diff --git a/tools/roslaunch/src/roslaunch/xmlloader.py b/tools/roslaunch/src/roslaunch/xmlloader.py
index df1b26327b..e959506e4a 100644
--- a/tools/roslaunch/src/roslaunch/xmlloader.py
+++ b/tools/roslaunch/src/roslaunch/xmlloader.py
@@ -302,8 +302,8 @@ def _arg_tag(self, tag, context, ros_config, verbose=True):
             
             context.add_arg(name, value=value, default=default, doc=doc)
 
-        except substitution_args.ArgException as e:
-            raise XmlParseException(
+        except ArgException as e:
+            raise ArgException(
                 "arg '%s' is not defined. \n\nArg xml is %s"%(e, tag.toxml()))
         except ResourceNotFound as e:
             raise ResourceNotFound(
diff --git a/tools/roslaunch/test/unit/test_roslaunch_rlutil.py b/tools/roslaunch/test/unit/test_roslaunch_rlutil.py
index c75d0d7312..067d15bf3f 100644
--- a/tools/roslaunch/test/unit/test_roslaunch_rlutil.py
+++ b/tools/roslaunch/test/unit/test_roslaunch_rlutil.py
@@ -94,3 +94,8 @@ def test_check_roslaunch(self):
         filename = os.path.join(get_test_path(), 'test', 'xml', 'test-ignore-unset-args.launch')
         error_msg = roslaunch.rlutil.check_roslaunch(filename, ignore_unset_args=True)
         assert error_msg is None
+
+    def test_check_roslaunch_arg_in_arg(self):
+        filename = os.path.join(get_test_path(), 'test', 'xml', 'test-ignore-unset-args-arg-in-arg.launch')
+        error_msg = roslaunch.rlutil.check_roslaunch(filename, ignore_unset_args=True)
+        assert error_msg is None
diff --git a/tools/roslaunch/test/xml/test-ignore-unset-args-arg-in-arg.launch b/tools/roslaunch/test/xml/test-ignore-unset-args-arg-in-arg.launch
new file mode 100644
index 0000000000..d80f0fc179
--- /dev/null
+++ b/tools/roslaunch/test/xml/test-ignore-unset-args-arg-in-arg.launch
@@ -0,0 +1,7 @@
+<launch>
+  <arg name="foo1" />    <!-- no `default="something" here! -->
+  <arg name="foo2" value="$(arg foo1)"/>
+  <node name="bar" pkg="bar" type="bar">
+    <param name="foo" value="$(arg foo2k)" />
+  </node>
+</launch>