diff --git a/terraform/context_old.go b/terraform/context_old.go
index ed93bdf39..203446789 100644
--- a/terraform/context_old.go
+++ b/terraform/context_old.go
@@ -10,7 +10,6 @@ import (
 	"sync/atomic"
 
 	"github.com/hashicorp/terraform/config"
-	"github.com/hashicorp/terraform/config/lang/ast"
 	"github.com/hashicorp/terraform/config/module"
 	"github.com/hashicorp/terraform/depgraph"
 	"github.com/hashicorp/terraform/helper/multierror"
@@ -373,34 +372,11 @@ func (c *Context) releaseRun(ch chan<- struct{}) {
 }
 
 func (c *Context) walkContext(op walkOperation, path []string) *walkContext {
-	// Get the config structure
-	m := c.module
-	for _, n := range path[1:] {
-		cs := m.Children()
-		m = cs[n]
-	}
-	var conf *config.Config
-	if m != nil {
-		conf = m.Config()
-	}
-
-	// Calculate the default variable values
-	defaultVars := make(map[string]string)
-	if conf != nil {
-		for _, v := range conf.Variables {
-			for k, val := range v.DefaultsMap() {
-				defaultVars[k] = val
-			}
-		}
-	}
-
 	return &walkContext{
 		Context:   c,
 		Operation: op,
 		Path:      path,
 		Variables: c.variables,
-
-		defaultVariables: defaultVars,
 	}
 }
 
@@ -1521,16 +1497,6 @@ func (c *walkContext) computeVars(
 		return err
 	}
 
-	// Copy the default variables
-	for k, v := range c.defaultVariables {
-		if _, ok := vs[k]; !ok {
-			vs[k] = ast.Variable{
-				Value: v,
-				Type:  ast.TypeString,
-			}
-		}
-	}
-
 	// Interpolate the variables
 	return raw.Interpolate(vs)
 }
diff --git a/terraform/context_test.go b/terraform/context_test.go
index 49a2ae6f2..1663bf44f 100644
--- a/terraform/context_test.go
+++ b/terraform/context_test.go
@@ -148,6 +148,26 @@ func TestContext2Validate_providerConfig_good(t *testing.T) {
 	}
 }
 
+func TestContext2Validate_requiredVar(t *testing.T) {
+	m := testModule(t, "validate-required-var")
+	p := testProvider("aws")
+	c := testContext2(t, &ContextOpts{
+		Module: m,
+		Providers: map[string]ResourceProviderFactory{
+			"aws": testProviderFuncFixed(p),
+		},
+	})
+
+	w, e := c.Validate()
+	if len(w) > 0 {
+		t.Fatalf("bad: %#v", w)
+	}
+	// TODO: fail
+	if len(e) == 0 {
+		t.Fatalf("bad: %s", e)
+	}
+}
+
 /*
 func TestContextValidate_goodModule(t *testing.T) {
 	p := testProvider("aws")
@@ -395,21 +415,6 @@ func TestContextValidate_resourceNameSymbol(t *testing.T) {
 	}
 }
 
-func TestContextValidate_requiredVar(t *testing.T) {
-	m := testModule(t, "validate-required-var")
-	c := testContext(t, &ContextOpts{
-		Module: m,
-	})
-
-	w, e := c.Validate()
-	if len(w) > 0 {
-		t.Fatalf("bad: %#v", w)
-	}
-	if len(e) == 0 {
-		t.Fatalf("bad: %#v", e)
-	}
-}
-
 func TestContextValidate_provisionerConfig_bad(t *testing.T) {
 	m := testModule(t, "validate-bad-prov-conf")
 	p := testProvider("aws")
diff --git a/terraform/interpolate.go b/terraform/interpolate.go
index 111aed63e..98ca24164 100644
--- a/terraform/interpolate.go
+++ b/terraform/interpolate.go
@@ -34,6 +34,23 @@ func (i *Interpolater) Values(
 	scope *InterpolationScope,
 	vars map[string]config.InterpolatedVariable) (map[string]ast.Variable, error) {
 	result := make(map[string]ast.Variable, len(vars))
+
+	// Copy the default variables
+	if i.Module != nil && scope != nil {
+		mod := i.Module
+		if len(scope.Path) > 1 {
+			mod = i.Module.Child(scope.Path[1:])
+		}
+		for _, v := range mod.Config().Variables {
+			for k, val := range v.DefaultsMap() {
+				result[k] = ast.Variable{
+					Value: val,
+					Type:  ast.TypeString,
+				}
+			}
+		}
+	}
+
 	for n, rawV := range vars {
 		var err error
 		switch v := rawV.(type) {
diff --git a/terraform/test-fixtures/interpolate-path-module/child/main.tf b/terraform/test-fixtures/interpolate-path-module/child/main.tf
new file mode 100644
index 000000000..e69de29bb
diff --git a/terraform/test-fixtures/interpolate-path-module/main.tf b/terraform/test-fixtures/interpolate-path-module/main.tf
new file mode 100644
index 000000000..0f6991c53
--- /dev/null
+++ b/terraform/test-fixtures/interpolate-path-module/main.tf
@@ -0,0 +1,3 @@
+module "child" {
+    source = "./child"
+}