diff --git a/modulecmd.tcl.in b/modulecmd.tcl.in
index a91cc775..b8b5d7f8 100755
--- a/modulecmd.tcl.in
+++ b/modulecmd.tcl.in
@@ -968,7 +968,7 @@ proc resolvStringWithEnv {0str} {
             if {[info exists ::env(${0varname})]} {
                set ${0varname} $::env(${0varname})
             } else {
-            set ${0varname} ""
+               set ${0varname} ""
             }
          }
       }
diff --git a/testsuite/modules.10-use/030-use.exp b/testsuite/modules.10-use/030-use.exp
index 329e455f..f672def2 100644
--- a/testsuite/modules.10-use/030-use.exp
+++ b/testsuite/modules.10-use/030-use.exp
@@ -116,6 +116,30 @@ set ::env(MODULEPATH) "$mod_path"
 # list currently enabled paths
 testouterr_cmd "ALL" "$use" "OK" "$path_list_header\n  $path\n  $ORIG"
 
+#
+# Test variable resolution
+#
+
+# setup value with multiple occurencies of same variable
+set var_path "/apps/\$OS/\$MACHINE/\$OS"
+set os $tcl_platform(os)
+set machine $tcl_platform(machine)
+if { $verbose > 0 } {
+    send_user "\tSetup MODULEPATH = '$var_path'\n"
+}
+set ::env(MODULEPATH) "$var_path"
+
+# tests when variable are defined or not
+# Currenlty if variable is not defined, directory level is omitted. Should
+# preferably skip path element if one variable referred is undefined (to be
+# fixed in next major release v5.0)
+testouterr_cmd "sh" "$use" "OK" "$path_list_header\n  /apps"
+set ::env(OS) $os
+testouterr_cmd "sh" "$use" "OK" "$path_list_header\n  /apps/$os/$os"
+set ::env(MACHINE) $machine
+testouterr_cmd "sh" "$use" "OK" "$path_list_header\n  /apps/$os/$machine/$os"
+
+
 if { $verbose > 0 } {
     send_user "\tRestore MODULEPATH = $ORIG\n"
 }
@@ -133,6 +157,11 @@ testouterr_cmd "ALL" "$use " "ERR" "$empty_use"
 # Cleanup
 #
 
+unset os
+unset machine
+unset env(OS)
+unset env(MACHINE)
+
 unset path
 unset tsdirname
 unset relpath