diff --git a/CHANGELOG.md b/CHANGELOG.md
index bbf690818e..c4833db724 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -18,6 +18,7 @@ ENHANCEMENTS:
 * Added "cidrcontains" function. ([$366](https://github.com/opentofu/opentofu/issues/366))
 * Allow test run blocks to reference previous run block's module outputs ([#1129](https://github.com/opentofu/opentofu/pull/1129))
 * Support the XDG Base Directory Specification ([#1200](https://github.com/opentofu/opentofu/pull/1200))
+* Allow referencing the output from a test run in the local variables block of another run (tofu test). ([#1254](https://github.com/opentofu/opentofu/pull/1254))
 
 BUG FIXES:
 * `tofu test` resources cleanup at the end of tests changed to use simple reverse run block order. ([#1043](https://github.com/opentofu/opentofu/pull/1043))
diff --git a/internal/command/test.go b/internal/command/test.go
index 49f59e2edf..1123ae21ab 100644
--- a/internal/command/test.go
+++ b/internal/command/test.go
@@ -662,7 +662,7 @@ func (runner *TestFileRunner) destroy(config *configs.Config, state *states.Stat
 
 	var diags tfdiags.Diagnostics
 
-	variables, variableDiags := buildInputVariablesForTest(run, file, config, runner.Suite.GlobalVariables)
+	variables, variableDiags := buildInputVariablesForTest(run, file, config, runner.Suite.GlobalVariables, runner.States)
 	diags = diags.Append(variableDiags)
 
 	if diags.HasErrors() {
@@ -724,7 +724,7 @@ func (runner *TestFileRunner) plan(config *configs.Config, state *states.State,
 	references, referenceDiags := run.GetReferences()
 	diags = diags.Append(referenceDiags)
 
-	variables, variableDiags := buildInputVariablesForTest(run, file, config, runner.Suite.GlobalVariables)
+	variables, variableDiags := buildInputVariablesForTest(run, file, config, runner.Suite.GlobalVariables, runner.States)
 	diags = diags.Append(variableDiags)
 
 	if diags.HasErrors() {
@@ -988,15 +988,17 @@ func (runner *TestFileRunner) Cleanup(file *moduletest.File) {
 // Crucially, it differs from prepareInputVariablesForAssertions in that it only
 // includes variables that are reference by the config and not everything that
 // is defined within the test run block and test file.
-func buildInputVariablesForTest(run *moduletest.Run, file *moduletest.File, config *configs.Config, globals map[string]backend.UnparsedVariableValue) (tofu.InputValues, tfdiags.Diagnostics) {
+func buildInputVariablesForTest(run *moduletest.Run, file *moduletest.File, config *configs.Config, globals map[string]backend.UnparsedVariableValue, states map[string]*TestFileState) (tofu.InputValues, tfdiags.Diagnostics) {
 	variables := make(map[string]backend.UnparsedVariableValue)
+	evalCtx := getEvalContextFromStates(states)
 	for name := range config.Module.Variables {
 		if run != nil {
 			if expr, exists := run.Config.Variables[name]; exists {
 				// Local variables take precedence.
-				variables[name] = unparsedVariableValueExpression{
+				variables[name] = testVariableValueExpression{
 					expr:       expr,
 					sourceType: tofu.ValueFromConfig,
+					ctx:        evalCtx,
 				}
 				continue
 			}
@@ -1028,6 +1030,34 @@ func buildInputVariablesForTest(run *moduletest.Run, file *moduletest.File, conf
 	return backend.ParseVariableValues(variables, config.Module.Variables)
 }
 
+// getEvalContextFromStates constructs an hcl.EvalContext based on the provided map
+// of TestFileState instances. It extracts the relevant information from the
+// states to create a context suitable for HCL evaluation, including the output
+// values of modules.
+//
+// Parameters:
+//   - states: A map of TestFileState instances containing the state information.
+//
+// Returns:
+//   - *hcl.EvalContext: The constructed HCL evaluation context.
+func getEvalContextFromStates(states map[string]*TestFileState) *hcl.EvalContext {
+	runCtx := make(map[string]cty.Value)
+	for _, state := range states {
+		if state.Run == nil {
+			continue
+		}
+		outputs := make(map[string]cty.Value)
+		mod := state.State.Modules[""] // Empty string is what is used by the module in the test runner
+		for outName, out := range mod.OutputValues {
+			outputs[outName] = out.Value
+		}
+		runCtx[state.Run.Name] = cty.ObjectVal(outputs)
+	}
+	ctx := &hcl.EvalContext{Variables: map[string]cty.Value{"run": cty.ObjectVal(runCtx)}}
+
+	return ctx
+}
+
 type testVariableValueExpression struct {
 	expr       hcl.Expression
 	sourceType tofu.ValueSourceType
@@ -1065,19 +1095,7 @@ func (v testVariableValueExpression) ParseVariableValue(mode configs.VariablePar
 // available are also defined in the config. It returns a function that resets
 // the config which must be called so the config can be reused going forward.
 func (runner *TestFileRunner) prepareInputVariablesForAssertions(config *configs.Config, run *moduletest.Run, file *moduletest.File, globals map[string]backend.UnparsedVariableValue) (tofu.InputValues, func(), tfdiags.Diagnostics) {
-	runCtx := make(map[string]cty.Value)
-	for _, state := range runner.States {
-		if state.Run == nil {
-			continue
-		}
-		outputs := make(map[string]cty.Value)
-		mod := state.State.Modules[""] // Empty string is what is used by the module in the test runner
-		for outName, out := range mod.OutputValues {
-			outputs[outName] = out.Value
-		}
-		runCtx[state.Run.Name] = cty.ObjectVal(outputs)
-	}
-	ctx := &hcl.EvalContext{Variables: map[string]cty.Value{"run": cty.ObjectVal(runCtx)}}
+	ctx := getEvalContextFromStates(runner.States)
 
 	variables := make(map[string]backend.UnparsedVariableValue)
 
diff --git a/internal/command/test_test.go b/internal/command/test_test.go
index a9234217c7..4a329e48c7 100644
--- a/internal/command/test_test.go
+++ b/internal/command/test_test.go
@@ -1118,3 +1118,73 @@ Condition expression could not be evaluated at this time.
 		})
 	}
 }
+
+func TestTest_LocalVariables(t *testing.T) {
+	td := t.TempDir()
+	testCopyDir(t, testFixturePath(path.Join("test", "pass_with_local_variable")), td)
+	defer testChdir(t, td)()
+
+	provider := testing_command.NewProvider(nil)
+
+	providerSource, close := newMockProviderSource(t, map[string][]string{
+		"test": {"1.0.0"},
+	})
+	defer close()
+
+	streams, done := terminal.StreamsForTesting(t)
+	view := views.NewView(streams)
+	ui := new(cli.MockUi)
+
+	meta := Meta{
+		testingOverrides: metaOverridesForProvider(provider.Provider),
+		Ui:               ui,
+		View:             view,
+		Streams:          streams,
+		ProviderSource:   providerSource,
+	}
+
+	init := &InitCommand{
+		Meta: meta,
+	}
+
+	if code := init.Run(nil); code != 0 {
+		t.Fatalf("expected status code 0 but got %d: %s", code, ui.ErrorWriter)
+	}
+
+	c := &TestCommand{
+		Meta: meta,
+	}
+	code := c.Run([]string{"-verbose", "-no-color"})
+	output := done(t)
+
+	if code != 0 {
+		t.Errorf("expected status code 0 but got %d", code)
+	}
+
+	expected := `tests/test.tftest.hcl... pass
+  run "first"... pass
+
+
+Outputs:
+
+foo = "bar"
+  run "second"... pass
+
+No changes. Your infrastructure matches the configuration.
+
+OpenTofu has compared your real infrastructure against your configuration and
+found no differences, so no changes are needed.
+
+Success! 2 passed, 0 failed.
+`
+
+	actual := output.All()
+
+	if diff := cmp.Diff(actual, expected); len(diff) > 0 {
+		t.Errorf("output didn't match expected:\nexpected:\n%s\nactual:\n%s\ndiff:\n%s", expected, actual, diff)
+	}
+
+	if provider.ResourceCount() > 0 {
+		t.Errorf("should have deleted all resources on completion but left %v", provider.ResourceString())
+	}
+}
diff --git a/internal/command/testdata/test/pass_with_local_variable/main.tf b/internal/command/testdata/test/pass_with_local_variable/main.tf
new file mode 100644
index 0000000000..548fe68384
--- /dev/null
+++ b/internal/command/testdata/test/pass_with_local_variable/main.tf
@@ -0,0 +1,4 @@
+output "foo" {
+  description = "Output"
+  value = "bar"
+}
\ No newline at end of file
diff --git a/internal/command/testdata/test/pass_with_local_variable/tests/test.tftest.hcl b/internal/command/testdata/test/pass_with_local_variable/tests/test.tftest.hcl
new file mode 100644
index 0000000000..4ccdf20225
--- /dev/null
+++ b/internal/command/testdata/test/pass_with_local_variable/tests/test.tftest.hcl
@@ -0,0 +1,15 @@
+run "first" {
+  command = apply
+}
+
+run "second" {
+  command = plan
+
+  module {
+    source = "./tests/testmodule"
+  }
+
+  variables {
+    foo = run.first.foo
+  }
+}
\ No newline at end of file
diff --git a/internal/command/testdata/test/pass_with_local_variable/tests/testmodule/main.tf b/internal/command/testdata/test/pass_with_local_variable/tests/testmodule/main.tf
new file mode 100644
index 0000000000..7fe3000783
--- /dev/null
+++ b/internal/command/testdata/test/pass_with_local_variable/tests/testmodule/main.tf
@@ -0,0 +1,3 @@
+variable "foo" {
+  type = string
+}