diff --git a/lexer/lexer.mbt b/lexer/lexer.mbt
index 07da22a3..6753c55d 100644
--- a/lexer/lexer.mbt
+++ b/lexer/lexer.mbt
@@ -9,7 +9,7 @@ fn lex_tokens(
   preserve_comment~ : (Comment, Int, Int) -> Unit,
 ) -> Unit {
   fn metavar_enabled() -> Bool {
-    env.enable_metavar && !env.is_interpolation
+    env.enable_metavar
   }
 
   fn typed_metavar_payload(
diff --git a/lexer/metavar_test.mbt b/lexer/metavar_test.mbt
index 5afc0241..1d50348a 100644
--- a/lexer/metavar_test.mbt
+++ b/lexer/metavar_test.mbt
@@ -279,6 +279,22 @@ test "double-dollar metavariable prefix remains unsupported" {
   }
 }
 
+///|
+test "metavariable syntax remains enabled in interpolation sublexing" {
+  let result = tokens_from_string(
+    "$x",
+    comment=false,
+    is_interpolation=true,
+    enable_metavar=true,
+  )
+  guard result.errors.is_empty() else {
+    fail("expected metavariable syntax in interpolation sublexing")
+  }
+  guard result.tokens[0].0 is LIDENT("$x") else {
+    fail("expected interpolation sublexer to preserve metavariable tokens")
+  }
+}
+
 ///|
 test "multiline interpolation keeps precedence over metavariable syntax" {
   let result = tokens_from_string("$|hello", comment=false, enable_metavar=true)
diff --git a/lexer/moon.mod b/lexer/moon.mod
index 5048c72b..4ae480ec 100644
--- a/lexer/moon.mod
+++ b/lexer/moon.mod
@@ -1,6 +1,6 @@
 name = "moonbitlang/lexer"
 
-version = "0.3.14"
+version = "0.3.15"
 
 repository = "https://github.com/moonbitlang/parser"
 
diff --git a/moon.mod b/moon.mod
index 2ca8ea6b..c70d3d1f 100644
--- a/moon.mod
+++ b/moon.mod
@@ -1,11 +1,11 @@
 name = "moonbitlang/parser"
 
-version = "0.3.16"
+version = "0.3.17"
 
 import {
   "moonbitlang/x@0.4.39",
-  "moonbitlang/lexer@0.3.14",
-  "moonbitlang/moon_config@0.3.13",
+  "moonbitlang/lexer@0.3.15",
+  "moonbitlang/moon_config@0.3.14",
   "moonbitlang/async@0.20.3",
   "moonbit-community/prettyprinter@0.4.10",
 }
diff --git a/moon_config/moon.mod b/moon_config/moon.mod
index 3b726638..415c446d 100644
--- a/moon_config/moon.mod
+++ b/moon_config/moon.mod
@@ -1,9 +1,9 @@
 name = "moonbitlang/moon_config"
 
-version = "0.3.13"
+version = "0.3.14"
 
 import {
-  "moonbitlang/lexer@0.3.14",
+  "moonbitlang/lexer@0.3.15",
 }
 
 repository = "https://github.com/moonbitlang/parser"
diff --git a/untyped_cst/api.mbt b/untyped_cst/api.mbt
index 70af07e4..e444dcab 100644
--- a/untyped_cst/api.mbt
+++ b/untyped_cst/api.mbt
@@ -9,9 +9,10 @@ fn parse_with_state(
   source : String,
   diagnostics : Array[Report],
   docstrings : Array[List[(Location, Comment)]],
+  enable_metavar : Bool,
   parse_root : (ParserState) -> CstNode,
 ) -> ParseResult {
-  let state = new_state(tokens, source, diagnostics)
+  let state = new_state(tokens, source, diagnostics, enable_metavar)
   let root = parse_root(state)
   parse_result(root, state.reports, docstrings)
 }
@@ -30,7 +31,14 @@ fn parse_source(
     comment=true,
   )
   let diagnostics = reports_from_lex_errors(lex.errors)
-  parse_with_state(lex.tokens, source, diagnostics, lex.docstrings, parse_root)
+  parse_with_state(
+    lex.tokens,
+    source,
+    diagnostics,
+    lex.docstrings,
+    enable_metavar,
+    parse_root,
+  )
 }
 
 ///|
diff --git a/untyped_cst/api_test.mbt b/untyped_cst/api_test.mbt
index 6d820b72..1933c9bf 100644
--- a/untyped_cst/api_test.mbt
+++ b/untyped_cst/api_test.mbt
@@ -229,6 +229,26 @@ test "parse entry points gate metavariable syntax" {
   )
 }
 
+///|
+test "metavariable option propagates into interpolation expressions" {
+  for source in ["\"\\{$x}\"", "\"\\{\"\\{$x}\"}\""] {
+    @test.assert_eq(
+      @untyped_cst.parse_expression(source).diagnostics_view().is_empty(),
+      false,
+    )
+    let expression = @untyped_cst.parse_expression(source, enable_metavar=true)
+    @test.assert_eq(expression.diagnostics_view().is_empty(), true)
+    @test.assert_eq(
+      api_has_string_value(
+        expression.root(),
+        fn(kind) { kind is Syntax_Identifier },
+        "$x",
+      ),
+      true,
+    )
+  }
+}
+
 ///|
 test "constant kinds and normalized payloads are parser semantics" {
   let cases : Array[(String, String, String)] = [
diff --git a/untyped_cst/parse.mbt b/untyped_cst/parse.mbt
index c245bab8..8e0dcc8f 100644
--- a/untyped_cst/parse.mbt
+++ b/untyped_cst/parse.mbt
@@ -11887,12 +11887,18 @@ fn parse_interp_source_expr(
     interp_source.source,
     start_pos=interp_source.loc.start,
     is_interpolation=true,
+    enable_metavar=state.enable_metavar,
     comment=true,
   )
   for report in reports_from_lex_errors(lex.errors) {
     state.reports.push(report)
   }
-  let inner_state = new_state(lex.tokens, state.source, state.reports)
+  let inner_state = new_state(
+    lex.tokens,
+    state.source,
+    state.reports,
+    state.enable_metavar,
+  )
   parse_expr_until(inner_state, [TokenKind::TK_EOF])
 }
 
diff --git a/untyped_cst/state.mbt b/untyped_cst/state.mbt
index 6b19f291..89a58274 100644
--- a/untyped_cst/state.mbt
+++ b/untyped_cst/state.mbt
@@ -3,6 +3,7 @@ priv struct ParserState {
   tokens : Triples
   mut pos : Int
   reports : Array[Report]
+  enable_metavar : Bool
   mut abort_current_decl : Bool
   mut abort_infix_chain : Bool
   mut report_next_top_level_start : Bool
@@ -391,12 +392,14 @@ fn new_state(
   tokens : Triples,
   source : String,
   reports : Array[Report],
+  enable_metavar : Bool,
 ) -> ParserState {
   let mapper = default_location_mapper(source)
   ParserState::{
     tokens,
     pos: 0,
     reports,
+    enable_metavar,
     abort_current_decl: false,
     abort_infix_chain: false,
     report_next_top_level_start: false,