diff --git a/mercurial/templater.py b/mercurial/templater.py
--- a/mercurial/templater.py
+++ b/mercurial/templater.py
@@ -251,6 +251,8 @@ def sub(context, mapping, args):
     pat = stringify(args[0][0](context, mapping, args[0][1]))
     rpl = stringify(args[1][0](context, mapping, args[1][1]))
     src = stringify(args[2][0](context, mapping, args[2][1]))
+    src = stringify(runtemplate(context, mapping,
+                                compiletemplate(src, context)))
     yield re.sub(pat, rpl, src)
 
 def if_(context, mapping, args):
diff --git a/tests/test-command-template.t b/tests/test-command-template.t
--- a/tests/test-command-template.t
+++ b/tests/test-command-template.t
@@ -1531,3 +1531,7 @@ Test new-style inline templating:
   $ hg log -R latesttag -r tip --template 'modified files: {file_mods % " {file}\n"}\n'
   modified files:  .hgtags
   
+Test the sub function of templating for expansion:
+
+  $ hg log -R latesttag -r 10 --template '{sub("[0-9]", "x", "{rev}")}\n'
+  xx