diff --git a/terraform/node_local.go b/terraform/node_local.go
index 9861f0a15..50cff018a 100644
--- a/terraform/node_local.go
+++ b/terraform/node_local.go
@@ -1,12 +1,73 @@
 package terraform
 
 import (
+	"log"
+
 	"github.com/hashicorp/terraform/addrs"
 	"github.com/hashicorp/terraform/configs"
 	"github.com/hashicorp/terraform/dag"
 	"github.com/hashicorp/terraform/lang"
 )
 
+// NodePlannableLocal represents a named local value in a configuration module,
+// which has not yet been expanded.
+type NodePlannableLocal struct {
+	Addr   addrs.LocalValue
+	Module addrs.Module
+	Config *configs.Local
+}
+
+var (
+	_ RemovableIfNotTargeted     = (*NodePlannableLocal)(nil)
+	_ GraphNodeReferenceable     = (*NodePlannableLocal)(nil)
+	_ GraphNodeReferencer        = (*NodePlannableLocal)(nil)
+	_ GraphNodeDynamicExpandable = (*NodePlannableLocal)(nil)
+)
+
+func (n *NodePlannableLocal) Name() string {
+	path := n.Module.String()
+	addr := n.Addr.String()
+	if path != "" {
+		return path + "." + addr
+	}
+	return addr
+}
+
+// GraphNodeModulePath
+func (n *NodePlannableLocal) ModulePath() addrs.Module {
+	return n.Module
+}
+
+// RemovableIfNotTargeted
+func (n *NodePlannableLocal) RemoveIfNotTargeted() bool {
+	return true
+}
+
+// GraphNodeReferenceable
+func (n *NodePlannableLocal) ReferenceableAddrs() []addrs.Referenceable {
+	return []addrs.Referenceable{n.Addr}
+}
+
+// GraphNodeReferencer
+func (n *NodePlannableLocal) References() []*addrs.Reference {
+	refs, _ := lang.ReferencesInExpr(n.Config.Expr)
+	return appendResourceDestroyReferences(refs)
+}
+
+func (n *NodePlannableLocal) DynamicExpand(ctx EvalContext) (*Graph, error) {
+	var g Graph
+	expander := ctx.InstanceExpander()
+	for _, module := range expander.ExpandModule(n.Module) {
+		o := &NodeLocal{
+			Addr:   n.Addr.Absolute(module),
+			Config: n.Config,
+		}
+		log.Printf("[TRACE] Expanding local: adding %s as %T", o.Addr.String(), o)
+		g.Add(o)
+	}
+	return &g, nil
+}
+
 // NodeLocal represents a named local value in a particular module.
 //
 // Local value nodes only have one operation, common to all walk types:
diff --git a/terraform/transform_local.go b/terraform/transform_local.go
index 84eb26b26..7739ff48d 100644
--- a/terraform/transform_local.go
+++ b/terraform/transform_local.go
@@ -1,6 +1,7 @@
 package terraform
 
 import (
+	"github.com/hashicorp/terraform/addrs"
 	"github.com/hashicorp/terraform/configs"
 )
 
@@ -20,18 +21,11 @@ func (t *LocalTransformer) transformModule(g *Graph, c *configs.Config) error {
 		return nil
 	}
 
-	// Our addressing system distinguishes between modules and module instances,
-	// but we're not yet ready to make that distinction here (since we don't
-	// support "count"/"for_each" on modules) and so we just do a naive
-	// transform of the module path into a module instance path, assuming that
-	// no keys are in use. This should be removed when "count" and "for_each"
-	// are implemented for modules.
-	path := c.Path.UnkeyedInstanceShim()
-
 	for _, local := range c.Module.Locals {
-		addr := path.LocalValue(local.Name)
-		node := &NodeLocal{
+		addr := addrs.LocalValue{Name: local.Name}
+		node := &NodePlannableLocal{
 			Addr:   addr,
+			Module: c.Path,
 			Config: local,
 		}
 		g.Add(node)