diff --git a/crates/bashkit/src/parser/lexer.rs b/crates/bashkit/src/parser/lexer.rs
index 57f9f6aa..bcaa6bb8 100644
--- a/crates/bashkit/src/parser/lexer.rs
+++ b/crates/bashkit/src/parser/lexer.rs
@@ -954,6 +954,19 @@ impl<'a> Lexer<'a> {
                         self.advance();
                     }
                 }
+                Some('$') => {
+                    // Check for $'...' ANSI-C quoting in continuation
+                    let mut lookahead = self.chars.clone();
+                    lookahead.next(); // skip $
+                    if lookahead.next() == Some('\'') {
+                        self.advance(); // consume $
+                        self.advance(); // consume opening '
+                        content.push_str(&self.read_dollar_single_quoted_content());
+                    } else {
+                        content.push('$');
+                        self.advance();
+                    }
+                }
                 Some(ch) if self.is_word_char(ch) => {
                     content.push(ch);
                     self.advance();
diff --git a/crates/bashkit/tests/spec_cases/bash/quote.test.sh b/crates/bashkit/tests/spec_cases/bash/quote.test.sh
index 67060f21..a28ce6d1 100644
--- a/crates/bashkit/tests/spec_cases/bash/quote.test.sh
+++ b/crates/bashkit/tests/spec_cases/bash/quote.test.sh
@@ -274,3 +274,60 @@ echo 'say "hi"'
 ### expect
 say "hi"
 ### end
+
+### quote_ansi_c_concat_func_arg
+# Issue #862: $'\n' concatenated in function argument position
+show() { printf '%q\n' "$1"; }
+show "a"$'\n'"b"
+### expect
+$'a\nb'
+### end
+
+### quote_ansi_c_tab_concat_func_arg
+# $'\t' concatenated in function argument position
+show() { printf '%q\n' "$1"; }
+show "a"$'\t'"b"
+### expect
+$'a\tb'
+### end
+
+### quote_ansi_c_sole_arg
+# $'\n' as sole function argument
+show() { printf '%q\n' "$1"; }
+show $'\n'
+### expect
+$'\n'
+### end
+
+### quote_ansi_c_at_start
+# $'\n' at start of concatenation
+show() { printf '%q\n' "$1"; }
+show $'\n'"after"
+### expect
+$'\nafter'
+### end
+
+### quote_ansi_c_at_end
+# $'\n' at end of concatenation
+show() { printf '%q\n' "$1"; }
+show "before"$'\n'
+### expect
+$'before\n'
+### end
+
+### quote_ansi_c_multiple_segments
+# Multiple ANSI-C segments concatenated
+show() { printf '%q\n' "$1"; }
+show "a"$'\n'"b"$'\t'"c"
+### expect
+$'a\nb\tc'
+### end
+
+### quote_ansi_c_via_variable_baseline
+# Baseline: ANSI-C via variable works
+show() { printf '%q\n' "$1"; }
+x="a"$'\n'"b"
+show "${x}"
+### expect
+$'a\nb'
+### end