diff --git a/libnixf/src/Parse/Lexer.cpp b/libnixf/src/Parse/Lexer.cpp
index 971377bbd..7047937c5 100644
--- a/libnixf/src/Parse/Lexer.cpp
+++ b/libnixf/src/Parse/Lexer.cpp
@@ -409,9 +409,15 @@ Token Lexer::lexIndString() {
     return finishToken();
   }
   if (consumePrefix("''")) {
-    Tok = tok_quote2;
-    if (consumePrefix("$") || consumePrefix("\\") || consumePrefix("'"))
+    if (consumePrefix("$") || consumePrefix("'")) {
       Tok = tok_string_escape;
+    } else if (consumePrefix("\\")) {
+      // ''\ escapes any character
+      consume();
+      Tok = tok_string_escape;
+    } else {
+      Tok = tok_quote2;
+    }
     return finishToken();
   }
 
diff --git a/libnixf/test/Parse/Lexer.cpp b/libnixf/test/Parse/Lexer.cpp
index 5e638e3f2..0109038d5 100644
--- a/libnixf/test/Parse/Lexer.cpp
+++ b/libnixf/test/Parse/Lexer.cpp
@@ -197,4 +197,17 @@ TEST_F(LexerTest, lexURI) {
   ASSERT_EQ(Tokens.size(), sizeof(Match) / sizeof(TokenKind));
 }
 
+TEST_F(LexerTest, IndStringEscape) {
+  Lexer Lexer(R"(''\$${)", Diags);
+  const TokenKind Match[] = {
+      tok_string_escape, // ''\ escapes $
+      tok_dollar_curly,  // ${
+  };
+  auto Tokens = collect(Lexer, &Lexer::lexIndString);
+  for (size_t I = 0; I < Tokens.size(); I++) {
+    ASSERT_EQ(Tokens[I].kind(), Match[I]);
+  }
+  ASSERT_EQ(Tokens.size(), sizeof(Match) / sizeof(TokenKind));
+}
+
 } // namespace