I use AD authentication through crowd, and yes it does.
In crowd, there is an option called "Use Nested Groups" in the connector tab of the directory configuration.
Update: I also see a option under "advanced settings" when adding an AD User directory to JIRA
Enable Nested Groups
If true, groups can contain other groups. Enabling this option may degrade performance.
Thanks, but is it possible without Crowd? We have a different corporate standard for SSO and as such are not able to justify using Crowd.
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I updated my answer to include a JIRA only option
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