diff --git a/src/inner-template-part.ts b/src/inner-template-part.ts
new file mode 100644
index 0000000..5f599c3
--- /dev/null
+++ b/src/inner-template-part.ts
@@ -0,0 +1,11 @@
+import {NodeTemplatePart} from './node-template-part.js'
+
+export class InnerTemplatePart extends NodeTemplatePart {
+  constructor(public template: HTMLTemplateElement) {
+    super(template, template.getAttribute('expression') ?? '')
+  }
+
+  get directive(): string {
+    return this.template.getAttribute('directive') ?? ''
+  }
+}
diff --git a/src/processors.ts b/src/processors.ts
index 1f47ec0..9146b54 100644
--- a/src/processors.ts
+++ b/src/processors.ts
@@ -2,16 +2,16 @@ import type {TemplatePart, TemplateTypeInit} from './types.js'
 import type {TemplateInstance} from './template-instance.js'
 import {AttributeTemplatePart} from './attribute-template-part.js'
 
-type PartProcessor = (part: TemplatePart, value: unknown) => void
+type PartProcessor = (part: TemplatePart, value: unknown, state: unknown) => void
 
 export function createProcessor(processPart: PartProcessor): TemplateTypeInit {
   return {
-    processCallback(_: TemplateInstance, parts: Iterable<TemplatePart>, params: unknown): void {
-      if (typeof params !== 'object' || !params) return
+    processCallback(_: TemplateInstance, parts: Iterable<TemplatePart>, state: unknown): void {
+      if (typeof state !== 'object' || !state) return
       for (const part of parts) {
-        if (part.expression in params) {
-          const value = (params as Record<string, unknown>)[part.expression] ?? ''
-          processPart(part, value)
+        if (part.expression in state) {
+          const value = (state as Record<string, unknown>)[part.expression] ?? ''
+          processPart(part, value, state)
         }
       }
     },
diff --git a/src/template-instance.ts b/src/template-instance.ts
index 7f4deba..a10cc20 100644
--- a/src/template-instance.ts
+++ b/src/template-instance.ts
@@ -1,5 +1,6 @@
 import {parse} from './template-string-parser.js'
 import {AttributeValueSetter, AttributeTemplatePart} from './attribute-template-part.js'
+import {InnerTemplatePart} from './inner-template-part.js'
 import {NodeTemplatePart} from './node-template-part.js'
 import {propertyIdentity} from './processors.js'
 import {TemplatePart, TemplateTypeInit} from './types.js'
@@ -9,8 +10,12 @@ function* collectParts(el: DocumentFragment): Generator<TemplatePart> {
   let node
   while ((node = walker.nextNode())) {
     if (node instanceof HTMLTemplateElement) {
-      for (const part of collectParts(node.content)) {
-        yield part
+      if (node.hasAttribute('directive')) {
+        yield new InnerTemplatePart(node)
+      } else {
+        for (const part of collectParts(node.content)) {
+          yield part
+        }
       }
     } else if (node instanceof Element && node.hasAttributes()) {
       for (let i = 0; i < node.attributes.length; i += 1) {
diff --git a/test/processors.ts b/test/processors.ts
index b83b4da..89131c0 100644
--- a/test/processors.ts
+++ b/test/processors.ts
@@ -1,5 +1,6 @@
 import {expect} from '@open-wc/testing'
 import {TemplateInstance} from '../src/template-instance'
+import {InnerTemplatePart} from '../src/inner-template-part'
 import type {TemplateTypeInit} from '../src/types'
 import {createProcessor} from '../src/processors'
 describe('createProcessor', () => {
@@ -29,4 +30,23 @@ describe('createProcessor', () => {
     instance.update({y: 'world'})
     expect(calls).to.eql(0)
   })
+
+  describe('handling InnerTemplatePart', () => {
+    beforeEach(() => {
+      processor = createProcessor(part => {
+        if (part instanceof InnerTemplatePart) calls += 1
+      })
+    })
+
+    it('detects InnerTemplatePart instances with <template> element', () => {
+      template.innerHTML = '<template directive="if" expression="x">{{x}}</template>'
+      new TemplateInstance(template, {x: true}, processor)
+      expect(calls).to.eql(1)
+    })
+
+    it('does not detect InnerTemplatePart instances without <template> element', () => {
+      new TemplateInstance(template, {x: true}, processor)
+      expect(calls).to.eql(0)
+    })
+  })
 })
diff --git a/test/template-instance.ts b/test/template-instance.ts
index 4b1242b..76e691a 100644
--- a/test/template-instance.ts
+++ b/test/template-instance.ts
@@ -1,7 +1,8 @@
 import {expect} from '@open-wc/testing'
 import {TemplateInstance} from '../src/template-instance'
 import {NodeTemplatePart} from '../src/node-template-part'
-import {propertyIdentityOrBooleanAttribute, createProcessor} from '../src/processors'
+import {InnerTemplatePart} from '../src/inner-template-part'
+import {processPropertyIdentity, propertyIdentityOrBooleanAttribute, createProcessor} from '../src/processors'
 
 describe('template-instance', () => {
   it('applies data to templated text nodes', () => {
@@ -354,5 +355,31 @@ describe('template-instance', () => {
         expect(processCallCount).to.equal(2)
       })
     })
+
+    describe('handling InnerTemplatePart', () => {
+      it('makes outer state available to inner parts', () => {
+        const processor = createProcessor((part, value, state) => {
+          if (part instanceof InnerTemplatePart && part.directive === 'if') {
+            if (typeof state === 'object' && (state as Record<string, unknown>)[part.expression]) {
+              part.replace(new TemplateInstance(part.template, state, processor))
+            } else {
+              part.replace()
+            }
+          } else {
+            processPropertyIdentity(part, value)
+          }
+        })
+        const template = Object.assign(document.createElement('template'), {
+          innerHTML: '{{x}}<template directive="if" expression="y">{{y}}</template>',
+        })
+
+        const root = document.createElement('div')
+        root.appendChild(new TemplateInstance(template, {x: 'x', y: 'y'}, processor))
+        expect(root.innerHTML).to.equal('xy')
+
+        root.replaceChildren(new TemplateInstance(template, {x: 'x', y: false}, processor))
+        expect(root.innerHTML).to.equal('x')
+      })
+    })
   })
 })