diff --git a/imageio/imageio-psd/src/main/java/com/twelvemonkeys/imageio/plugins/psd/PSDImageReader.java b/imageio/imageio-psd/src/main/java/com/twelvemonkeys/imageio/plugins/psd/PSDImageReader.java
index ddb75270..ced1af09 100644
--- a/imageio/imageio-psd/src/main/java/com/twelvemonkeys/imageio/plugins/psd/PSDImageReader.java
+++ b/imageio/imageio-psd/src/main/java/com/twelvemonkeys/imageio/plugins/psd/PSDImageReader.java
@@ -992,24 +992,27 @@ public final class PSDImageReader extends ImageReaderBase {
     private List<PSDLayerInfo> readLayerInfo(int layerCount) throws IOException {
         PSDLayerInfo[] layerInfos = new PSDLayerInfo[layerCount];
 
-        List<PSDLayerInfo> groupedLayerInfo = Collections.emptyList();
+        Stack<List<PSDLayerInfo>> groupStack = new Stack<>();
+        List<PSDLayerInfo> currentGroup = Collections.emptyList();
 
         for (int i = 0; i < layerInfos.length; i++) {
             PSDLayerInfo layerInfo = new PSDLayerInfo(header.largeFormat, imageInput);
             layerInfos[i] = layerInfo;
 
             if (layerInfo.isDivider) {
-                groupedLayerInfo = new LinkedList<>();
+                groupStack.push(currentGroup);
+                currentGroup = new ArrayList<>();
             }
             else if (layerInfo.isGroup) {
-                for (PSDLayerInfo info : groupedLayerInfo) {
+                for (PSDLayerInfo info : currentGroup) {
                     info.groupId = layerInfo.getLayerId();
                 }
 
-                groupedLayerInfo = Collections.emptyList();
+                currentGroup = groupStack.pop();
             }
-            else if (groupedLayerInfo != Collections.EMPTY_LIST) {
-                groupedLayerInfo.add(layerInfo);
+
+            if (currentGroup != Collections.EMPTY_LIST) {
+                currentGroup.add(layerInfo);
             }
         }
 
diff --git a/imageio/imageio-psd/src/test/java/com/twelvemonkeys/imageio/plugins/psd/PSDImageReaderTest.java b/imageio/imageio-psd/src/test/java/com/twelvemonkeys/imageio/plugins/psd/PSDImageReaderTest.java
index a1f525d7..4cd5e4c4 100755
--- a/imageio/imageio-psd/src/test/java/com/twelvemonkeys/imageio/plugins/psd/PSDImageReaderTest.java
+++ b/imageio/imageio-psd/src/test/java/com/twelvemonkeys/imageio/plugins/psd/PSDImageReaderTest.java
@@ -543,26 +543,79 @@ public class PSDImageReaderTest extends ImageReaderAbstractTest<PSDImageReader>
             IIOMetadata metadata = imageReader.getImageMetadata(0);
             List<PSDLayerInfo> layerInfos = ((PSDMetadata) metadata).layerInfo;
 
-            assertEquals(layerInfos.size(), 5);
+            assertEquals(layerInfos.size(), 8);
 
-            PSDLayerInfo sectionDividerLayer = layerInfos.get(1);
-            PSDLayerInfo groupedLayer = layerInfos.get(2);
-            PSDLayerInfo groupLayer = layerInfos.get(3);
+            // Normal layer, top level
+            PSDLayerInfo layer5 = layerInfos.get(0);
+            assertNotNull(layer5);
+            assertEquals("Layer 5", layer5.getLayerName());
+            assertEquals(2, layer5.getLayerId());
+            assertEquals(-1, layer5.groupId);
+            assertFalse(layer5.isGroup);
+            assertFalse(layer5.isDivider);
 
+            // Divider, invisible in UI, in "group 1" (group id 6)
+            PSDLayerInfo sectionDivider1 = layerInfos.get(1);
+            assertNotNull(sectionDivider1);
+            assertEquals("</Layer group>", sectionDivider1.getLayerName());
+            assertEquals(7, sectionDivider1.getLayerId());
+            assertEquals(6, sectionDivider1.groupId); // ...or -1?
+            assertFalse(sectionDivider1.isGroup);
+            assertTrue(sectionDivider1.isDivider);
+
+            // Normal layer, in "group 1" (group id 6)
+            PSDLayerInfo layer2 = layerInfos.get(2);
+            assertNotNull(layer2);
+            assertEquals("Layer 2", layer2.getLayerName());
+            assertEquals(5, layer2.getLayerId());
+            assertEquals(6, layer2.groupId);
+            assertFalse(layer2.isGroup);
+            assertFalse(layer2.isDivider);
+
+            // Divider, invisible in UI, in "group 1" (group id 9)
+            PSDLayerInfo sectionDivider2 = layerInfos.get(3);
+            assertNotNull(sectionDivider2);
+            assertEquals("</Layer group>", sectionDivider2.getLayerName());
+            assertEquals(10, sectionDivider2.getLayerId());
+            assertEquals(9, sectionDivider2.groupId); // ...or 6?
+            assertFalse(sectionDivider2.isGroup);
+            assertTrue(sectionDivider2.isDivider);
+
+            // Normal layer, in "nested group 1" (group id 9)
+            PSDLayerInfo groupedLayer = layerInfos.get(4);
             assertNotNull(groupedLayer);
-            assertEquals(groupedLayer.groupId, 6);
+            assertEquals("Nested Group Layer 1", groupedLayer.getLayerName());
+            assertEquals(8, groupedLayer.getLayerId());
+            assertEquals(9, groupedLayer.groupId);
             assertFalse(groupedLayer.isGroup);
             assertFalse(groupedLayer.isDivider);
 
+            // Group layer, in "group 1" (group id 6)
+            PSDLayerInfo nestedGroupLayer = layerInfos.get(5);
+            assertNotNull(nestedGroupLayer);
+            assertEquals("nested group 1", nestedGroupLayer.getLayerName());
+            assertEquals(9, nestedGroupLayer.getLayerId());
+            assertEquals(6, nestedGroupLayer.groupId);
+            assertTrue(nestedGroupLayer.isGroup);
+            assertFalse(nestedGroupLayer.isDivider);
+
+            // Group layer, top level
+            PSDLayerInfo groupLayer = layerInfos.get(6);
             assertNotNull(groupLayer);
+            assertEquals("group 1", groupLayer.getLayerName());
+            assertEquals(6, groupLayer.getLayerId());
             assertEquals(-1, groupLayer.groupId);
             assertTrue(groupLayer.isGroup);
             assertFalse(groupLayer.isDivider);
 
-            assertNotNull(sectionDividerLayer);
-            assertEquals(-1, sectionDividerLayer.groupId);
-            assertFalse(sectionDividerLayer.isGroup);
-            assertTrue(sectionDividerLayer.isDivider);
+            // Normal layer, top level
+            PSDLayerInfo layer1 = layerInfos.get(7);
+            assertNotNull(layer1);
+            assertEquals("Layer 1", layer1.getLayerName());
+            assertEquals(4, layer1.getLayerId());
+            assertEquals(-1, layer1.groupId);
+            assertFalse(layer1.isGroup);
+            assertFalse(layer1.isDivider);
         }
     }
 }
\ No newline at end of file
diff --git a/imageio/imageio-psd/src/test/resources/psd/layer_group_32bit5x5.psd b/imageio/imageio-psd/src/test/resources/psd/layer_group_32bit5x5.psd
index 97ce355f..3d7afb30 100644
Binary files a/imageio/imageio-psd/src/test/resources/psd/layer_group_32bit5x5.psd and b/imageio/imageio-psd/src/test/resources/psd/layer_group_32bit5x5.psd differ