diff --git a/pkg/engine/mutation.go b/pkg/engine/mutation.go
index 98a63eb268..625b0b2371 100644
--- a/pkg/engine/mutation.go
+++ b/pkg/engine/mutation.go
@@ -1,8 +1,10 @@
 package engine
 
 import (
+	"encoding/json"
 	"fmt"
 	"reflect"
+	"regexp"
 	"strings"
 	"time"
 
@@ -170,8 +172,12 @@ func ForceMutate(ctx context.EvalInterface, policy kyverno.ClusterPolicy, resour
 
 		if mutation.Overlay != nil {
 			overlay := mutation.Overlay
-			if overlay, err = variables.SubstituteVars(ctx, overlay); err != nil {
-				return unstructured.Unstructured{}, err
+			if ctx != nil {
+				if overlay, err = variables.SubstituteVars(ctx, overlay); err != nil {
+					return unstructured.Unstructured{}, err
+				}
+			} else {
+				overlay = replaceSubstituteVariables(overlay)
 			}
 
 			resource, err = mutateResourceWithOverlay(resource, overlay)
@@ -192,6 +198,30 @@ func ForceMutate(ctx context.EvalInterface, policy kyverno.ClusterPolicy, resour
 	return resource, nil
 }
 
+func replaceSubstituteVariables(overlay interface{}) interface{} {
+	overlayRaw, err := json.Marshal(overlay)
+	if err != nil {
+		return overlay
+	}
+
+	regex := regexp.MustCompile(`\{\{([^{}]*)\}\}`)
+	for {
+		if len(regex.FindAllStringSubmatch(string(overlayRaw), -1)) > 0 {
+			overlayRaw = regex.ReplaceAll(overlayRaw, []byte(`placeholderValue`))
+		} else {
+			break
+		}
+	}
+
+	var output interface{}
+	err = json.Unmarshal(overlayRaw, &output)
+	if err != nil {
+		return overlay
+	}
+
+	return output
+}
+
 func incrementAppliedRuleCount(resp *response.EngineResponse) {
 	resp.PolicyResponse.RulesAppliedCount++
 }
diff --git a/pkg/openapi/validation.go b/pkg/openapi/validation.go
index c8fc9084b5..5f89d8499a 100644
--- a/pkg/openapi/validation.go
+++ b/pkg/openapi/validation.go
@@ -11,7 +11,6 @@ import (
 	"github.com/golang/glog"
 
 	"github.com/nirmata/kyverno/pkg/engine"
-	"github.com/nirmata/kyverno/pkg/engine/context"
 	"k8s.io/apimachinery/pkg/apis/meta/v1/unstructured"
 
 	v1 "github.com/nirmata/kyverno/pkg/api/kyverno/v1"
@@ -76,13 +75,7 @@ func ValidatePolicyMutation(policy v1.ClusterPolicy) error {
 		newResource := unstructured.Unstructured{Object: resource}
 		newResource.SetKind(kind)
 
-		ctx := context.NewContext()
-		err := ctx.AddSA("kyvernoDummyUsername")
-		if err != nil {
-			glog.V(4).Infof("Failed to load service account in context:%v", err)
-		}
-
-		patchedResource, err := engine.ForceMutate(ctx, *newPolicy.DeepCopy(), newResource)
+		patchedResource, err := engine.ForceMutate(nil, *newPolicy.DeepCopy(), newResource)
 		if err != nil {
 			return err
 		}
diff --git a/pkg/openapi/validation_test.go b/pkg/openapi/validation_test.go
index e534478908..813c2ed15b 100644
--- a/pkg/openapi/validation_test.go
+++ b/pkg/openapi/validation_test.go
@@ -42,8 +42,8 @@ func Test_ValidateMutationPolicy(t *testing.T) {
 			errMessage:  `ValidationError(io.k8s.api.core.v1.Pod.spec.automountServiceAccountToken): invalid type for io.k8s.api.core.v1.PodSpec.automountServiceAccountToken: got "integer", expected "boolean"`,
 		},
 		{
-			description: "Testing Policies with substitute variables",
-			policy:      []byte(`{"apiVersion":"kyverno.io/v1","kind":"ClusterPolicy","metadata":{"name":"add-ns-access-controls","annotations":{"policies.kyverno.io/category":"Workload Isolation","policies.kyverno.io/description":"Create roles and role bindings for a new namespace"}},"spec":{"background":false,"rules":[{"name":"add-sa-annotation","match":{"resources":{"kinds":["Namespace"]}},"mutate":{"overlay":{"metadata":{"annotations":{"nirmata.io/ns-creator":"{{serviceAccountName}}"}}}}},{"name":"generate-owner-role","match":{"resources":{"kinds":["Namespace"]}},"preconditions":[{"key":"{{request.userInfo.username}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountName}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountNamespace}}","operator":"NotEqual","value":""}],"generate":{"kind":"ClusterRole","name":"ns-owner-{{request.object.metadata.name}}-{{request.userInfo.username}}","data":{"metadata":{"annotations":{"nirmata.io/ns-creator":"{{serviceAccountName}}"}},"rules":[{"apiGroups":[""],"resources":["namespaces"],"verbs":["delete"],"resourceNames":["{{request.object.metadata.name}}"]}]}}},{"name":"generate-owner-role-binding","match":{"resources":{"kinds":["Namespace"]}},"preconditions":[{"key":"{{request.userInfo.username}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountName}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountNamespace}}","operator":"NotEqual","value":""}],"generate":{"kind":"ClusterRoleBinding","name":"ns-owner-{{request.object.metadata.name}}-{{request.userInfo.username}}-binding","data":{"metadata":{"annotations":{"nirmata.io/ns-creator":"{{serviceAccountName}}"}},"roleRef":{"apiGroup":"rbac.authorization.k8s.io","kind":"ClusterRole","name":"ns-owner-{{request.object.metadata.name}}-{{request.userInfo.username}}"},"subjects":[{"kind":"ServiceAccount","name":"{{serviceAccountName}}","namespace":"{{serviceAccountNamespace}}"}]}}},{"name":"generate-admin-role-binding","match":{"resources":{"kinds":["Namespace"]}},"preconditions":[{"key":"{{request.userInfo.username}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountName}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountNamespace}}","operator":"NotEqual","value":""}],"generate":{"kind":"RoleBinding","name":"ns-admin-{{request.object.metadata.name}}-{{request.userInfo.username}}-binding","namespace":"{{request.object.metadata.name}}","data":{"metadata":{"annotations":{"nirmata.io/ns-creator":"{{serviceAccountName}}"}},"roleRef":{"apiGroup":"rbac.authorization.k8s.io","kind":"ClusterRole","name":"admin"},"subjects":[{"kind":"ServiceAccount","name":"{{serviceAccountName}}","namespace":"{{serviceAccountNamespace}}"}]}}}]}}`),
+			description: "Dealing with nested variables",
+			policy:      []byte(`{"apiVersion":"kyverno.io/v1","kind":"ClusterPolicy","metadata":{"name":"add-ns-access-controls","annotations":{"policies.kyverno.io/category":"Workload Isolation","policies.kyverno.io/description":"Create roles and role bindings for a new namespace"}},"spec":{"background":false,"rules":[{"name":"add-sa-annotation","match":{"resources":{"kinds":["Namespace"]}},"mutate":{"overlay":{"metadata":{"annotations":{"nirmata.io/ns-creator":"{{serviceAccountName-{{something}}}}"}}}}},{"name":"generate-owner-role","match":{"resources":{"kinds":["Namespace"]}},"preconditions":[{"key":"{{request.userInfo.username}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountName}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountNamespace}}","operator":"NotEqual","value":""}],"generate":{"kind":"ClusterRole","name":"ns-owner-{{request.object.metadata.name{{something}}}}-{{request.userInfo.username}}","data":{"metadata":{"annotations":{"nirmata.io/ns-creator":"{{serviceAccountName}}"}},"rules":[{"apiGroups":[""],"resources":["namespaces"],"verbs":["delete"],"resourceNames":["{{request.object.metadata.name}}"]}]}}},{"name":"generate-owner-role-binding","match":{"resources":{"kinds":["Namespace"]}},"preconditions":[{"key":"{{request.userInfo.username}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountName}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountNamespace}}","operator":"NotEqual","value":""}],"generate":{"kind":"ClusterRoleBinding","name":"ns-owner-{{request.object.metadata.name}}-{{request.userInfo.username}}-binding","data":{"metadata":{"annotations":{"nirmata.io/ns-creator":"{{serviceAccountName}}"}},"roleRef":{"apiGroup":"rbac.authorization.k8s.io","kind":"ClusterRole","name":"ns-owner-{{request.object.metadata.name}}-{{request.userInfo.username}}"},"subjects":[{"kind":"ServiceAccount","name":"{{serviceAccountName}}","namespace":"{{serviceAccountNamespace}}"}]}}},{"name":"generate-admin-role-binding","match":{"resources":{"kinds":["Namespace"]}},"preconditions":[{"key":"{{request.userInfo.username}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountName}}","operator":"NotEqual","value":""},{"key":"{{serviceAccountNamespace}}","operator":"NotEqual","value":""}],"generate":{"kind":"RoleBinding","name":"ns-admin-{{request.object.metadata.name}}-{{request.userInfo.username}}-binding","namespace":"{{request.object.metadata.name}}","data":{"metadata":{"annotations":{"nirmata.io/ns-creator":"{{serviceAccountName}}"}},"roleRef":{"apiGroup":"rbac.authorization.k8s.io","kind":"ClusterRole","name":"admin"},"subjects":[{"kind":"ServiceAccount","name":"{{serviceAccountName}}","namespace":"{{serviceAccountNamespace}}"}]}}}]}}`),
 		},
 	}