diff --git a/lib/ansible/template/__init__.py b/lib/ansible/template/__init__.py
index 7e0c559707a..e29a8bf1f09 100644
--- a/lib/ansible/template/__init__.py
+++ b/lib/ansible/template/__init__.py
@@ -30,7 +30,7 @@ from numbers import Number
 from jinja2 import Environment
 from jinja2.loaders import FileSystemLoader
 from jinja2.exceptions import TemplateSyntaxError, UndefinedError
-from jinja2.utils import concat as j2_concat
+from jinja2.utils import concat as j2_concat, missing
 from jinja2.runtime import Context, StrictUndefined
 from ansible import constants as C
 from ansible.compat.six import string_types, text_type
@@ -154,15 +154,22 @@ class AnsibleContext(Context):
             return True
         return False
 
+    def _update_unsafe(self, val):
+        if val is not None and not self.unsafe and self._is_unsafe(val):
+            self.unsafe = True
+
     def resolve(self, key):
         '''
         The intercepted resolve(), which uses the helper above to set the
         internal flag whenever an unsafe variable value is returned.
         '''
         val = super(AnsibleContext, self).resolve(key)
-        if val is not None and not self.unsafe:
-            if self._is_unsafe(val):
-                self.unsafe = True
+        self._update_unsafe(val)
+        return val
+
+    def resolve_or_missing(self, key):
+        val = super(AnsibleContext, self).resolve_or_missing(key)
+        self._update_unsafe(val)
         return val
 
 class AnsibleEnvironment(Environment):
diff --git a/lib/ansible/template/vars.py b/lib/ansible/template/vars.py
index 0e9b99e884a..fc6140c297b 100644
--- a/lib/ansible/template/vars.py
+++ b/lib/ansible/template/vars.py
@@ -50,8 +50,11 @@ class AnsibleJ2Vars:
         self._locals  = dict()
         if isinstance(locals, dict):
             for key, val in iteritems(locals):
-                if key[:2] == 'l_' and val is not missing:
-                    self._locals[key[2:]] = val
+                if val is not missing:
+                    if key[:2] == 'l_':
+                        self._locals[key[2:]] = val
+                    elif key not in ('context', 'environment', 'template'):
+                        self._locals[key] = val
 
     def __contains__(self, k):
         if k in self._templar._available_variables:
diff --git a/test/integration/targets/template/tasks/main.yml b/test/integration/targets/template/tasks/main.yml
index c4f0f2910bb..d61b910c1e1 100644
--- a/test/integration/targets/template/tasks/main.yml
+++ b/test/integration/targets/template/tasks/main.yml
@@ -229,3 +229,17 @@
     that: 
       - "'templated_var_loaded' in lookup('file', '{{output_dir | expanduser }}/short.templated')"
       - "template_result|changed"
+
+# Create a template using a child template, to ensure that variables
+# are passed properly from the parent to subtemplate context (issue #20063)
+
+- name: test parent and subtemplate creation of context
+  template: src=parent.j2 dest={{output_dir}}/parent_and_subtemplate.templated
+  register: template_result
+
+- stat: path={{output_dir}}/parent_and_subtemplate.templated
+
+- name: verify that the parent and subtemplate creation worked
+  assert:
+    that:
+    - "template_result|changed"
diff --git a/test/integration/targets/template/templates/parent.j2 b/test/integration/targets/template/templates/parent.j2
new file mode 100644
index 00000000000..99a8e4cc631
--- /dev/null
+++ b/test/integration/targets/template/templates/parent.j2
@@ -0,0 +1,3 @@
+{% for parent_item in parent_vars %}
+{% include "subtemplate.j2" %}
+{% endfor %}
diff --git a/test/integration/targets/template/templates/subtemplate.j2 b/test/integration/targets/template/templates/subtemplate.j2
new file mode 100644
index 00000000000..f359bf2088c
--- /dev/null
+++ b/test/integration/targets/template/templates/subtemplate.j2
@@ -0,0 +1,2 @@
+{{ parent_item }}
+
diff --git a/test/integration/targets/template/vars/main.yml b/test/integration/targets/template/vars/main.yml
index d811e17e3dd..9d45cf24535 100644
--- a/test/integration/targets/template/vars/main.yml
+++ b/test/integration/targets/template/vars/main.yml
@@ -13,3 +13,8 @@ templated_dict:
   null_type: "{{ null_type }}"
   bool: "{{ bool_var }}"
   multi_part: "{{ part_1 }}{{ part_2 }}"
+
+parent_vars:
+- foo
+- bar
+- bam