diff --git a/lib/ansible/modules/inventory/group_by.py b/lib/ansible/modules/inventory/group_by.py
index 73e67625d7..7ee640c594 100644
--- a/lib/ansible/modules/inventory/group_by.py
+++ b/lib/ansible/modules/inventory/group_by.py
@@ -33,6 +33,12 @@ options:
     description:
     - The variables whose values will be used as groups
     required: true
+  parents:
+    description:
+    - The list of the parent groups
+    required: false
+    default: "all"
+    version_added: "2.4"
 author: "Jeroen Hoekx (@jhoekx)"
 notes:
   - Spaces in group names are converted to dashes '-'.
@@ -47,4 +53,11 @@ EXAMPLES = '''
 # Create groups like 'kvm-host'
 - group_by:
     key: virt_{{ ansible_virtualization_type }}_{{ ansible_virtualization_role }}
+
+# Create nested groups
+- group_by:
+    key: el{{ ansible_distribution_major_version }}-{{ ansible_architecture }}
+    parents:
+      - el{{ ansible_distribution_major_version }}
+
 '''
diff --git a/lib/ansible/plugins/action/group_by.py b/lib/ansible/plugins/action/group_by.py
index 8f2f6e3626..1266803a59 100644
--- a/lib/ansible/plugins/action/group_by.py
+++ b/lib/ansible/plugins/action/group_by.py
@@ -18,6 +18,7 @@ from __future__ import (absolute_import, division, print_function)
 __metaclass__ = type
 
 from ansible.plugins.action import ActionBase
+from ansible.module_utils.six import string_types
 
 
 class ActionModule(ActionBase):
@@ -38,8 +39,11 @@ class ActionModule(ActionBase):
             return result
 
         group_name = self._task.args.get('key')
-        group_name = group_name.replace(' ', '-')
+        parent_groups = self._task.args.get('parents', ['all'])
+        if isinstance(parent_groups, string_types):
+            parent_groups = [parent_groups]
 
         result['changed'] = False
-        result['add_group'] = group_name
+        result['add_group'] = group_name.replace(' ', '-')
+        result['parent_groups'] = [name.replace(' ', '-') for name in parent_groups]
         return result
diff --git a/lib/ansible/plugins/strategy/__init__.py b/lib/ansible/plugins/strategy/__init__.py
index ea8a94ea59..efb60c53af 100644
--- a/lib/ansible/plugins/strategy/__init__.py
+++ b/lib/ansible/plugins/strategy/__init__.py
@@ -632,12 +632,17 @@ class StrategyBase:
         # host object from the master inventory
         real_host = self._inventory.hosts[host.name]
         group_name = result_item.get('add_group')
+        parent_group_names = result_item.get('parent_groups', [])
 
-        if group_name not in self._inventory.groups:
-            # create the new group and add it to inventory
-            self._inventory.add_group(group_name)
-            changed = True
+        for name in [group_name] + parent_group_names:
+            if name not in self._inventory.groups:
+                # create the new group and add it to inventory
+                self._inventory.add_group(name)
+                changed = True
         group = self._inventory.groups[group_name]
+        for parent_group_name in parent_group_names:
+            parent_group = self._inventory.groups[parent_group_name]
+            parent_group.add_child_group(group)
 
         if real_host.name not in group.get_hosts():
             group.add_host(real_host)
diff --git a/test/integration/targets/group_by/test_group_by.yml b/test/integration/targets/group_by/test_group_by.yml
index 21f76bcb22..3d439c6a09 100644
--- a/test/integration/targets/group_by/test_group_by.yml
+++ b/test/integration/targets/group_by/test_group_by.yml
@@ -185,3 +185,21 @@
   tasks:
     - name: check group_vars variable overrides for camelus
       assert: { that: ["uno == 1", "dos == 'two'", "tres == 3"] }
+
+- name: Nested group validation
+  hosts: lama
+  gather_facts: false
+  tasks:
+    - name: group by genus with parent
+      group_by: key=vicugna-{{ genus }} parents=vicugna
+    - name: check group_vars variable overrides for vicugna-lama
+      assert: { that: ["uno == 1", "dos == 2", "tres == 'three'"] }
+
+    - name: group by genus with nonexistent parent
+      group_by:
+        key: "{{ genus }}"
+        parents:
+          - oxydactylus
+          - stenomylus
+    - name: check parent groups
+      assert: { that: ["'oxydactylus' in group_names", "'stenomylus' in group_names"] }