
+                results.append(Task(self,x,module_vars=task_vars))
             else:
                 raise Exception("unexpected task type")
 
-            for y in data:
-                mv = task_vars.copy()
-                results.append(Task(self,y,module_vars=mv))
-
         for x in results:
             if self.tags is not None:
                 x.tags.extend(self.tags)
diff --git a/lib/ansible/runner/__init__.py b/lib/ansible/runner/__init__.py
index 50f0a3934d9..5d231b03706 100644
--- a/lib/ansible/runner/__init__.py
+++ b/lib/ansible/runner/__init__.py
@@ -261,7 +261,7 @@ class Runner(object):
 
         items = self.module_vars.get('items', [])
         if isinstance(items, basestring) and items.startswith("$"):
-            items = utils.varLookup(items, inject)
+            items = utils.varReplaceWithItems(self.basedir, items, inject)
         if type(items) != list:
             raise errors.AnsibleError("with_items only takes a list: %s" % items)
 
diff --git a/lib/ansible/utils.py b/lib/ansible/utils.py
index bf700daa285..30390cc90f7 100644
--- a/lib/ansible/utils.py
+++ b/lib/ansible/utils.py
@@ -278,17 +278,6 @@ def _varFind(text):
     path.append(text[part_start[0]:var_end])
     return {'path': path, 'start': start, 'end': end}
 
-def varLookup(varname, vars):
-    ''' helper function used by with_items '''
-
-    m = _varFind(varname)
-    if not m:
-        return None
-    try:
-        return _varLookup(m['path'], vars)
-    except VarNotFoundException:
-        return None
-
 def varReplace(raw, vars, depth=0):
     ''' Perform variable replacement of $variables in string raw using vars dictionary '''
     # this code originally from yum
@@ -360,6 +349,30 @@ def varReplaceFilesAndPipes(basedir, raw):
 
     return ''.join(done)
 
+def varReplaceWithItems(basedir, varname, vars):
+    ''' helper function used by with_items '''
+
+    if isinstance(varname, basestring):
+        m = _varFind(varname)
+        if not m:
+            return varname
+        if m['start'] == 0 and m['end'] == len(varname):
+            try:
+                return varReplaceWithItems(basedir, _varLookup(m['path'], vars), vars)
+            except VarNotFoundException:
+                return varname
+        else:
+            return template(basedir, varname, vars)
+    elif isinstance(varname, (list, tuple)):
+        return [varReplaceWithItems(basedir, v, vars) for v in varname]
+    elif isinstance(varname, dict):
+        d = {}
+        for (k, v) in varname.iteritems():
+            d[k] = varReplaceWithItems(basedir, v, vars)
+        return d
+    else:
+        raise Exception("invalid with_items type")
+
 
 def template(basedir, text, vars):
     ''' run a text buffer through the templating engine until it no longer changes '''