diff --git a/.changes/unreleased/Fixes-20230926-001527.yaml b/.changes/unreleased/Fixes-20230926-001527.yaml
new file mode 100644
index 00000000000..53d6b9151fd
--- /dev/null
+++ b/.changes/unreleased/Fixes-20230926-001527.yaml
@@ -0,0 +1,6 @@
+kind: Fixes
+body: Support doc blocks in nested semantic model YAML
+time: 2023-09-26T00:15:27.328363+01:00
+custom:
+  Author: aranke
+  Issue: "8509"
diff --git a/core/dbt/parser/manifest.py b/core/dbt/parser/manifest.py
index 4398fa75bc7..fbf2adde746 100644
--- a/core/dbt/parser/manifest.py
+++ b/core/dbt/parser/manifest.py
@@ -1172,6 +1172,16 @@ def process_docs(self, config: RuntimeConfig):
                 config.project_name,
             )
             _process_docs_for_metrics(ctx, metric)
+        for semantic_model in self.manifest.semantic_models.values():
+            if semantic_model.created_at < self.started_at:
+                continue
+            ctx = generate_runtime_docs_context(
+                config,
+                semantic_model,
+                self.manifest,
+                config.project_name,
+            )
+            _process_docs_for_semantic_model(ctx, semantic_model)
 
     # Loops through all nodes and exposures, for each element in
     # 'sources' array finds the source node and updates the
@@ -1406,6 +1416,25 @@ def _process_docs_for_metrics(context: Dict[str, Any], metric: Metric) -> None:
     metric.description = get_rendered(metric.description, context)
 
 
+def _process_docs_for_semantic_model(
+    context: Dict[str, Any], semantic_model: SemanticModel
+) -> None:
+    if semantic_model.description:
+        semantic_model.description = get_rendered(semantic_model.description, context)
+
+    for dimension in semantic_model.dimensions:
+        if dimension.description:
+            dimension.description = get_rendered(dimension.description, context)
+
+    for measure in semantic_model.measures:
+        if measure.description:
+            measure.description = get_rendered(measure.description, context)
+
+    for entity in semantic_model.entities:
+        if entity.description:
+            entity.description = get_rendered(entity.description, context)
+
+
 def _process_refs(
     manifest: Manifest, current_project: str, node, dependencies: Optional[Mapping[str, Project]]
 ) -> None:
diff --git a/core/dbt/parser/schema_renderer.py b/core/dbt/parser/schema_renderer.py
index e0c54f247da..66b91fee1b4 100644
--- a/core/dbt/parser/schema_renderer.py
+++ b/core/dbt/parser/schema_renderer.py
@@ -42,7 +42,7 @@ def _is_norender_key(self, keypath: Keypath) -> bool:
 
         if (
             len(keypath) >= 3
-            and keypath[0] == "columns"
+            and keypath[0] in ("columns", "dimensions", "measures", "entities")
             and keypath[2] in ("tests", "description")
         ):
             return True
diff --git a/tests/functional/semantic_models/fixtures.py b/tests/functional/semantic_models/fixtures.py
index d19ba42f1a6..3fb65a3a4fb 100644
--- a/tests/functional/semantic_models/fixtures.py
+++ b/tests/functional/semantic_models/fixtures.py
@@ -86,6 +86,44 @@
       agg_time_dimension: created_at
 """
 
+semantic_model_descriptions = """
+{% docs semantic_model_description %} foo {% enddocs %}
+{% docs dimension_description %} bar {% enddocs %}
+{% docs measure_description %} baz {% enddocs %}
+{% docs entity_description %} qux {% enddocs %}
+"""
+
+semantic_model_people_yml_with_docs = """
+version: 2
+
+semantic_models:
+  - name: semantic_people
+    model: ref('people')
+    description: "{{ doc('semantic_model_description') }}"
+    dimensions:
+      - name: favorite_color
+        type: categorical
+        description: "{{ doc('dimension_description') }}"
+      - name: created_at
+        type: TIME
+        type_params:
+          time_granularity: day
+    measures:
+      - name: years_tenure
+        agg: SUM
+        expr: tenure
+        description: "{{ doc('measure_description') }}"
+      - name: people
+        agg: count
+        expr: id
+    entities:
+      - name: id
+        description: "{{ doc('entity_description') }}"
+        type: primary
+    defaults:
+      agg_time_dimension: created_at
+"""
+
 enabled_semantic_model_people_yml = """
 version: 2
 
diff --git a/tests/functional/semantic_models/test_semantic_models.py b/tests/functional/semantic_models/test_semantic_models.py
index 3d3be94b341..11fdfc32456 100644
--- a/tests/functional/semantic_models/test_semantic_models.py
+++ b/tests/functional/semantic_models/test_semantic_models.py
@@ -3,13 +3,13 @@
 from dbt.contracts.graph.manifest import Manifest
 from dbt.exceptions import CompilationError
 from dbt.tests.util import run_dbt
-
-
 from tests.functional.semantic_models.fixtures import (
     models_people_sql,
     simple_metricflow_time_spine_sql,
     semantic_model_people_yml,
     models_people_metrics_yml,
+    semantic_model_people_yml_with_docs,
+    semantic_model_descriptions,
 )
 
 
@@ -36,6 +36,27 @@ def test_depends_on(self, project):
         )
 
 
+class TestSemanticModelNestedDocs:
+    @pytest.fixture(scope="class")
+    def models(self):
+        return {
+            "people.sql": models_people_sql,
+            "metricflow_time_spine.sql": simple_metricflow_time_spine_sql,
+            "semantic_models.yml": semantic_model_people_yml_with_docs,
+            "people_metrics.yml": models_people_metrics_yml,
+            "docs.md": semantic_model_descriptions,
+        }
+
+    def test_depends_on(self, project):
+        manifest = run_dbt(["parse"])
+        node = manifest.semantic_models["semantic_model.test.semantic_people"]
+
+        assert node.description == "foo"
+        assert node.dimensions[0].description == "bar"
+        assert node.measures[0].description == "baz"
+        assert node.entities[0].description == "qux"
+
+
 class TestSemanticModelUnknownModel:
     @pytest.fixture(scope="class")
     def models(self):