diff --git a/garden-service/src/template-string-parser.pegjs b/garden-service/src/template-string-parser.pegjs
index 1c82ebd807..8dadf8aaa8 100644
--- a/garden-service/src/template-string-parser.pegjs
+++ b/garden-service/src/template-string-parser.pegjs
@@ -27,20 +27,20 @@ FormatString
       return options.getKey(key)
   }
   / FormatStart a:Key Or b:Key FormatEnd {
-      return options.resolve(a, { allowUndefined: true })
+      return options.getKey(a, { allowUndefined: true })
         .then(result => {
-          return result || options.resolve(b, { allowUndefined: false })
+          return result || options.getKey(b, { allowUndefined: false })
         })
   }
   / FormatStart a:Key Or b:StringLiteral FormatEnd {
-      return options.resolve(a, { allowUndefined: true })
+      return options.getKey(a, { allowUndefined: true })
         .then(result => {
           return result || b
         })
   }
   // These would be odd in configuration, but there's no reason to throw if it comes up.
   / FormatStart a:StringLiteral Or b:StringLiteral FormatEnd {
-      return a
+      return a || b
   }
   / FormatStart a:StringLiteral FormatEnd {
       return a
diff --git a/garden-service/src/template-string.ts b/garden-service/src/template-string.ts
index fec6174057..80630e8820 100644
--- a/garden-service/src/template-string.ts
+++ b/garden-service/src/template-string.ts
@@ -48,7 +48,9 @@ async function getParser() {
 export async function resolveTemplateString(string: string, context: ConfigContext, opts: ContextResolveOpts = {}) {
   const parser = await getParser()
   const parsed = parser.parse(string, {
-    getKey: async (key: string[]) => context.resolve({ key, nodePath: [], opts }),
+    getKey: async (key: string[], resolveOpts?: ContextResolveOpts) => {
+      return context.resolve({ key, nodePath: [], opts: { ...opts, ...resolveOpts || {} } })
+    },
     // need this to allow nested template strings
     resolve: async (parts: StringOrStringPromise[], resolveOpts?: ContextResolveOpts) => {
       const s = (await Bluebird.all(parts)).join("")
diff --git a/garden-service/test/unit/src/template-string.ts b/garden-service/test/unit/src/template-string.ts
index 54215af985..0c7a95dc89 100644
--- a/garden-service/test/unit/src/template-string.ts
+++ b/garden-service/test/unit/src/template-string.ts
@@ -182,6 +182,28 @@ describe("resolveTemplateString", async () => {
     expect(res).to.equal("123")
   })
 
+  it("should handle a conditional between two nested identifiers", async () => {
+    const res = await resolveTemplateString(
+      "${a.b || c.d}",
+      new TestContext({
+        a: { b: undefined },
+        c: { d: "123" },
+      }),
+    )
+    expect(res).to.equal("123")
+  })
+
+  it("should handle a conditional between two nested identifiers where the first resolves", async () => {
+    const res = await resolveTemplateString(
+      "${a.b || c.d}",
+      new TestContext({
+        a: { b: "123" },
+        c: { d: undefined },
+      }),
+    )
+    expect(res).to.equal("123")
+  })
+
   it("should handle a conditional between two identifiers without spaces", async () => {
     const res = await resolveTemplateString(
       "${a||b}",