diff --git a/lib/ansible/runner/action_plugins/template.py b/lib/ansible/runner/action_plugins/template.py
index ba7cad985cf..80a7c4e7824 100644
--- a/lib/ansible/runner/action_plugins/template.py
+++ b/lib/ansible/runner/action_plugins/template.py
@@ -56,17 +56,17 @@ class ActionModule(object):
         if 'first_available_file' in inject:
             found = False
             for fn in self.runner.module_vars.get('first_available_file'):
-                fn = utils.template(self.runner.basedir, fn, inject)
-                fn = utils.path_dwim(self.runner.basedir, fn)
-                if os.path.exists(fn):
-                    source = fn
+                fnt = utils.template(self.runner.basedir, fn, inject)
+                fnd = utils.path_dwim(self.runner.basedir, fnt)
+                if os.path.exists(fnd):
+                    source = fnt
                     found = True
                     break
             if not found:
                 result = dict(failed=True, msg="could not find src in first_available_file list")
                 return ReturnData(conn=conn, comm_ok=False, result=result)
-
-        source = utils.template(self.runner.basedir, source, inject)
+        else:
+            source = utils.template(self.runner.basedir, source, inject)
 
         # template the source data locally & transfer
         try:
diff --git a/test/TestPlayBook.py b/test/TestPlayBook.py
index dd4eb6ab40f..9dec825b5c4 100644
--- a/test/TestPlayBook.py
+++ b/test/TestPlayBook.py
@@ -130,7 +130,7 @@ class TestPlaybook(unittest.TestCase):
        return result
 
    def test_one(self):
-       pb = os.path.join(self.test_dir, 'playbook1.yml')
+       pb = 'test/playbook1.yml'
        actual = self._run(pb)
 
        # if different, this will output to screen
diff --git a/test/playbook1.yml b/test/playbook1.yml
index ddad2bc5424..bbadc7ec0f9 100644
--- a/test/playbook1.yml
+++ b/test/playbook1.yml
@@ -41,7 +41,10 @@
 # not be triggered twice because it's already triggered
 
   - name: test template
-    action: template src=sample.j2 dest=/tmp/ansible_test_data_template.out
+    action: template src=$item dest=/tmp/ansible_test_data_template.out
+    first_available_file:
+    - nonexistantfile
+    - sample.j2
     notify:
     - on change 1
     - on change 2