diff --git a/src/cmd/ksh93/sh/subshell.c b/src/cmd/ksh93/sh/subshell.c
index 6637ccf55673..d4e17c4b3b8e 100644
--- a/src/cmd/ksh93/sh/subshell.c
+++ b/src/cmd/ksh93/sh/subshell.c
@@ -679,13 +679,10 @@ Sfio_t *sh_subshell(Shnode_t *t, volatile int flags, int comsub)
 			sfswap(iop,sfstdout);
 			sfset(sfstdout,SFIO_READ,0);
 			sh.fdstatus[1] = IOWRITE;
-			flags |= sh_state(SH_NOFORK);
 		}
 		else if(sp->prev)
-		{
 			sp->pipe = sp->prev->pipe;
-			flags &= ~sh_state(SH_NOFORK);
-		}
+		flags |= sh_state(SH_NOFORK);
 		if(sh.savesig < 0)
 		{
 			sh.savesig = 0;
diff --git a/src/cmd/ksh93/tests/basic.sh b/src/cmd/ksh93/tests/basic.sh
index 97dfebbc2288..880fe508aa64 100755
--- a/src/cmd/ksh93/tests/basic.sh
+++ b/src/cmd/ksh93/tests/basic.sh
@@ -987,6 +987,15 @@ esac
 # ======
 # Test exec optimization of last command in script or subshell
 
+(
+	ulimit -t unlimited 2>/dev/null  # fork subshell
+	print "${.sh.pid:-$("$SHELL" -c 'echo "$PPID"')}"  # fallback for pre-93u+m ksh without ${.sh.pid}
+	"$SHELL" -c 'print "$$"'
+) >out
+pid1= pid2=
+{ read pid1 && read pid2; } <out && let "pid1 == pid2" \
+|| err_exit "last command in forked subshell not exec-optimized ($pid1 != $pid2)"
+
 got=$(
 	ulimit -t unlimited 2>/dev/null  # fork subshell
 	print "${.sh.pid:-$("$SHELL" -c 'echo "$PPID"')}"  # fallback for pre-93u+m ksh without ${.sh.pid}
@@ -996,6 +1005,29 @@ pid1= pid2=
 { read pid1 && read pid2; } <<<$got && let "pid1 == pid2" \
 || err_exit "last command in forked comsub not exec-optimized ($pid1 != $pid2)"
 
+# https://github.com/ksh93/ksh/issues/507
+mkdir "$tmp/subshell-optimize"
+cat <<'EOF1' >"$tmp/subshell-optimize/A"
+cat <<'EOF2' >B
+( echo B1 ) | cat
+( echo B2 ) | cat
+EOF2
+
+cat <<'EOF2' >C
+( echo C1 ) | cat
+( echo C2 ) | cat
+EOF2
+
+(
+	. ./B
+	. ./C
+) | cat
+EOF1
+exp=$'B1\nB2\nC1\nC2'
+got=$(cd "$tmp/subshell-optimize"; "$SHELL" "$tmp/subshell-optimize/A")
+[[ $exp == $got ]] || err_exit "last command exec optimization in virtual subshells is broken" \
+	"(expected $(printf %q "$exp"), got $(printf %q "$got"))"
+
 cat >script <<\EOF
 echo $$
 sh -c 'echo $$'