diff --git a/terraform/graph_config_node_variable.go b/terraform/graph_config_node_variable.go
index d0b1f0e46..b6e539006 100644
--- a/terraform/graph_config_node_variable.go
+++ b/terraform/graph_config_node_variable.go
@@ -35,7 +35,21 @@ func (n *GraphNodeConfigVariable) DependableName() []string {
 }
 
 func (n *GraphNodeConfigVariable) DependentOn() []string {
-	return nil
+	// If we don't have any value set, we don't depend on anything
+	if n.Value == nil {
+		return nil
+	}
+
+	// Get what we depend on based on our value
+	vars := n.Value.Variables
+	result := make([]string, 0, len(vars))
+	for _, v := range vars {
+		if vn := varNameForVar(v); vn != "" {
+			result = append(result, vn)
+		}
+	}
+
+	return result
 }
 
 // GraphNodeVariable impl.
diff --git a/terraform/test-fixtures/transform-flatten/child/main.tf b/terraform/test-fixtures/transform-flatten/child/main.tf
new file mode 100644
index 000000000..e0c8ce4e4
--- /dev/null
+++ b/terraform/test-fixtures/transform-flatten/child/main.tf
@@ -0,0 +1,5 @@
+variable "var" {}
+
+resource "aws_instance" "child" {
+    value = "${var.var}"
+}
diff --git a/terraform/test-fixtures/transform-flatten/main.tf b/terraform/test-fixtures/transform-flatten/main.tf
new file mode 100644
index 000000000..648d15786
--- /dev/null
+++ b/terraform/test-fixtures/transform-flatten/main.tf
@@ -0,0 +1,8 @@
+module "child" {
+    source = "./child"
+    var = "${aws_instance.parent.value}"
+}
+
+resource "aws_instance" "parent" {
+    value = "foo"
+}
diff --git a/terraform/transform_flatten.go b/terraform/transform_flatten.go
index ecdef22fe..30f0edaf7 100644
--- a/terraform/transform_flatten.go
+++ b/terraform/transform_flatten.go
@@ -6,12 +6,12 @@ type GraphNodeFlattenable interface {
 	FlattenGraph() *Graph
 }
 
-// FlattenTransform is a transformer that goes through the graph, finds
+// FlattenTransformer is a transformer that goes through the graph, finds
 // subgraphs that can be flattened, and flattens them into this graph,
 // removing the prior subgraph node.
-type FlattenTransform struct{}
+type FlattenTransformer struct{}
 
-func (t *FlattenTransform) Transform(g *Graph) error {
+func (t *FlattenTransformer) Transform(g *Graph) error {
 	for _, v := range g.Vertices() {
 		fn, ok := v.(GraphNodeFlattenable)
 		if !ok {
@@ -35,6 +35,12 @@ func (t *FlattenTransform) Transform(g *Graph) error {
 
 		// Remove the old node
 		g.Remove(v)
+
+		// Connect the dependencies for all the new nodes that we added.
+		// This will properly connect variables to their sources, for example.
+		for _, sv := range subgraph.Vertices() {
+			g.ConnectDependent(sv)
+		}
 	}
 
 	return nil
diff --git a/terraform/transform_flatten_test.go b/terraform/transform_flatten_test.go
new file mode 100644
index 000000000..cc564d495
--- /dev/null
+++ b/terraform/transform_flatten_test.go
@@ -0,0 +1,44 @@
+package terraform
+
+import (
+	"strings"
+	"testing"
+)
+
+func TestFlattenTransformer(t *testing.T) {
+	mod := testModule(t, "transform-flatten")
+
+	var b BasicGraphBuilder
+	b = BasicGraphBuilder{
+		Steps: []GraphTransformer{
+			&ConfigTransformer{Module: mod},
+			&VertexTransformer{
+				Transforms: []GraphVertexTransformer{
+					&ExpandTransform{
+						Builder: &b,
+					},
+				},
+			},
+			&FlattenTransformer{},
+		},
+	}
+
+	g, err := b.Build(rootModulePath)
+	if err != nil {
+		t.Fatalf("err: %s", err)
+	}
+
+	actual := strings.TrimSpace(g.String())
+	expected := strings.TrimSpace(testTransformFlattenStr)
+	if actual != expected {
+		t.Fatalf("bad:\n\n%s", actual)
+	}
+}
+
+const testTransformFlattenStr = `
+aws_instance.parent
+module.child.aws_instance.child
+  module.child.var.var
+module.child.var.var
+  aws_instance.parent
+`