diff --git a/CHANGELOG b/CHANGELOG
index 44d5938e..3b68fdb9 100644
--- a/CHANGELOG
+++ b/CHANGELOG
@@ -1,7 +1,11 @@
 Development Version
 -------------------
 
-Nothing yet.
+Bug Fixes
+
+* `VALUES` lists inside parentheses, e.g. `FROM (VALUES (1, 2), (3, 4))`, are
+  now grouped as `Values` like top-level ones, so `reindent` puts one row per
+  line instead of breaking inside each row (issue506).
 
 
 Release 0.6.0 (Aug 13, 2026)
diff --git a/sqlparse/engine/grouping.py b/sqlparse/engine/grouping.py
index d8cfa9e1..7e5fec0c 100644
--- a/sqlparse/engine/grouping.py
+++ b/sqlparse/engine/grouping.py
@@ -427,6 +427,7 @@ def align_comments(tlist):
         tidx, token = tlist.token_next_by(i=sql.Comment, idx=tidx)
 
 
+@recurse()
 def group_values(tlist):
     tidx, token = tlist.token_next_by(m=(T.Keyword, 'VALUES'))
     start_idx = tidx
diff --git a/tests/test_format.py b/tests/test_format.py
index 93495067..61d32211 100644
--- a/tests/test_format.py
+++ b/tests/test_format.py
@@ -649,6 +649,25 @@ def test_insert_values(self):
             '     , (3, 4)',
             '     , (5, 6)'])
 
+    def test_values_in_parenthesis(self):
+        # issue506
+        f = lambda sql: sqlparse.format(sql, reindent=True)
+        s = ("select foo from (values ('a', 'b'), ('c', 'd'))"
+             " as tmp (foo, bar)")
+        assert f(s) == '\n'.join([
+            'select foo',
+            'from (',
+            "      values ('a', 'b'),",
+            "             ('c', 'd')) as tmp (foo, bar)"])
+
+        f = lambda sql: sqlparse.format(sql, reindent=True,
+                                        comma_first=True)
+        assert f(s) == '\n'.join([
+            'select foo',
+            'from (',
+            "      values ('a', 'b')",
+            "           , ('c', 'd')) as tmp (foo, bar)"])
+
 
 class TestOutputFormat:
     def test_python(self):
diff --git a/tests/test_grouping.py b/tests/test_grouping.py
index 20fab9b7..256edc32 100644
--- a/tests/test_grouping.py
+++ b/tests/test_grouping.py
@@ -82,6 +82,14 @@ def test_grouping_identifiers():
         assert types == [T.DML, T.Keyword, None, None, T.Punctuation]
         assert isinstance(parsed.tokens[6], sql.Values)
 
+    # issue506: VALUES inside parenthesis
+    s = "select * from (values (1, 2), (3, 4)) as t (a, b)"
+    parsed = sqlparse.parse(s)[0]
+    assert str(parsed) == s
+    values = parsed.tokens[-1].tokens[0].tokens[1]
+    assert isinstance(values, sql.Values)
+    assert str(values) == "values (1, 2), (3, 4)"
+
     s = "select 1.0*(a+b) as col, sum(c)/sum(d) from myschema.mytable"
     parsed = sqlparse.parse(s)[0]
     assert len(parsed.tokens) == 7