diff --git a/libs/dyn/dynvar/resolve.go b/libs/dyn/dynvar/resolve.go
index b4e119b6..b5417cac 100644
--- a/libs/dyn/dynvar/resolve.go
+++ b/libs/dyn/dynvar/resolve.go
@@ -38,12 +38,20 @@ func Resolve(in dyn.Value, fn Lookup) (out dyn.Value, err error) {
 	return resolver{in: in, fn: fn}.run()
 }
 
+type lookupResult struct {
+	v   dyn.Value
+	err error
+}
+
 type resolver struct {
 	in dyn.Value
 	fn Lookup
 
 	refs     map[string]ref
 	resolved map[string]dyn.Value
+
+	// Memoization for lookups.
+	lookups map[string]lookupResult
 }
 
 func (r resolver) run() (out dyn.Value, err error) {
@@ -84,8 +92,10 @@ func (r *resolver) collectVariableReferences() (err error) {
 }
 
 func (r *resolver) resolveVariableReferences() (err error) {
-	// Initialize map for resolved variables.
-	// We use this for memoization.
+	// Initialize cache for lookups.
+	r.lookups = make(map[string]lookupResult)
+
+	// Initialize cache for resolved variable references.
 	r.resolved = make(map[string]dyn.Value)
 
 	// Resolve each variable reference (in order).
@@ -95,7 +105,7 @@ func (r *resolver) resolveVariableReferences() (err error) {
 	keys := maps.Keys(r.refs)
 	sort.Strings(keys)
 	for _, key := range keys {
-		_, err := r.resolve(key, []string{key})
+		_, err := r.resolveRef(key, r.refs[key], []string{key})
 		if err != nil {
 			return err
 		}
@@ -104,29 +114,12 @@ func (r *resolver) resolveVariableReferences() (err error) {
 	return nil
 }
 
-func (r *resolver) resolve(key string, seen []string) (dyn.Value, error) {
+func (r *resolver) resolveRef(key string, ref ref, seen []string) (dyn.Value, error) {
 	// Check if we have already resolved this variable reference.
 	if v, ok := r.resolved[key]; ok {
 		return v, nil
 	}
 
-	ref, ok := r.refs[key]
-	if !ok {
-		// Perform lookup in the input.
-		p, err := dyn.NewPathFromString(key)
-		if err != nil {
-			return dyn.InvalidValue, err
-		}
-		v, err := r.fn(p)
-		if err != nil && dyn.IsNoSuchKeyError(err) {
-			return dyn.InvalidValue, fmt.Errorf(
-				"reference does not exist: ${%s}",
-				key,
-			)
-		}
-		return v, err
-	}
-
 	// This is an unresolved variable reference.
 	deps := ref.references()
 
@@ -143,7 +136,7 @@ func (r *resolver) resolve(key string, seen []string) (dyn.Value, error) {
 			)
 		}
 
-		v, err := r.resolve(dep, append(seen, dep))
+		v, err := r.resolveKey(dep, append(seen, dep))
 
 		// If we should skip resolution of this key, index j will hold an invalid [dyn.Value].
 		if errors.Is(err, ErrSkipResolution) {
@@ -191,6 +184,41 @@ func (r *resolver) resolve(key string, seen []string) (dyn.Value, error) {
 	return v, nil
 }
 
+func (r *resolver) resolveKey(key string, seen []string) (dyn.Value, error) {
+	// Check if we have already looked up this key.
+	if v, ok := r.lookups[key]; ok {
+		return v.v, v.err
+	}
+
+	// Parse the key into a path.
+	p, err := dyn.NewPathFromString(key)
+	if err != nil {
+		return dyn.InvalidValue, err
+	}
+
+	// Look up the value for the given key.
+	v, err := r.fn(p)
+	if err != nil {
+		if dyn.IsNoSuchKeyError(err) {
+			err = fmt.Errorf("reference does not exist: ${%s}", key)
+		}
+
+		// Cache the return value and return to the caller.
+		r.lookups[key] = lookupResult{v: dyn.InvalidValue, err: err}
+		return dyn.InvalidValue, err
+	}
+
+	// If the returned value is a valid variable reference, resolve it.
+	ref, ok := newRef(v)
+	if ok {
+		v, err = r.resolveRef(key, ref, seen)
+	}
+
+	// Cache the return value and return to the caller.
+	r.lookups[key] = lookupResult{v: v, err: err}
+	return v, err
+}
+
 func (r *resolver) replaceVariableReferences() (dyn.Value, error) {
 	// Walk the input and replace all variable references.
 	return dyn.Walk(r.in, func(p dyn.Path, v dyn.Value) (dyn.Value, error) {
diff --git a/libs/dyn/dynvar/resolve_test.go b/libs/dyn/dynvar/resolve_test.go
index ba700503..1234b7cb 100644
--- a/libs/dyn/dynvar/resolve_test.go
+++ b/libs/dyn/dynvar/resolve_test.go
@@ -182,3 +182,28 @@ func TestResolveWithSkip(t *testing.T) {
 	assert.Equal(t, "a ${b}", getByPath(t, out, "e").MustString())
 	assert.Equal(t, "${b} a a ${b}", getByPath(t, out, "f").MustString())
 }
+
+func TestResolveWithSkipEverything(t *testing.T) {
+	in := dyn.V(map[string]dyn.Value{
+		"a": dyn.V("a"),
+		"b": dyn.V("b"),
+		"c": dyn.V("${a}"),
+		"d": dyn.V("${b}"),
+		"e": dyn.V("${a} ${b}"),
+		"f": dyn.V("${b} ${a} ${a} ${b}"),
+		"g": dyn.V("${d} ${c} ${c} ${d}"),
+	})
+
+	// The call must not replace anything if the lookup function returns ErrSkipResolution.
+	out, err := dynvar.Resolve(in, func(path dyn.Path) (dyn.Value, error) {
+		return dyn.InvalidValue, dynvar.ErrSkipResolution
+	})
+	require.NoError(t, err)
+	assert.Equal(t, "a", getByPath(t, out, "a").MustString())
+	assert.Equal(t, "b", getByPath(t, out, "b").MustString())
+	assert.Equal(t, "${a}", getByPath(t, out, "c").MustString())
+	assert.Equal(t, "${b}", getByPath(t, out, "d").MustString())
+	assert.Equal(t, "${a} ${b}", getByPath(t, out, "e").MustString())
+	assert.Equal(t, "${b} ${a} ${a} ${b}", getByPath(t, out, "f").MustString())
+	assert.Equal(t, "${d} ${c} ${c} ${d}", getByPath(t, out, "g").MustString())
+}