diff --git a/policy/src/main/java/dev/cel/policy/CelPolicyCompilerImpl.java b/policy/src/main/java/dev/cel/policy/CelPolicyCompilerImpl.java
index e320cfe70..52900577b 100644
--- a/policy/src/main/java/dev/cel/policy/CelPolicyCompilerImpl.java
+++ b/policy/src/main/java/dev/cel/policy/CelPolicyCompilerImpl.java
@@ -158,13 +158,17 @@ private void assertAstDepthIsSafe(CelAbstractSyntaxTree ast, Cel cel)
 
   private CelCompiledRule compileRuleImpl(
       CelPolicy.Rule rule, Cel ruleCel, CompilerContext compilerContext) {
+    // A local CEL environment used to compile a single rule. This temporary environment
+    // is used to declare policy variables iteratively in a given policy, ensuring proper scoping
+    // across a single / nested rule.
+    Cel localCel = ruleCel;
     ImmutableList.Builder<CelCompiledVariable> variableBuilder = ImmutableList.builder();
     for (Variable variable : rule.variables()) {
       ValueString expression = variable.expression();
       CelAbstractSyntaxTree varAst;
       CelType outputType = SimpleType.DYN;
       try {
-        varAst = ruleCel.compile(expression.value()).getAst();
+        varAst = localCel.compile(expression.value()).getAst();
         outputType = varAst.getResultType();
       } catch (CelValidationException e) {
         compilerContext.addIssue(expression.id(), e.getErrors());
@@ -174,7 +178,7 @@ private CelCompiledRule compileRuleImpl(
       String variableName = variable.name().value();
       CelVarDecl newVariable =
           CelVarDecl.newVarDeclaration(variablesPrefix + variableName, outputType);
-      ruleCel = ruleCel.toCelBuilder().addVarDeclarations(newVariable).build();
+      localCel = localCel.toCelBuilder().addVarDeclarations(newVariable).build();
       variableBuilder.add(CelCompiledVariable.create(variableName, varAst, newVariable));
     }
 
@@ -182,7 +186,7 @@ private CelCompiledRule compileRuleImpl(
     for (Match match : rule.matches()) {
       CelAbstractSyntaxTree conditionAst;
       try {
-        conditionAst = ruleCel.compile(match.condition().value()).getAst();
+        conditionAst = localCel.compile(match.condition().value()).getAst();
         if (!conditionAst.getResultType().equals(SimpleType.BOOL)) {
           compilerContext.addIssue(
               match.condition().id(),
@@ -199,7 +203,7 @@ private CelCompiledRule compileRuleImpl(
           CelAbstractSyntaxTree outputAst;
           ValueString output = match.result().output();
           try {
-            outputAst = ruleCel.compile(output.value()).getAst();
+            outputAst = localCel.compile(output.value()).getAst();
           } catch (CelValidationException e) {
             compilerContext.addIssue(output.id(), e.getErrors());
             continue;
@@ -209,7 +213,7 @@ private CelCompiledRule compileRuleImpl(
           break;
         case RULE:
           CelCompiledRule nestedRule =
-              compileRuleImpl(match.result().rule(), ruleCel, compilerContext);
+              compileRuleImpl(match.result().rule(), localCel, compilerContext);
           matchResult = Result.ofRule(nestedRule);
           break;
         default:
@@ -221,7 +225,7 @@ private CelCompiledRule compileRuleImpl(
 
     CelCompiledRule compiledRule =
         CelCompiledRule.create(
-            rule.id(), rule.ruleId(), variableBuilder.build(), matchBuilder.build(), cel);
+            rule.id(), rule.ruleId(), variableBuilder.build(), matchBuilder.build(), ruleCel);
 
     // Validate that all branches in the policy are reachable
     checkUnreachableCode(compiledRule, compilerContext);
diff --git a/policy/src/test/java/dev/cel/policy/BUILD.bazel b/policy/src/test/java/dev/cel/policy/BUILD.bazel
index 3b6a62e53..9106caf70 100644
--- a/policy/src/test/java/dev/cel/policy/BUILD.bazel
+++ b/policy/src/test/java/dev/cel/policy/BUILD.bazel
@@ -20,6 +20,7 @@ java_library(
         "//common/formats:value_string",
         "//common/internal",
         "//common/resources/testdata/proto3:standalone_global_enum_java_proto",
+        "//common/types",
         "//compiler",
         "//extensions:optional_library",
         "//parser:macro",
@@ -35,6 +36,7 @@ java_library(
         "//runtime",
         "//runtime:function_binding",
         "//runtime:late_function_binding",
+        "//testing/protos:single_file_java_proto",
         "@cel_spec//proto/cel/expr/conformance/proto3:test_all_types_java_proto",
         "@maven//:com_google_guava_guava",
         "@maven//:com_google_testparameterinjector_test_parameter_injector",
diff --git a/policy/src/test/java/dev/cel/policy/CelPolicyCompilerImplTest.java b/policy/src/test/java/dev/cel/policy/CelPolicyCompilerImplTest.java
index d96fba461..ee041192c 100644
--- a/policy/src/test/java/dev/cel/policy/CelPolicyCompilerImplTest.java
+++ b/policy/src/test/java/dev/cel/policy/CelPolicyCompilerImplTest.java
@@ -31,6 +31,8 @@
 import dev.cel.bundle.CelFactory;
 import dev.cel.common.CelAbstractSyntaxTree;
 import dev.cel.common.CelOptions;
+import dev.cel.common.types.OptionalType;
+import dev.cel.common.types.SimpleType;
 import dev.cel.expr.conformance.proto3.TestAllTypes;
 import dev.cel.extensions.CelOptionalLibrary;
 import dev.cel.parser.CelStandardMacro;
@@ -43,6 +45,7 @@
 import dev.cel.policy.PolicyTestHelper.TestYamlPolicy;
 import dev.cel.runtime.CelFunctionBinding;
 import dev.cel.runtime.CelLateFunctionBindings;
+import dev.cel.testing.testdata.SingleFileProto.SingleFile;
 import dev.cel.testing.testdata.proto3.StandaloneGlobalEnum;
 import java.io.IOException;
 import java.util.Map;
@@ -76,6 +79,28 @@ public void compileYamlPolicy_success(@TestParameter TestYamlPolicy yamlPolicy)
     assertThat(CelUnparserFactory.newUnparser().unparse(ast)).isEqualTo(yamlPolicy.getUnparsed());
   }
 
+  @Test
+  public void compileYamlPolicy_withImportsOnNestedRules() throws Exception {
+    String policySource =
+        "imports:\n"
+            + "  - name: cel.expr.conformance.proto3.TestAllTypes\n"
+            + "  - name: dev.cel.testing.testdata.SingleFile\n"
+            + "rule:\n"
+            + "  match:\n"
+            + "  - rule:\n"
+            + "      id: 'nested rule with imports'\n"
+            + "      match:\n"
+            + "        - condition: 'TestAllTypes{}.single_string == SingleFile{}.name'\n"
+            + "          output: 'true'\n";
+    Cel cel = newCel();
+    CelPolicy policy = POLICY_PARSER.parse(policySource);
+
+    CelAbstractSyntaxTree ast =
+        CelPolicyCompilerFactory.newPolicyCompiler(cel).build().compile(policy);
+
+    assertThat(ast.getResultType()).isEqualTo(OptionalType.create(SimpleType.BOOL));
+  }
+
   @Test
   public void compileYamlPolicy_containsCompilationError_throws(
       @TestParameter TestErrorYamlPolicy testCase) throws Exception {
@@ -292,7 +317,7 @@ private static Cel newCel() {
         .addCompilerLibraries(CelOptionalLibrary.INSTANCE)
         .addRuntimeLibraries(CelOptionalLibrary.INSTANCE)
         .addFileTypes(StandaloneGlobalEnum.getDescriptor().getFile())
-        .addMessageTypes(TestAllTypes.getDescriptor())
+        .addMessageTypes(TestAllTypes.getDescriptor(), SingleFile.getDescriptor())
         .setOptions(CEL_OPTIONS)
         .addFunctionBindings(
             CelFunctionBinding.from(
diff --git a/testing/src/test/resources/protos/BUILD.bazel b/testing/src/test/resources/protos/BUILD.bazel
index 9106c666a..af361b174 100644
--- a/testing/src/test/resources/protos/BUILD.bazel
+++ b/testing/src/test/resources/protos/BUILD.bazel
@@ -20,6 +20,8 @@ proto_library(
 
 java_proto_library(
     name = "single_file_java_proto",
+    tags = [
+    ],
     deps = [":single_file_proto"],
 )