diff --git a/doc/whats-new.rst b/doc/whats-new.rst
index c1440ec1108..126ea28d416 100644
--- a/doc/whats-new.rst
+++ b/doc/whats-new.rst
@@ -160,6 +160,8 @@ Bug fixes
   By `Mathias Hauser <https://github.com/mathause>`_.
 - Fix html repr in untrusted notebooks: fallback to plain text repr. (:pull:`4053`)
   By `Benoit Bovy <https://github.com/benbovy>`_.
+- Fix :py:meth:`DataArray.to_unstacked_dataset` for single-dimension variables. (:issue:`4049`)
+  By `Deepak Cherian <https://github.com/dcherian>`_
 - Fix :py:func:`open_rasterio` for ``WarpedVRT`` with specified ``src_crs``. (:pull:`4104`)
   By `Dave Cole <https://github.com/dtpc>`_.
 
diff --git a/xarray/core/dataarray.py b/xarray/core/dataarray.py
index b0df874953b..3be9bb79c60 100644
--- a/xarray/core/dataarray.py
+++ b/xarray/core/dataarray.py
@@ -1961,7 +1961,7 @@ def to_unstacked_dataset(self, dim, level=0):
         # pull variables out of datarray
         data_dict = {}
         for k in variables:
-            data_dict[k] = self.sel({variable_dim: k}).squeeze(drop=True)
+            data_dict[k] = self.sel({variable_dim: k}, drop=True).squeeze(drop=True)
 
         # unstacked dataset
         return Dataset(data_dict)
diff --git a/xarray/tests/test_dataset.py b/xarray/tests/test_dataset.py
index 9c8d40724da..9d2623d99e8 100644
--- a/xarray/tests/test_dataset.py
+++ b/xarray/tests/test_dataset.py
@@ -3031,6 +3031,14 @@ def test_to_stacked_array_dtype_dims(self):
         assert y.dims == ("x", "features")
 
     def test_to_stacked_array_to_unstacked_dataset(self):
+
+        # single dimension: regression test for GH4049
+        arr = xr.DataArray(np.arange(3), coords=[("x", [0, 1, 2])])
+        data = xr.Dataset({"a": arr, "b": arr})
+        stacked = data.to_stacked_array("y", sample_dims=["x"])
+        unstacked = stacked.to_unstacked_dataset("y")
+        assert_identical(unstacked, data)
+
         # make a two dimensional dataset
         a, b = create_test_stacked_array()
         D = xr.Dataset({"a": a, "b": b})