Form API + Module: Nested default value variable_get doesnt behave the same as unnested variable_get
I'm pretty sure system_settings_form() only looks for variables defined at the root of the $form_state['values'] array.

Since you have '#tree' =&gt; TRUE on your fieldset element this will not be the case. If you remove the '#tree' =&gt; TRUE' line, the value of your nested element will be saved in a variable called 'unnested_example_item' as you expect.