diff --git a/pydantic_settings/sources.py b/pydantic_settings/sources.py
index 809af620..bbc9e7b1 100644
--- a/pydantic_settings/sources.py
+++ b/pydantic_settings/sources.py
@@ -144,6 +144,65 @@ def _extract_field_info(self, field: FieldInfo, field_name: str) -> List[Tuple[s
 
         return field_info
 
+    def _replace_field_names_case_insensitively(self, field: FieldInfo, field_values: Dict[str, Any]) -> Dict[str, Any]:
+        """
+        Replace field names in values dict by looking in models fields insensitively.
+
+        By having the following models:
+
+            ```py
+            class SubSubSub(BaseModel):
+                VaL3: str
+
+            class SubSub(BaseModel):
+                Val2: str
+                SUB_sub_SuB: SubSubSub
+
+            class Sub(BaseModel):
+                VAL1: str
+                SUB_sub: SubSub
+
+            class Settings(BaseSettings):
+                nested: Sub
+
+                model_config = ConfigDict(env_nested_delimiter='__')
+            ```
+
+        Then:
+            _replace_field_names_case_insensitively(
+                field,
+                {"val1": "v1", "sub_SUB": {"VAL2": "v2", "sub_SUB_sUb": {"vAl3": "v3"}}}
+            )
+            Returns {'VAL1': 'v1', 'SUB_sub': {'Val2': 'v2', 'SUB_sub_SuB': {'VaL3': 'v3'}}}
+        """
+        values: Dict[str, Any] = {}
+
+        for name, value in field_values.items():
+            sub_model_field: Optional[FieldInfo] = None
+
+            # This is here to make mypy happy
+            # Item "None" of "Optional[Type[Any]]" has no attribute "model_fields"
+            if not field.annotation or not hasattr(field.annotation, 'model_fields'):
+                values[name] = value
+                continue
+
+            # Find field in sub model by looking in fields case insensitively
+            for sub_model_field_name, f in field.annotation.model_fields.items():
+                if not f.validation_alias and sub_model_field_name.lower() == name.lower():
+                    sub_model_field = f
+                    break
+
+            if not sub_model_field:
+                values[name] = value
+                continue
+
+            if lenient_issubclass(sub_model_field.annotation, BaseModel):
+                values[sub_model_field_name] = self._replace_field_names_case_insensitively(sub_model_field, value)
+            else:
+                values[sub_model_field_name] = value
+
+        return values
+
     def __call__(self) -> Dict[str, Any]:
         d: Dict[str, Any] = {}
 
@@ -163,7 +222,10 @@ def __call__(self) -> Dict[str, Any]:
                 ) from e
 
             if field_value is not None:
-                d[field_key] = field_value
+                if not self.config.get('case_sensitive', False) and lenient_issubclass(field.annotation, BaseModel):
+                    d[field_key] = self._replace_field_names_case_insensitively(field, field_value)
+                else:
+                    d[field_key] = field_value
 
         return d
 
@@ -300,6 +362,7 @@ def next_field(field: Optional[FieldInfo], key: str) -> Optional[FieldInfo]:
 
         By having the following models:
 
+            ```py
             class SubSubModel(BaseSettings):
                 dvals: Dict
 
@@ -309,6 +372,7 @@ class SubModel(BaseSettings):
 
             class Cfg(BaseSettings):
                 sub_model: SubModel
+            ```
 
         Then:
             next_field(sub_model, 'vals') Returns the `vals` field of `SubModel` class
diff --git a/tests/test_settings.py b/tests/test_settings.py
index 1c1b38d5..dbc3ff52 100644
--- a/tests/test_settings.py
+++ b/tests/test_settings.py
@@ -1486,3 +1486,29 @@ class Cfg(BaseSettings):
     env.set('cfg_sub_model__vals', '{"invalid": dict}')
     with pytest.raises(ValidationError):
         Cfg()
+
+
+def test_nested_model_case_insensitive(env):
+    class SubSubSub(BaseModel):
+        VaL3: str
+        val4: str = Field(validation_alias='VAL4')
+
+    class SubSub(BaseModel):
+        Val2: str
+        SUB_sub_SuB: SubSubSub
+
+    class Sub(BaseModel):
+        VAL1: str
+        SUB_sub: SubSub
+
+    class Settings(BaseSettings):
+        nested: Sub
+
+        model_config = ConfigDict(env_nested_delimiter='__')
+
+    env.set('nested', '{"val1": "v1", "sub_SUB": {"VAL2": "v2", "sub_SUB_sUb": {"vAl3": "v3", "VAL4": "v4"}}}')
+    s = Settings()
+    assert s.nested.VAL1 == 'v1'
+    assert s.nested.SUB_sub.Val2 == 'v2'
+    assert s.nested.SUB_sub.SUB_sub_SuB.VaL3 == 'v3'
+    assert s.nested.SUB_sub.SUB_sub_SuB.val4 == 'v4'