diff --git a/src/extract/parser.rs b/src/extract/parser.rs
index 1326371..b1d0374 100644
--- a/src/extract/parser.rs
+++ b/src/extract/parser.rs
@@ -12,6 +12,8 @@ struct BlockInfo {
     end_line: usize,
     block_type: BlockType,
     events: Vec<Event<'static>>,
+    /// Nested list items contained within this block (for ListItem blocks with sub-lists).
+    nested_items: Vec<BlockInfo>,
 }
 
 #[derive(Debug, Clone, PartialEq)]
@@ -110,12 +112,14 @@ pub fn parse_markdown_file(file_name: &str, file_content: &str) -> StreamFile {
 fn collect_blocks(content: &str, parser: Parser) -> Vec<BlockInfo> {
     let mut blocks = Vec::new();
     let mut current_block: Option<BlockInfo> = None;
-    let _current_events: Vec<Event<'static>> = Vec::new();
     let mut depth = 0;
     let mut list_items: Vec<BlockInfo> = Vec::new();
     let mut in_list = false;
     let mut list_start_line = 0;
 
+    // Stack for nested lists: (saved current_block, saved list_items, saved list_start_line)
+    let mut list_nesting_stack: Vec<(Option<BlockInfo>, Vec<BlockInfo>, usize)> = Vec::new();
+
     // Pre-compute line starts for offset-to-line mapping
     let line_starts: Vec<usize> = std::iter::once(0)
         .chain(content.match_indices('\n').map(|(i, _)| i + 1))
@@ -135,6 +139,7 @@ fn collect_blocks(content: &str, parser: Parser) -> Vec<BlockInfo> {
                         end_line: line,
                         block_type: BlockType::Paragraph,
                         events: Vec::new(),
+                        nested_items: Vec::new(),
                     });
                 }
                 depth += 1;
@@ -166,6 +171,7 @@ fn collect_blocks(content: &str, parser: Parser) -> Vec<BlockInfo> {
                         end_line: line,
                         block_type: BlockType::Heading(heading_level),
                         events: Vec::new(),
+                        nested_items: Vec::new(),
                     });
                 }
                 depth += 1;
@@ -186,7 +192,15 @@ fn collect_blocks(content: &str, parser: Parser) -> Vec<BlockInfo> {
                 }
             }
             Event::Start(Tag::List(_)) => {
-                if !in_list {
+                if in_list {
+                    // Entering a nested list: save current list item and collected items
+                    list_nesting_stack.push((
+                        current_block.take(),
+                        std::mem::take(&mut list_items),
+                        list_start_line,
+                    ));
+                    list_start_line = line;
+                } else {
                     in_list = true;
                     list_start_line = line;
                     list_items.clear();
@@ -195,7 +209,18 @@ fn collect_blocks(content: &str, parser: Parser) -> Vec<BlockInfo> {
             }
             Event::End(TagEnd::List(_)) => {
                 depth -= 1;
-                if depth == 0 && in_list {
+                if let Some((parent_block, parent_items, parent_start_line)) =
+                    list_nesting_stack.pop()
+                {
+                    // Nested list ended: attach collected items as nested children of parent item
+                    let nested = std::mem::take(&mut list_items);
+                    list_start_line = parent_start_line;
+                    list_items = parent_items;
+                    current_block = parent_block.map(|mut item| {
+                        item.nested_items = nested;
+                        item
+                    });
+                } else if depth == 0 && in_list {
                     in_list = false;
                     // Create a list block containing all list items
                     if !list_items.is_empty() {
@@ -204,6 +229,7 @@ fn collect_blocks(content: &str, parser: Parser) -> Vec<BlockInfo> {
                             end_line: line,
                             block_type: BlockType::List,
                             events: vec![], // List events are handled through list_items
+                            nested_items: vec![],
                         });
                         // Store list items for later processing
                         for item in list_items.drain(..) {
@@ -222,6 +248,7 @@ fn collect_blocks(content: &str, parser: Parser) -> Vec<BlockInfo> {
                         end_line: line,
                         block_type: BlockType::ListItem,
                         events: Vec::new(),
+                        nested_items: Vec::new(),
                     });
                 }
             }
@@ -240,6 +267,7 @@ fn collect_blocks(content: &str, parser: Parser) -> Vec<BlockInfo> {
                         end_line: line,
                         block_type: BlockType::CodeBlock,
                         events: Vec::new(),
+                        nested_items: Vec::new(),
                     });
                 }
                 depth += 1;
@@ -507,13 +535,21 @@ fn parse_single_block_shard(
             }
         }
         BlockType::List | BlockType::ListItem => {
-            // List handling is complex - for now, extract any markers/tags
             let (markers, tags) = extract_block_markers_and_tags(block);
-            if markers.is_empty() {
+            // Recursively build child shards from nested list items
+            let children: Vec<Shard> = block
+                .nested_items
+                .iter()
+                .filter_map(|item| {
+                    let (child, _) = parse_single_block_shard(item, item.start_line, item.end_line);
+                    child
+                })
+                .collect();
+            if markers.is_empty() && children.is_empty() {
                 (None, tags)
             } else {
                 (
-                    Some(build_shard(start_line, end_line, markers, tags, vec![])),
+                    Some(build_shard(start_line, end_line, markers, tags, children)),
                     vec![],
                 )
             }
@@ -716,6 +752,26 @@ mod tests {
         );
     }
 
+    #[test]
+    fn test_parse_nested_list_creates_three_shards() {
+        let content = "* @Task 1\n  * @Task 2\n* @Task 3";
+        let result = parse_markdown_file(&make_file_name(), content);
+        let root = result.shard.unwrap();
+        // The root shard should have two top-level children: @Task 1 and @Task 3
+        assert_eq!(root.children.len(), 2, "expected 2 top-level shards");
+        let task1 = &root.children[0];
+        let task3 = &root.children[1];
+        // @Task 1 must carry its marker and contain @Task 2 as a child
+        assert_eq!(task1.markers, vec!["Task"], "@Task 1 marker");
+        assert_eq!(task1.children.len(), 1, "@Task 1 should have one child");
+        let task2 = &task1.children[0];
+        assert_eq!(task2.markers, vec!["Task"], "@Task 2 marker");
+        assert!(task2.children.is_empty(), "@Task 2 should have no children");
+        // @Task 3 is a sibling of @Task 1
+        assert_eq!(task3.markers, vec!["Task"], "@Task 3 marker");
+        assert!(task3.children.is_empty(), "@Task 3 should have no children");
+    }
+
     #[test]
     fn test_parse_continues_looking_for_markers_after_first_link_marker() {
         let result = parse_markdown_file(