diff --git a/src/twig.core.js b/src/twig.core.js
index d42e8c1b..7e63efab 100644
--- a/src/twig.core.js
+++ b/src/twig.core.js
@@ -1007,10 +1007,10 @@ module.exports = function (Twig) {
      * @param {Twig.Template} template The template that the tokens being parsed are associated with.
      * @param {Object} blockOverrides Any blocks that should override those defined in the associated template.
      */
-    Twig.ParseState = function (template, blockOverrides) {
+    Twig.ParseState = function (template, blockOverrides, context) {
         this.renderedBlocks = {};
         this.overrideBlocks = blockOverrides === undefined ? {} : blockOverrides;
-        this.context = {};
+        this.context = context === undefined ? {} : context;
         this.macros = {};
         this.nestingStack = [];
         this.template = template;
@@ -1325,9 +1325,9 @@ module.exports = function (Twig) {
         params = params || {};
 
         return Twig.async.potentiallyAsync(template, allowAsync, () => {
-            const state = new Twig.ParseState(template, params.blocks);
+            const state = new Twig.ParseState(template, params.blocks, context);
 
-            return state.parseAsync(template.tokens, context)
+            return state.parseAsync(template.tokens)
                 .then(output => {
                     let parentTemplate;
                     let url;
diff --git a/src/twig.logic.js b/src/twig.logic.js
index 6f95fc3b..a95349aa 100644
--- a/src/twig.logic.js
+++ b/src/twig.logic.js
@@ -1339,9 +1339,11 @@ module.exports = function (Twig) {
                         });
                 }
 
+                const isolatedState = new Twig.ParseState(state.template, undefined, innerContext);
+
                 return promise
                     .then(() => {
-                        return state.parseAsync(token.output, innerContext);
+                        return isolatedState.parseAsync(token.output);
                     })
                     .then(output => {
                         return {
diff --git a/test/test.tags.js b/test/test.tags.js
index 4481bd9c..34fe154b 100644
--- a/test/test.tags.js
+++ b/test/test.tags.js
@@ -26,20 +26,14 @@ describe('Twig.js Tags ->', function () {
         function () {
             it('should support providing context', function () {
                 twig({
-                    autoescape: true,
-                    data: '{% set prefix = "Hello" %}{% with { name: "world" } %}{{prefix}} {{name}}{% endwith %}'
-                }).render().should.equal(
-                    'Hello world'
-                );
+                    'data': '{% with { name: "world" } %}{{ name }}{% endwith %}'
+                }).render().should.equal('world');
             });
 
             it('should support exclusive context', function () {
                 twig({
-                    autoescape: true,
-                    data: '{% set prefix = "Hello" %}{% with { name: "world" } only %}{{prefix}} {{name}}{% endwith %}'
-                }).render().should.equal(
-                    ' world'
-                );
+                    'data': '{% with { name: "world" } only %}{{ name }}{% endwith %}'
+                }).render().should.equal('world');
             });
 
             it('should support not providing context', function () {
@@ -47,6 +41,34 @@ describe('Twig.js Tags ->', function () {
                     'data': '{% with %}{% set foo = 42 %}{{ foo }}{% endwith %}',
                 }).render().should.equal('42');
             });
+
+            it('should handle outer context properly', function () {
+                twig({
+                    'data': '{% set foo = "bar" %}{% with { name: "world" } %}{{ name }} - {{ foo | default("foo is not defined here") }}{% endwith %}'
+                }).render().should.equal('world - bar');
+
+                twig({
+                    'data': '{% set foo = "bar" %}{% with { name: "world" } only %}{{ name }} - {{ foo | default("foo is not defined here") }}{% endwith %}'
+                }).render().should.equal('world - foo is not defined here');
+
+                twig({
+                    'data': '{% set bar = "baz" %}{% with %}{% set foo = 42 %}{{ foo }} - {{ bar | default("bar is not defined here") }}{% endwith %}',
+                }).render().should.equal('42 - baz');
+            });
+
+            it('should scope any context changes within the tags', function () {
+                twig({
+                    'data': '{% set foo = "bar" %}{% with { name: "world" } %}{{ name }} - {{ foo | default("foo is not defined here") }}{% endwith %} - {{ name | default("name is not defined here") }}'
+                }).render().should.equal('world - bar - name is not defined here');
+
+                twig({
+                    'data': '{% set foo = "bar" %}{% with { name: "world" } only %}{{ name }} - {{ foo | default("foo is not defined here") }}{% endwith %} - {{ name | default("name is not defined here") }}'
+                }).render().should.equal('world - foo is not defined here - name is not defined here');
+
+                twig({
+                    'data': '{% set bar = "baz" %}{% with %}{% set foo = 42 %}{{ foo }} - {{ bar | default("bar is not defined here") }}{% endwith %} - {{ foo | default("foo is not defined here") }}',
+                }).render().should.equal('42 - baz - foo is not defined here');
+            });
         }
     );