diff --git a/lib/ansible/playbook/__init__.py b/lib/ansible/playbook/__init__.py
index f26715dd93..ba3e7418ae 100644
--- a/lib/ansible/playbook/__init__.py
+++ b/lib/ansible/playbook/__init__.py
@@ -166,7 +166,10 @@ class PlayBook(object):
                         for p in plays:
                             if 'vars' not in p:
                                 p['vars'] = {}
-                            p['vars'].update(incvars)
+                            if isinstance(p['vars'], dict):
+                                p['vars'].update(incvars)
+                            elif isinstance(p['vars'], list):
+                                p['vars'].extend([dict(k=v) for k,v in incvars.iteritems()])
                         accumulated_plays.extend(plays)
                         play_basedirs.extend(basedirs)
 
diff --git a/test/TestPlayBook.py b/test/TestPlayBook.py
index 9ff679973d..d67779b673 100644
--- a/test/TestPlayBook.py
+++ b/test/TestPlayBook.py
@@ -114,6 +114,7 @@ class TestPlaybook(unittest.TestCase):
    def _run(self, test_playbook, host_list='test/ansible_hosts'):
        ''' run a module and get the localhost results '''
        # This ensures tests are independent of eachother
+       global EVENTS
        ansible.playbook.SETUP_CACHE.clear()
        EVENTS = []
 
@@ -202,7 +203,8 @@ class TestPlaybook(unittest.TestCase):
 
        assert utils.jsonify(expected, format=True) == utils.jsonify(actual,format=True)
 
-       assert len(EVENTS) == 60
+       print "len(EVENTS) = %d" % len(EVENTS)
+       assert len(EVENTS) == 26
 
    def test_includes(self):
        pb = os.path.join(self.test_dir, 'playbook-includer.yml')
@@ -215,7 +217,7 @@ class TestPlaybook(unittest.TestCase):
            "localhost": {
                "changed": 0,
                "failures": 0,
-               "ok": 5,
+               "ok": 10,
                "skipped": 0,
                "unreachable": 0
            }   
diff --git a/test/playbook-included.yml b/test/playbook-included.yml
index 4f96e30a4a..d6cb3530a1 100644
--- a/test/playbook-included.yml
+++ b/test/playbook-included.yml
@@ -3,3 +3,10 @@
   gather_facts: False
   tasks:
   - action: debug msg="$variable"
+
+- hosts: all
+  vars:
+  - ugly: var
+  gather_facts: False
+  tasks:
+  - action: debug msg="$variable"