For anyone else who comes across this post, I wanted to point out that @Yihui has provided a formal solution to this question in knitr 1.0 with the introduction of the knit_expand() function. It works great and has really simplified my workflow.
For example, the following will process the template script below for every level of mtcars$cyl, each time replacing all instances of {{ncyl}} (in the template) with its current value:
# My report
```{r}
data(mtcars)
cyl.levels <- unique(mtcars$cyl)
```
## Generate report for each level of cylinder variable
```{r, include=FALSE}
src <- lapply(cyl.levels, function(ncyl) knit_expand(file = "template.Rmd"))
```
`r knit(text = unlist(src))`
Template:
```{r, results="asis"}
cat("### {{ncyl}} cylinders")
```
```{r mpg-histogram-{{ncyl}}cyl}
hist(mtcars$mpg[mtcars$cyl == {{ncyl}}],
main = paste({{ncyl}}, "cylinders"))
```
```{r weight-histogam-{{ncyl}}cyl}
hist(mtcars$wt[mtcars$cyl == {{ncyl}}],
main = paste({{ncyl}}, "cylinders"))
```