diff --git a/lib/liquid/context.rb b/lib/liquid/context.rb
index daae5de..dcdbf39 100644
--- a/lib/liquid/context.rb
+++ b/lib/liquid/context.rb
@@ -33,7 +33,6 @@ module Liquid
       @strict_variables    = false
       @resource_limits     = resource_limits || ResourceLimits.new(Template.default_resource_limits)
       @base_scope_depth    = 0
-      squash_instance_assigns_with_environments
 
       self.exception_renderer = Template.default_exception_renderer
       if rethrow_errors
@@ -245,16 +244,5 @@ module Liquid
     rescue Liquid::InternalError => exc
       exc
     end
-
-    def squash_instance_assigns_with_environments
-      @scopes.last.each_key do |k|
-        @environments.each do |env|
-          if env.key?(k)
-            scopes.last[k] = lookup_and_evaluate(env, k)
-            break
-          end
-        end
-      end
-    end # squash_instance_assigns_with_environments
   end # Context
 end # Liquid
diff --git a/lib/liquid/template.rb b/lib/liquid/template.rb
index 62250b2..286dbd2 100644
--- a/lib/liquid/template.rb
+++ b/lib/liquid/template.rb
@@ -146,6 +146,10 @@ module Liquid
       @instance_assigns ||= {}
     end
 
+    def new_outer_scope
+      @instance_assigns = {}
+    end
+
     def errors
       @errors ||= []
     end
@@ -178,11 +182,11 @@ module Liquid
         c
       when Liquid::Drop
         drop = args.shift
-        drop.context = Context.new([drop, assigns], instance_assigns, registers, @rethrow_errors, @resource_limits)
+        drop.context = Context.new([drop, assigns, instance_assigns], new_outer_scope, registers, @rethrow_errors, @resource_limits)
       when Hash
-        Context.new([args.shift, assigns], instance_assigns, registers, @rethrow_errors, @resource_limits)
+        Context.new([args.shift, assigns, instance_assigns], new_outer_scope, registers, @rethrow_errors, @resource_limits)
       when nil
-        Context.new(assigns, instance_assigns, registers, @rethrow_errors, @resource_limits)
+        Context.new([assigns, instance_assigns], new_outer_scope, registers, @rethrow_errors, @resource_limits)
       else
         raise ArgumentError, "Expected Hash or Liquid::Context as parameter"
       end