diff --git a/envsubst_test.go b/envsubst_test.go
index 8b8746a..c1e32cd 100644
--- a/envsubst_test.go
+++ b/envsubst_test.go
@@ -1,7 +1,6 @@
 package envsubst
 
 import (
-	"io/ioutil"
 	"os"
 	"testing"
 )
@@ -23,8 +22,9 @@ func TestIntegration(t *testing.T) {
 		t.Error("Expect bytes integration test to pass")
 	}
 	bytes, err = ReadFile("testdata/file.tmpl")
-	fexpected, err := ioutil.ReadFile("testdata/file.out")
+	fexpected, err := os.ReadFile("testdata/file.out")
 	if string(bytes) != string(fexpected) || err != nil {
+		t.Logf("output:\n%s\nexpected:\n%s\n", string(bytes), string(fexpected))
 		t.Error("Expect ReadFile integration test to pass")
 	}
 }
diff --git a/parse/lex.go b/parse/lex.go
index 5cd4c46..3637616 100644
--- a/parse/lex.go
+++ b/parse/lex.go
@@ -59,15 +59,16 @@ type stateFn func(*lexer) stateFn
 
 // lexer holds the state of the scanner
 type lexer struct {
-	input     string    // the string being lexed
-	state     stateFn   // the next lexing function to enter
-	pos       Pos       // current position in the input
-	start     Pos       // start position of this item
-	width     Pos       // width of last rune read from input
-	lastPos   Pos       // position of most recent item returned by nextItem
-	items     chan item // channel of lexed items
-	subsDepth int       // depth of substitution
-	noDigit   bool      // if the lexer skips variables that start with a digit
+	input      string    // the string being lexed
+	state      stateFn   // the next lexing function to enter
+	pos        Pos       // current position in the input
+	start      Pos       // start position of this item
+	width      Pos       // width of last rune read from input
+	lastPos    Pos       // position of most recent item returned by nextItem
+	items      chan item // channel of lexed items
+	subsDepth  int       // depth of substitution
+	braceDepth int       // depth of braces within default value
+	noDigit    bool      // if the lexer skips variables that start with a digit
 }
 
 // next returns the next rune in the input.
@@ -242,10 +243,18 @@ func lexSubstitutionOperator(l *lexer) stateFn {
 // lexSubstitution scans the elements inside substitution delimiters.
 func lexSubstitution(l *lexer) stateFn {
 	switch r := l.next(); {
+	case r == '{':
+		l.braceDepth++
+		l.emit(itemText)
 	case r == '}':
-		l.subsDepth--
-		l.emit(itemRightDelim)
-		return lexText
+		if l.braceDepth > 0 {
+			l.braceDepth--
+			l.emit(itemText)
+		} else {
+			l.subsDepth--
+			l.emit(itemRightDelim)
+			return lexText
+		}
 	case r == eof || isEndOfLine(r):
 		return l.errorf("closing brace expected")
 	case isAlphaNumeric(r) && strings.HasPrefix(l.input[l.lastPos:], "${"):
diff --git a/parse/lex_test.go b/parse/lex_test.go
index 34f4583..804c4c0 100644
--- a/parse/lex_test.go
+++ b/parse/lex_test.go
@@ -145,6 +145,87 @@ var lexTests = []lexTest{
 		{itemText, 10, "ABC}"},
 		tEOF,
 	}},
+	{"braces in default", "${BAR:-{}}", []item{
+		tLeft,
+		{itemVariable, 0, "BAR"},
+		tColDash,
+		{itemText, 0, "{"},
+		{itemText, 0, "}"},
+		tRight,
+		tEOF,
+	}},
+	{"nested braces in default", "${ENV:-{\"key\":\"value\"}}", []item{
+		tLeft,
+		{itemVariable, 0, "ENV"},
+		tColDash,
+		{itemText, 0, "{"},
+		{itemText, 0, "\""},
+		{itemText, 0, "k"},
+		{itemText, 0, "e"},
+		{itemText, 0, "y"},
+		{itemText, 0, "\""},
+		{itemText, 0, ":"},
+		{itemText, 0, "\""},
+		{itemText, 0, "v"},
+		{itemText, 0, "a"},
+		{itemText, 0, "l"},
+		{itemText, 0, "u"},
+		{itemText, 0, "e"},
+		{itemText, 0, "\""},
+		{itemText, 0, "}"},
+		tRight,
+		tEOF,
+	}},
+	{"multi-level nested braces in default", "${ENV:-{\"key\":{\"subkey\":\"subval\"},\"key2\":\"value2\"}}", []item{
+		tLeft,
+		{itemVariable, 0, "ENV"},
+		tColDash,
+		{itemText, 0, "{"},
+		{itemText, 0, "\""},
+		{itemText, 0, "k"},
+		{itemText, 0, "e"},
+		{itemText, 0, "y"},
+		{itemText, 0, "\""},
+		{itemText, 0, ":"},
+		{itemText, 0, "{"},
+		{itemText, 0, "\""},
+		{itemText, 0, "s"},
+		{itemText, 0, "u"},
+		{itemText, 0, "b"},
+		{itemText, 0, "k"},
+		{itemText, 0, "e"},
+		{itemText, 0, "y"},
+		{itemText, 0, "\""},
+		{itemText, 0, ":"},
+		{itemText, 0, "\""},
+		{itemText, 0, "s"},
+		{itemText, 0, "u"},
+		{itemText, 0, "b"},
+		{itemText, 0, "v"},
+		{itemText, 0, "a"},
+		{itemText, 0, "l"},
+		{itemText, 0, "\""},
+		{itemText, 0, "}"},
+		{itemText, 0, ","},
+		{itemText, 0, "\""},
+		{itemText, 0, "k"},
+		{itemText, 0, "e"},
+		{itemText, 0, "y"},
+		{itemText, 0, "2"},
+		{itemText, 0, "\""},
+		{itemText, 0, ":"},
+		{itemText, 0, "\""},
+		{itemText, 0, "v"},
+		{itemText, 0, "a"},
+		{itemText, 0, "l"},
+		{itemText, 0, "u"},
+		{itemText, 0, "e"},
+		{itemText, 0, "2"},
+		{itemText, 0, "\""},
+		{itemText, 0, "}"},
+		tRight,
+		tEOF,
+	}},
 }
 
 func TestLex(t *testing.T) {
diff --git a/testdata/file.out b/testdata/file.out
index 2cdde7b..3656142 100644
--- a/testdata/file.out
+++ b/testdata/file.out
@@ -1,5 +1,7 @@
 foo: bar
 baz: baz
 env: dev
+curly_bar: bar
+curly: {"key":{"subkey":"subval"},"key2":"value2"}
 uri: http://bar.com/foo
 host: localhost
diff --git a/testdata/file.tmpl b/testdata/file.tmpl
index 59f5077..313f888 100644
--- a/testdata/file.tmpl
+++ b/testdata/file.tmpl
@@ -1,5 +1,7 @@
 foo: $BAR
 baz: ${FOO:=baz}
 env: ${ENV:-dev}
+curly_bar: ${BAR:-{}}
+curly: ${ENV:-{"key":{"subkey":"subval"},"key2":"value2"}}
 uri: http://${BAR:=$BAZ}.com/foo
 host: ${BAR:+localhost}