diff --git a/src/dotenv/main.py b/src/dotenv/main.py
index 58a23f3d..ea523d48 100644
--- a/src/dotenv/main.py
+++ b/src/dotenv/main.py
@@ -4,7 +4,6 @@
 import io
 import logging
 import os
-import re
 import shutil
 import sys
 import tempfile
@@ -13,13 +12,13 @@
 
 from .compat import IS_TYPE_CHECKING, PY2, StringIO, to_env
 from .parser import Binding, parse_stream
+from .variables import parse_variables
 
 logger = logging.getLogger(__name__)
 
 if IS_TYPE_CHECKING:
-    from typing import (
-        Dict, Iterable, Iterator, Match, Optional, Pattern, Union, Text, IO, Tuple
-    )
+    from typing import (IO, Dict, Iterable, Iterator, Mapping, Optional, Text,
+                        Tuple, Union)
     if sys.version_info >= (3, 6):
         _PathLike = os.PathLike
     else:
@@ -30,18 +29,6 @@
     else:
         _StringIO = StringIO[Text]
 
-__posix_variable = re.compile(
-    r"""
-    \$\{
-        (?P<name>[^\}:]*)
-        (?::-
-            (?P<default>[^\}]*)
-        )?
-    \}
-    """,
-    re.VERBOSE,
-)  # type: Pattern[Text]
-
 
 def with_warn_for_invalid_lines(mappings):
     # type: (Iterator[Binding]) -> Iterator[Binding]
@@ -83,13 +70,14 @@ def dict(self):
         if self._dict:
             return self._dict
 
+        raw_values = self.parse()
+
         if self.interpolate:
-            values = resolve_nested_variables(self.parse())
+            self._dict = OrderedDict(resolve_variables(raw_values))
         else:
-            values = OrderedDict(self.parse())
+            self._dict = OrderedDict(raw_values)
 
-        self._dict = values
-        return values
+        return self._dict
 
     def parse(self):
         # type: () -> Iterator[Tuple[Text, Optional[Text]]]
@@ -217,27 +205,22 @@ def unset_key(dotenv_path, key_to_unset, quote_mode="always"):
     return removed, key_to_unset
 
 
-def resolve_nested_variables(values):
-    # type: (Iterable[Tuple[Text, Optional[Text]]]) -> Dict[Text, Optional[Text]]
-    def _replacement(name, default):
-        # type: (Text, Optional[Text]) -> Text
-        default = default if default is not None else ""
-        ret = new_values.get(name, os.getenv(name, default))
-        return ret  # type: ignore
+def resolve_variables(values):
+    # type: (Iterable[Tuple[Text, Optional[Text]]]) -> Mapping[Text, Optional[Text]]
 
-    def _re_sub_callback(match):
-        # type: (Match[Text]) -> Text
-        """
-        From a match object gets the variable name and returns
-        the correct replacement
-        """
-        matches = match.groupdict()
-        return _replacement(name=matches["name"], default=matches["default"])  # type: ignore
+    new_values = {}  # type: Dict[Text, Optional[Text]]
 
-    new_values = {}
+    for (name, value) in values:
+        if value is None:
+            result = None
+        else:
+            atoms = parse_variables(value)
+            env = {}  # type: Dict[Text, Optional[Text]]
+            env.update(os.environ)  # type: ignore
+            env.update(new_values)
+            result = "".join(atom.resolve(env) for atom in atoms)
 
-    for (k, v) in values:
-        new_values[k] = __posix_variable.sub(_re_sub_callback, v) if v is not None else None
+        new_values[name] = result
 
     return new_values
 
diff --git a/src/dotenv/variables.py b/src/dotenv/variables.py
new file mode 100644
index 00000000..4828dfc2
--- /dev/null
+++ b/src/dotenv/variables.py
@@ -0,0 +1,106 @@
+import re
+from abc import ABCMeta
+
+from .compat import IS_TYPE_CHECKING
+
+if IS_TYPE_CHECKING:
+    from typing import Iterator, Mapping, Optional, Pattern, Text
+
+
+_posix_variable = re.compile(
+    r"""
+    \$\{
+        (?P<name>[^\}:]*)
+        (?::-
+            (?P<default>[^\}]*)
+        )?
+    \}
+    """,
+    re.VERBOSE,
+)  # type: Pattern[Text]
+
+
+class Atom():
+    __metaclass__ = ABCMeta
+
+    def __ne__(self, other):
+        # type: (object) -> bool
+        result = self.__eq__(other)
+        if result is NotImplemented:
+            return NotImplemented
+        return not result
+
+    def resolve(self, env):
+        # type: (Mapping[Text, Optional[Text]]) -> Text
+        raise NotImplementedError
+
+
+class Literal(Atom):
+    def __init__(self, value):
+        # type: (Text) -> None
+        self.value = value
+
+    def __repr__(self):
+        # type: () -> str
+        return "Literal(value={})".format(self.value)
+
+    def __eq__(self, other):
+        # type: (object) -> bool
+        if not isinstance(other, self.__class__):
+            return NotImplemented
+        return self.value == other.value
+
+    def __hash__(self):
+        # type: () -> int
+        return hash((self.__class__, self.value))
+
+    def resolve(self, env):
+        # type: (Mapping[Text, Optional[Text]]) -> Text
+        return self.value
+
+
+class Variable(Atom):
+    def __init__(self, name, default):
+        # type: (Text, Optional[Text]) -> None
+        self.name = name
+        self.default = default
+
+    def __repr__(self):
+        # type: () -> str
+        return "Variable(name={}, default={})".format(self.name, self.default)
+
+    def __eq__(self, other):
+        # type: (object) -> bool
+        if not isinstance(other, self.__class__):
+            return NotImplemented
+        return (self.name, self.default) == (other.name, other.default)
+
+    def __hash__(self):
+        # type: () -> int
+        return hash((self.__class__, self.name, self.default))
+
+    def resolve(self, env):
+        # type: (Mapping[Text, Optional[Text]]) -> Text
+        default = self.default if self.default is not None else ""
+        result = env.get(self.name, default)
+        return result if result is not None else ""
+
+
+def parse_variables(value):
+    # type: (Text) -> Iterator[Atom]
+    cursor = 0
+
+    for match in _posix_variable.finditer(value):
+        (start, end) = match.span()
+        name = match.groupdict()["name"]
+        default = match.groupdict()["default"]
+
+        if start > cursor:
+            yield Literal(value=value[cursor:start])
+
+        yield Variable(name=name, default=default)
+        cursor = end
+
+    length = len(value)
+    if cursor < length:
+        yield Literal(value=value[cursor:length])
diff --git a/tests/test_variables.py b/tests/test_variables.py
new file mode 100644
index 00000000..86b06466
--- /dev/null
+++ b/tests/test_variables.py
@@ -0,0 +1,35 @@
+import pytest
+
+from dotenv.variables import Literal, Variable, parse_variables
+
+
+@pytest.mark.parametrize(
+    "value,expected",
+    [
+        ("", []),
+        ("a", [Literal(value="a")]),
+        ("${a}", [Variable(name="a", default=None)]),
+        ("${a:-b}", [Variable(name="a", default="b")]),
+        (
+            "${a}${b}",
+            [
+                Variable(name="a", default=None),
+                Variable(name="b", default=None),
+            ],
+        ),
+        (
+            "a${b}c${d}e",
+            [
+                Literal(value="a"),
+                Variable(name="b", default=None),
+                Literal(value="c"),
+                Variable(name="d", default=None),
+                Literal(value="e"),
+            ],
+        ),
+    ]
+)
+def test_parse_variables(value, expected):
+    result = parse_variables(value)
+
+    assert list(result) == expected