diff --git a/OpenNest.IO/ProgramReader.cs b/OpenNest.IO/ProgramReader.cs
index ab2e896..5df8200 100644
--- a/OpenNest.IO/ProgramReader.cs
+++ b/OpenNest.IO/ProgramReader.cs
@@ -1,7 +1,11 @@
 using OpenNest.CNC;
 using OpenNest.Geometry;
+using OpenNest.Math;
+using System;
 using System.Collections.Generic;
+using System.Globalization;
 using System.IO;
+using System.Linq;
 using System.Text;
 
 namespace OpenNest.IO
@@ -15,6 +19,7 @@ namespace OpenNest.IO
         private CodeSection section;
         private Program program;
         private StreamReader reader;
+        private Dictionary<string, double> resolvedVariables;
 
         public ProgramReader(Stream stream)
         {
@@ -24,11 +29,38 @@ namespace OpenNest.IO
 
         public Program Read()
         {
+            // First pass: read all lines, collect variable definitions
+            var allLines = new List<string>();
+            var variableDefs = new Dictionary<string, (string expression, bool inline, bool global)>(
+                StringComparer.OrdinalIgnoreCase);
+            var codeLines = new List<string>();
             string line;
 
             while ((line = reader.ReadLine()) != null)
             {
-                block = ParseBlock(line);
+                allLines.Add(line);
+                if (TryParseVariableDefinition(line, out var name, out var expression, out var isInline, out var isGlobal))
+                    variableDefs[name] = (expression, isInline, isGlobal);
+                else
+                    codeLines.Add(line);
+            }
+
+            // Evaluate variables with topological sort for dependency ordering
+            resolvedVariables = ResolveVariables(variableDefs);
+
+            // Store evaluated variables on the program
+            foreach (var kvp in variableDefs)
+            {
+                var name = kvp.Key;
+                var (expression, isInline, isGlobal) = kvp.Value;
+                var value = resolvedVariables[name];
+                program.Variables[name] = new VariableDefinition(name, expression, value, isInline, isGlobal);
+            }
+
+            // Second pass: parse G-code lines with variable substitution
+            foreach (var codeLine in codeLines)
+            {
+                block = ParseBlock(codeLine);
                 ProcessCurrentBlock();
             }
 
@@ -39,10 +71,43 @@ namespace OpenNest.IO
         {
             var block = new CodeBlock();
             Code code = null;
-            for (int i = 0; i < line.Length; ++i)
+            for (var i = 0; i < line.Length; ++i)
             {
                 var c = line[i];
-                if (char.IsLetter(c))
+                if (c == '$' && code != null && resolvedVariables != null)
+                {
+                    // Read the maximal variable name (letters, digits, underscores)
+                    var start = i + 1;
+                    while (start < line.Length && (char.IsLetterOrDigit(line[start]) || line[start] == '_'))
+                        start++;
+                    var maxName = line.Substring(i + 1, start - i - 1);
+
+                    // Try longest match first, then progressively shorter to handle
+                    // cases like X$widthY0 where "widthY" isn't a variable but "width" is
+                    string lookupKey = null;
+                    var nameLen = maxName.Length;
+                    while (nameLen > 0)
+                    {
+                        var candidate = maxName.Substring(0, nameLen);
+                        lookupKey = resolvedVariables.Keys
+                            .FirstOrDefault(k => string.Equals(k, candidate, StringComparison.OrdinalIgnoreCase));
+                        if (lookupKey != null)
+                            break;
+                        nameLen--;
+                    }
+
+                    if (lookupKey != null)
+                    {
+                        code.Value = resolvedVariables[lookupKey].ToString(CultureInfo.InvariantCulture);
+                        code.VariableRef = lookupKey;
+                        i += nameLen; // advance past the matched variable name
+                    }
+                    else
+                    {
+                        i = start - 1; // no match, skip the whole thing
+                    }
+                }
+                else if (char.IsLetter(c))
                     block.Add((code = new Code(c)));
                 else if (c == ':')
                 {
@@ -125,7 +190,10 @@ namespace OpenNest.IO
                         break;
 
                     case 'F':
-                        program.Codes.Add(new Feedrate() { Value = double.Parse(code.Value) });
+                        var feedrate = new Feedrate() { Value = double.Parse(code.Value) };
+                        if (code.VariableRef != null)
+                            feedrate.VariableRef = code.VariableRef;
+                        program.Codes.Add(feedrate);
                         code = GetNextCode();
                         break;
 
@@ -143,6 +211,7 @@ namespace OpenNest.IO
             double y = 0;
             var layer = LayerType.Cut;
             var suppressed = false;
+            string xRef = null, yRef = null;
 
             while (section == CodeSection.Line)
             {
@@ -157,10 +226,12 @@ namespace OpenNest.IO
                 {
                     case 'X':
                         x = double.Parse(code.Value);
+                        xRef = code.VariableRef;
                         break;
 
                     case 'Y':
                         y = double.Parse(code.Value);
+                        yRef = code.VariableRef;
                         break;
 
                     case ':':
@@ -200,10 +271,13 @@ namespace OpenNest.IO
                         break;
                 }
             }
+
+            var refs = BuildVariableRefs(("X", xRef), ("Y", yRef));
+
             if (isRapid)
-                program.Codes.Add(new RapidMove(x, y));
+                program.Codes.Add(new RapidMove(x, y) { VariableRefs = refs });
             else
-                program.Codes.Add(new LinearMove(x, y) { Layer = layer, Suppressed = suppressed });
+                program.Codes.Add(new LinearMove(x, y) { Layer = layer, Suppressed = suppressed, VariableRefs = refs });
         }
 
         private void ReadArc(RotationType rotation)
@@ -214,6 +288,7 @@ namespace OpenNest.IO
             double j = 0;
             var layer = LayerType.Cut;
             var suppressed = false;
+            string xRef = null, yRef = null, iRef = null, jRef = null;
 
             while (section == CodeSection.Arc)
             {
@@ -229,18 +304,22 @@ namespace OpenNest.IO
                 {
                     case 'X':
                         x = double.Parse(code.Value);
+                        xRef = code.VariableRef;
                         break;
 
                     case 'Y':
                         y = double.Parse(code.Value);
+                        yRef = code.VariableRef;
                         break;
 
                     case 'I':
                         i = double.Parse(code.Value);
+                        iRef = code.VariableRef;
                         break;
 
                     case 'J':
                         j = double.Parse(code.Value);
+                        jRef = code.VariableRef;
                         break;
 
                     case ':':
@@ -286,7 +365,8 @@ namespace OpenNest.IO
                 CenterPoint = new Vector(i, j),
                 Rotation = rotation,
                 Layer = layer,
-                Suppressed = suppressed
+                Suppressed = suppressed,
+                VariableRefs = BuildVariableRefs(("X", xRef), ("Y", yRef), ("I", iRef), ("J", jRef))
             });
         }
 
@@ -351,6 +431,179 @@ namespace OpenNest.IO
             return block[codeIndex];
         }
 
+        private static bool TryParseVariableDefinition(string line, out string name, out string expression,
+            out bool isInline, out bool isGlobal)
+        {
+            name = null;
+            expression = null;
+            isInline = false;
+            isGlobal = false;
+
+            var trimmed = line.Trim();
+            if (trimmed.Length == 0)
+                return false;
+
+            // Must start with a letter or underscore (not a G-code letter followed by a digit)
+            var firstChar = trimmed[0];
+            if (!char.IsLetter(firstChar) && firstChar != '_')
+                return false;
+
+            // If line starts with a known G-code letter followed by a digit, it's not a variable
+            if (trimmed.Length >= 2 && char.IsDigit(trimmed[1]))
+            {
+                var upper = char.ToUpper(firstChar);
+                if (upper is 'G' or 'M' or 'N' or 'F' or 'X' or 'Y' or 'I' or 'J' or 'T' or 'S' or 'O' or 'P' or 'R')
+                    return false;
+            }
+
+            // Must contain '='
+            var eqIndex = trimmed.IndexOf('=');
+            if (eqIndex < 1)
+                return false;
+
+            // Extract name (everything before '=', trimmed)
+            var rawName = trimmed.Substring(0, eqIndex).Trim();
+
+            // Validate name: must be identifier (letter/underscore followed by alphanumeric/underscore)
+            if (rawName.Length == 0 || (!char.IsLetter(rawName[0]) && rawName[0] != '_'))
+                return false;
+            for (var i = 1; i < rawName.Length; i++)
+            {
+                if (!char.IsLetterOrDigit(rawName[i]) && rawName[i] != '_')
+                    return false;
+            }
+
+            // Extract expression and flags from the remainder after '='
+            var remainder = trimmed.Substring(eqIndex + 1).Trim();
+
+            // Check for trailing flags: inline and/or global
+            // Parse from the end to separate expression from flags
+            var words = remainder.Split(' ', StringSplitOptions.RemoveEmptyEntries);
+            var flagStart = words.Length;
+            for (var i = words.Length - 1; i >= 0; i--)
+            {
+                var word = words[i].ToLowerInvariant();
+                if (word == "inline" || word == "global")
+                    flagStart = i;
+                else
+                    break;
+            }
+
+            // Build expression from non-flag words
+            var expressionParts = words.Take(flagStart).ToArray();
+            if (expressionParts.Length == 0)
+                return false;
+
+            expression = string.Join(" ", expressionParts);
+
+            // Parse flags
+            for (var i = flagStart; i < words.Length; i++)
+            {
+                var word = words[i].ToLowerInvariant();
+                if (word == "inline") isInline = true;
+                else if (word == "global") isGlobal = true;
+            }
+
+            name = rawName;
+            return true;
+        }
+
+        private static Dictionary<string, double> ResolveVariables(
+            Dictionary<string, (string expression, bool inline, bool global)> variableDefs)
+        {
+            if (variableDefs.Count == 0)
+                return new Dictionary<string, double>(StringComparer.OrdinalIgnoreCase);
+
+            // Build dependency graph
+            var dependencies = new Dictionary<string, List<string>>(StringComparer.OrdinalIgnoreCase);
+            foreach (var kvp in variableDefs)
+            {
+                var deps = new List<string>();
+                var expr = kvp.Value.expression;
+                for (var i = 0; i < expr.Length; i++)
+                {
+                    if (expr[i] == '$')
+                    {
+                        var start = i + 1;
+                        while (start < expr.Length && (char.IsLetterOrDigit(expr[start]) || expr[start] == '_'))
+                            start++;
+                        var refName = expr.Substring(i + 1, start - i - 1);
+                        // Find the canonical name (case-insensitive match)
+                        var canonical = variableDefs.Keys
+                            .FirstOrDefault(k => string.Equals(k, refName, StringComparison.OrdinalIgnoreCase));
+                        if (canonical != null)
+                            deps.Add(canonical);
+                        i = start - 1;
+                    }
+                }
+                dependencies[kvp.Key] = deps;
+            }
+
+            // Topological sort (Kahn's algorithm)
+            var inDegree = new Dictionary<string, int>(StringComparer.OrdinalIgnoreCase);
+            foreach (var name in variableDefs.Keys)
+                inDegree[name] = 0;
+            foreach (var kvp in dependencies)
+            {
+                foreach (var dep in kvp.Value)
+                {
+                    if (inDegree.ContainsKey(dep))
+                        inDegree[kvp.Key]++;
+                }
+            }
+
+            var queue = new Queue<string>();
+            foreach (var kvp in inDegree)
+            {
+                if (kvp.Value == 0)
+                    queue.Enqueue(kvp.Key);
+            }
+
+            var resolved = new Dictionary<string, double>(StringComparer.OrdinalIgnoreCase);
+            var order = new List<string>();
+
+            while (queue.Count > 0)
+            {
+                var current = queue.Dequeue();
+                order.Add(current);
+
+                // Evaluate this variable
+                var expr = variableDefs[current].expression;
+                var value = ExpressionEvaluator.Evaluate(expr, resolved);
+                resolved[current] = value;
+
+                // Reduce in-degree of dependents
+                foreach (var kvp in dependencies)
+                {
+                    if (kvp.Value.Contains(current, StringComparer.OrdinalIgnoreCase))
+                    {
+                        inDegree[kvp.Key]--;
+                        if (inDegree[kvp.Key] == 0 && !order.Contains(kvp.Key))
+                            queue.Enqueue(kvp.Key);
+                    }
+                }
+            }
+
+            if (order.Count != variableDefs.Count)
+                throw new InvalidOperationException("Circular dependency detected among variables.");
+
+            return resolved;
+        }
+
+        private static Dictionary<string, string> BuildVariableRefs(params (string axis, string varRef)[] refs)
+        {
+            Dictionary<string, string> result = null;
+            foreach (var (axis, varRef) in refs)
+            {
+                if (varRef != null)
+                {
+                    result ??= new Dictionary<string, string>();
+                    result[axis] = varRef;
+                }
+            }
+            return result;
+        }
+
         public void Close()
         {
             reader.Close();
@@ -374,6 +627,8 @@ namespace OpenNest.IO
 
             public string Value { get; set; }
 
+            public string VariableRef { get; set; }
+
             public override string ToString()
             {
                 return Id + Value;
diff --git a/OpenNest.Tests/IO/ProgramReaderVariableTests.cs b/OpenNest.Tests/IO/ProgramReaderVariableTests.cs
new file mode 100644
index 0000000..c56707f
--- /dev/null
+++ b/OpenNest.Tests/IO/ProgramReaderVariableTests.cs
@@ -0,0 +1,136 @@
+using System.IO;
+using System.Text;
+using OpenNest.CNC;
+using OpenNest.IO;
+
+namespace OpenNest.Tests.IO;
+
+public class ProgramReaderVariableTests
+{
+    private Program Parse(string gcode)
+    {
+        var stream = new MemoryStream(Encoding.UTF8.GetBytes(gcode));
+        var reader = new ProgramReader(stream);
+        var program = reader.Read();
+        reader.Close();
+        return program;
+    }
+
+    [Fact]
+    public void Parse_SimpleVariable_StoredInVariables()
+    {
+        var pgm = Parse("diameter = 0.3\nG90\nG01X1Y0");
+        Assert.True(pgm.Variables.ContainsKey("diameter"));
+        Assert.Equal(0.3, pgm.Variables["diameter"].Value);
+        Assert.Equal("0.3", pgm.Variables["diameter"].Expression);
+    }
+
+    [Fact]
+    public void Parse_VariableWithInlineFlag()
+    {
+        var pgm = Parse("kerf = 0.06 inline\nG90\nG01X1Y0");
+        Assert.True(pgm.Variables["kerf"].Inline);
+        Assert.False(pgm.Variables["kerf"].Global);
+    }
+
+    [Fact]
+    public void Parse_VariableWithGlobalFlag()
+    {
+        var pgm = Parse("sheet_width = 48.0 global\nG90\nG01X1Y0");
+        Assert.True(pgm.Variables["sheet_width"].Global);
+        Assert.False(pgm.Variables["sheet_width"].Inline);
+    }
+
+    [Fact]
+    public void Parse_VariableWithBothFlags()
+    {
+        var pgm = Parse("speed = 200 global inline\nG90\nG01X1Y0");
+        Assert.True(pgm.Variables["speed"].Global);
+        Assert.True(pgm.Variables["speed"].Inline);
+    }
+
+    [Fact]
+    public void Parse_VariableReference_SubstitutedInCoordinate()
+    {
+        var pgm = Parse("width = 48.0\nG90\nG01X$widthY0");
+        var linear = (LinearMove)pgm.Codes[0];
+        Assert.Equal(48.0, linear.EndPoint.X);
+        Assert.Equal(0.0, linear.EndPoint.Y);
+    }
+
+    [Fact]
+    public void Parse_VariableReference_TrackedInVariableRefs()
+    {
+        var pgm = Parse("width = 48.0\nG90\nG01X$widthY0");
+        var linear = (LinearMove)pgm.Codes[0];
+        Assert.NotNull(linear.VariableRefs);
+        Assert.Equal("width", linear.VariableRefs["X"]);
+        Assert.False(linear.VariableRefs.ContainsKey("Y"));
+    }
+
+    [Fact]
+    public void Parse_VariableExpression_WithReference()
+    {
+        var pgm = Parse("diameter = 0.6\nradius = $diameter / 2\nG90\nG02X1Y0I$radiusJ0");
+        Assert.Equal(0.3, pgm.Variables["radius"].Value, 10);
+        var arc = (ArcMove)pgm.Codes[0];
+        Assert.Equal(0.3, arc.CenterPoint.X, 10);
+        Assert.Equal("radius", arc.VariableRefs["I"]);
+    }
+
+    [Fact]
+    public void Parse_FeedVariable_TrackedOnFeedrate()
+    {
+        var pgm = Parse("speed = 100\nG90\nF$speed\nG01X1Y0");
+        var feedrate = (Feedrate)pgm.Codes[0];
+        Assert.Equal(100.0, feedrate.Value);
+        Assert.Equal("speed", feedrate.VariableRef);
+    }
+
+    [Fact]
+    public void Parse_VariablesCollectedInPrepass_OrderIndependent()
+    {
+        var pgm = Parse("radius = $diameter / 2\ndiameter = 0.6\nG90\nG01X$radiusY0");
+        Assert.Equal(0.3, pgm.Variables["radius"].Value, 10);
+        var linear = (LinearMove)pgm.Codes[0];
+        Assert.Equal(0.3, linear.EndPoint.X, 10);
+    }
+
+    [Fact]
+    public void Parse_NoVariables_WorksAsNormal()
+    {
+        var pgm = Parse("G90\nG01X1.5Y2.5");
+        Assert.Empty(pgm.Variables);
+        var linear = (LinearMove)pgm.Codes[0];
+        Assert.Equal(1.5, linear.EndPoint.X);
+        Assert.Null(linear.VariableRefs);
+    }
+
+    [Fact]
+    public void Parse_RapidMove_WithVariableRef()
+    {
+        var pgm = Parse("start_x = 5.0\nG90\nG00X$start_xY0");
+        var rapid = (RapidMove)pgm.Codes[0];
+        Assert.Equal(5.0, rapid.EndPoint.X);
+        Assert.Equal("start_x", rapid.VariableRefs["X"]);
+    }
+
+    [Fact]
+    public void Parse_ArcMove_VariableOnMultipleAxes()
+    {
+        var pgm = Parse("r = 0.5\nG90\nG03X1Y0I$rJ$r");
+        var arc = (ArcMove)pgm.Codes[0];
+        Assert.Equal(0.5, arc.CenterPoint.X);
+        Assert.Equal(0.5, arc.CenterPoint.Y);
+        Assert.Equal("r", arc.VariableRefs["I"]);
+        Assert.Equal("r", arc.VariableRefs["J"]);
+    }
+
+    [Fact]
+    public void Parse_CaseInsensitive_VariableReference()
+    {
+        var pgm = Parse("Diameter = 0.3\nG90\nG01X$diameterY0");
+        var linear = (LinearMove)pgm.Codes[0];
+        Assert.Equal(0.3, linear.EndPoint.X);
+    }
+}