diff --git a/datatree/datatree.py b/datatree/datatree.py
index da53b7e3..5d588da1 100644
--- a/datatree/datatree.py
+++ b/datatree/datatree.py
@@ -754,7 +754,7 @@ def update(self, other: Dataset | Mapping[str, DataTree | DataArray]) -> None:
     @classmethod
     def from_dict(
         cls,
-        d: MutableMapping[str, Dataset | DataArray | None],
+        d: MutableMapping[str, Dataset | DataArray | DataTree | None],
         name: Optional[str] = None,
     ) -> DataTree:
         """
@@ -790,7 +790,12 @@ def from_dict(
             for path, data in d.items():
                 # Create and set new node
                 node_name = NodePath(path).name
-                new_node = cls(name=node_name, data=data)
+                if isinstance(data, cls):
+                    # TODO ignoring type error only needed whilst .copy() method is copied from Dataset.copy().
+                    new_node = data.copy()  # type: ignore[attr-defined]
+                    new_node.orphan()
+                else:
+                    new_node = cls(name=node_name, data=data)
                 obj._set_item(
                     path,
                     new_node,
diff --git a/datatree/tests/test_datatree.py b/datatree/tests/test_datatree.py
index dd08618d..f5d7b928 100644
--- a/datatree/tests/test_datatree.py
+++ b/datatree/tests/test_datatree.py
@@ -391,6 +391,15 @@ def test_full(self, simple_datatree):
             "/set3",
         ]
 
+    def test_datatree_values(self):
+        dat1 = DataTree(data=xr.Dataset({"a": 1}))
+        expected = DataTree()
+        expected["a"] = dat1
+
+        actual = DataTree.from_dict({"a": dat1})
+
+        dtt.assert_identical(actual, expected)
+
     def test_roundtrip(self, simple_datatree):
         dt = simple_datatree
         roundtrip = DataTree.from_dict(dt.to_dict())
diff --git a/docs/source/whats-new.rst b/docs/source/whats-new.rst
index 8d9d6573..cfe73a50 100644
--- a/docs/source/whats-new.rst
+++ b/docs/source/whats-new.rst
@@ -37,6 +37,9 @@ Deprecations
 Bug fixes
 ~~~~~~~~~
 
+- Allow ``Datatree`` objects as values in :py:meth:`DataTree.from_dict` (:pull:`159`).
+  By `Justus Magin <https://github.com/keewis>`_.
+
 Documentation
 ~~~~~~~~~~~~~