diff --git a/highlighters/main/main-highlighter.zsh b/highlighters/main/main-highlighter.zsh
index 038215d52..95d35d1c2 100644
--- a/highlighters/main/main-highlighter.zsh
+++ b/highlighters/main/main-highlighter.zsh
@@ -77,6 +77,15 @@ _zsh_highlight_main_add_region_highlight() {
     [[ $1 == unknown-token ]] && alias_style=unknown-token
     return
   fi
+  if (( in_param )); then
+    if [[ $1 == unknown-token ]]; then
+      param_style=unknown-token
+    fi
+    if [[ -n $param_style ]]; then
+      return
+    fi
+    param_style=$1
+  fi
 
   # The calculation was relative to $buf but region_highlight is relative to $BUFFER.
   (( start += buf_offset ))
@@ -394,11 +403,13 @@ _zsh_highlight_main_highlighter_highlight_list()
   # alias_style is the style to apply to an alias once in_alias=0
   #     Usually 'alias' but set to 'unknown-token' if any word expanded from
   #     the alias would be highlighted as unknown-token
-  local alias_style arg buf=$4 highlight_glob=true style
+  # param_style is analogous for parameter expansions
+  local alias_style param_style arg buf=$4 highlight_glob=true style
   local in_array_assignment=false # true between 'a=(' and the matching ')'
   # in_alias is equal to the number of shifts needed until arg=args[1] pops an
   #     arg from BUFFER and not added by an alias.
-  integer in_alias=0 len=$#buf
+  # in_param is analogous for parameter expansions
+  integer in_alias=0 in_param=0 len=$#buf
   local -a match mbegin mend list_highlights
   # seen_alias is a map of aliases already seen to avoid loops like alias a=b b=a
   local -A seen_alias
@@ -477,6 +488,14 @@ _zsh_highlight_main_highlighter_highlight_list()
         _zsh_highlight_main_add_region_highlight $start_pos $end_pos $alias_style
       fi
     fi
+    if (( in_param )); then
+      (( in_param-- ))
+      if (( in_param == 0 )); then
+        # start_pos and end_pos are of the alias (previous $arg) here
+        _zsh_highlight_main_add_region_highlight $start_pos $end_pos ${param_style:-unknown_token}
+        param_style=""
+      fi
+    fi
 
     # Initialize this_word and next_word.
     if (( in_redirection == 0 )); then
@@ -501,7 +520,7 @@ _zsh_highlight_main_highlighter_highlight_list()
       fi
     fi
 
-    if (( in_alias == 0 )); then
+    if (( in_alias == 0 && in_param == 0 )); then
       # Compute the new $start_pos and $end_pos, skipping over whitespace in $buf.
       [[ "$proc_buf" = (#b)(#s)(([ $'\t']|\\$'\n')#)* ]]
       # The first, outer parenthesis
@@ -614,6 +633,7 @@ _zsh_highlight_main_highlighter_highlight_list()
       local -a match mbegin mend
       local MATCH; integer MBEGIN MEND
       local parameter_name
+      local -a words
       if [[ $arg[1] == '$' ]] && [[ ${arg[2]} == '{' ]] && [[ ${arg[-1]} == '}' ]]; then
         parameter_name=${${arg:2}%?}
       elif [[ $arg[1] == '$' ]]; then
@@ -626,14 +646,16 @@ _zsh_highlight_main_highlighter_highlight_list()
         # Set $arg.
         case ${(tP)MATCH} in
           (*array*|*assoc*)
-            local -a words; words=( ${(P)MATCH} )
-            arg=${words[1]}
+            words=( ${(P)MATCH} )
             ;;
           (*)
             # scalar, presumably
-            arg=${(P)MATCH}
+            words=( ${(P)MATCH} )
             ;;
         esac
+        (( in_param = 1 + $#words ))
+        args=( $words $args )
+        arg=$args[1]
         _zsh_highlight_main__type "$arg" 0
         res=$REPLY
       fi
@@ -876,6 +898,7 @@ _zsh_highlight_main_highlighter_highlight_list()
      if [[ -n ${(M)ZSH_HIGHLIGHT_TOKENS_CONTROL_FLOW:#"$arg"} ]]; then
       next_word=':start::start_of_pipeline:'
      fi
+     : ${param_style:=$style}
    else # $arg is a non-command word
       case $arg in
         $'\x29') # subshell or end of array assignment
@@ -933,7 +956,9 @@ _zsh_highlight_main_highlighter_highlight_list()
     fi
     _zsh_highlight_main_add_region_highlight $start_pos $end_pos $style
   done
+  : ${param_style:=$style}
   (( in_alias == 1 )) && in_alias=0 _zsh_highlight_main_add_region_highlight $start_pos $end_pos $alias_style
+  (( in_param == 1 )) && in_param=0 _zsh_highlight_main_add_region_highlight $start_pos $end_pos $param_style
   [[ "$proc_buf" = (#b)(#s)(([[:space:]]|\\$'\n')#) ]]
   REPLY=$(( end_pos + ${#match[1]} - 1 ))
   reply=($list_highlights)
diff --git a/highlighters/main/test-data/param-precommand-option-argument1.zsh b/highlighters/main/test-data/param-precommand-option-argument1.zsh
index fb2ed719a..a8d20489a 100644
--- a/highlighters/main/test-data/param-precommand-option-argument1.zsh
+++ b/highlighters/main/test-data/param-precommand-option-argument1.zsh
@@ -36,7 +36,7 @@ BUFFER='$sudo_u phy1729 echo foo'
 
 expected_region_highlight=(
   '1 7 precommand' # $sudo_u
-  '9 15 default "issue #674"' # phy1729
+  '9 15 default' # phy1729
   '18 20 command "issue #540"' # echo (not builtin)
   '22 24 default' # foo
 )
diff --git a/highlighters/main/test-data/param-precommand-option-argument3.zsh b/highlighters/main/test-data/param-precommand-option-argument3.zsh
index 4bcfa8af9..99610bbe8 100644
--- a/highlighters/main/test-data/param-precommand-option-argument3.zsh
+++ b/highlighters/main/test-data/param-precommand-option-argument3.zsh
@@ -36,7 +36,7 @@ BUFFER='$sudo_u phy1729 ls foo'
 
 expected_region_highlight=(
   '1 7 precommand' # sudo_u
-  '9 15 default "issue #674"' # phy1729
-  '17 18 command "issue #674"' # ls
+  '9 15 default' # phy1729
+  '17 18 command' # ls
   '20 22 default' # foo
 )
diff --git a/highlighters/main/test-data/parameter-value-contains-command-position1.zsh b/highlighters/main/test-data/parameter-value-contains-command-position1.zsh
new file mode 100644
index 000000000..b4a8a5584
--- /dev/null
+++ b/highlighters/main/test-data/parameter-value-contains-command-position1.zsh
@@ -0,0 +1,38 @@
+#!/usr/bin/env zsh
+# -------------------------------------------------------------------------------------------------
+# Copyright (c) 2020 zsh-syntax-highlighting contributors
+# All rights reserved.
+#
+# Redistribution and use in source and binary forms, with or without modification, are permitted
+# provided that the following conditions are met:
+#
+#  * Redistributions of source code must retain the above copyright notice, this list of conditions
+#    and the following disclaimer.
+#  * Redistributions in binary form must reproduce the above copyright notice, this list of
+#    conditions and the following disclaimer in the documentation and/or other materials provided
+#    with the distribution.
+#  * Neither the name of the zsh-syntax-highlighting contributors nor the names of its contributors
+#    may be used to endorse or promote products derived from this software without specific prior
+#    written permission.
+#
+# THIS SOFTWARE IS PROVIDED BY THE COPYRIGHT HOLDERS AND CONTRIBUTORS "AS IS" AND ANY EXPRESS OR
+# IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
+# FITNESS FOR A PARTICULAR PURPOSE ARE DISCLAIMED. IN NO EVENT SHALL THE COPYRIGHT HOLDER OR
+# CONTRIBUTORS BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, OR CONSEQUENTIAL
+# DAMAGES (INCLUDING, BUT NOT LIMITED TO, PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES; LOSS OF USE,
+# DATA, OR PROFITS; OR BUSINESS INTERRUPTION) HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER
+# IN CONTRACT, STRICT LIABILITY, OR TORT (INCLUDING NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY OUT
+# OF THE USE OF THIS SOFTWARE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
+# -------------------------------------------------------------------------------------------------
+# -*- mode: zsh; sh-indentation: 2; indent-tabs-mode: nil; sh-basic-offset: 2; -*-
+# vim: ft=zsh sw=2 ts=2 et
+# -------------------------------------------------------------------------------------------------
+
+local foobar='x=$(ls)'
+
+BUFFER=$'$foobar'
+
+expected_region_highlight=(
+  # Used to highlight the "ba" as 'command' because the 'ls' showed through; issues #670 and #674
+  '1 7 assign' # $foobar
+)
diff --git a/highlighters/main/test-data/parameter-value-contains-command-position2.zsh b/highlighters/main/test-data/parameter-value-contains-command-position2.zsh
new file mode 100644
index 000000000..eca36d45b
--- /dev/null
+++ b/highlighters/main/test-data/parameter-value-contains-command-position2.zsh
@@ -0,0 +1,38 @@
+#!/usr/bin/env zsh
+# -------------------------------------------------------------------------------------------------
+# Copyright (c) 2020 zsh-syntax-highlighting contributors
+# All rights reserved.
+#
+# Redistribution and use in source and binary forms, with or without modification, are permitted
+# provided that the following conditions are met:
+#
+#  * Redistributions of source code must retain the above copyright notice, this list of conditions
+#    and the following disclaimer.
+#  * Redistributions in binary form must reproduce the above copyright notice, this list of
+#    conditions and the following disclaimer in the documentation and/or other materials provided
+#    with the distribution.
+#  * Neither the name of the zsh-syntax-highlighting contributors nor the names of its contributors
+#    may be used to endorse or promote products derived from this software without specific prior
+#    written permission.
+#
+# THIS SOFTWARE IS PROVIDED BY THE COPYRIGHT HOLDERS AND CONTRIBUTORS "AS IS" AND ANY EXPRESS OR
+# IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
+# FITNESS FOR A PARTICULAR PURPOSE ARE DISCLAIMED. IN NO EVENT SHALL THE COPYRIGHT HOLDER OR
+# CONTRIBUTORS BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, OR CONSEQUENTIAL
+# DAMAGES (INCLUDING, BUT NOT LIMITED TO, PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES; LOSS OF USE,
+# DATA, OR PROFITS; OR BUSINESS INTERRUPTION) HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER
+# IN CONTRACT, STRICT LIABILITY, OR TORT (INCLUDING NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY OUT
+# OF THE USE OF THIS SOFTWARE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
+# -------------------------------------------------------------------------------------------------
+# -*- mode: zsh; sh-indentation: 2; indent-tabs-mode: nil; sh-basic-offset: 2; -*-
+# vim: ft=zsh sw=2 ts=2 et
+# -------------------------------------------------------------------------------------------------
+
+local y='x=$(ls)'
+
+BUFFER=$'$y'
+
+expected_region_highlight=(
+  # Used to trigger a "BUG" message on stderr - issues #670 and #674
+  '1 2 assign' # $y
+)