diff --git a/git-difftool.perl b/git-difftool.perl
index 663640d33c..67802922cc 100755
--- a/git-difftool.perl
+++ b/git-difftool.perl
@@ -13,9 +13,9 @@
 use 5.008;
 use strict;
 use warnings;
+use Error qw(:try);
 use File::Basename qw(dirname);
 use File::Copy;
-use File::Compare;
 use File::Find;
 use File::stat;
 use File::Path qw(mkpath rmtree);
@@ -88,14 +88,45 @@ sub use_wt_file
 	my ($repo, $workdir, $file, $sha1, $symlinks) = @_;
 	my $null_sha1 = '0' x 40;
 
-	if ($sha1 eq $null_sha1) {
-		return 1;
-	} elsif (not $symlinks) {
+	if ($sha1 ne $null_sha1 and not $symlinks) {
 		return 0;
 	}
 
 	my $wt_sha1 = $repo->command_oneline('hash-object', "$workdir/$file");
-	return $sha1 eq $wt_sha1;
+	my $use = ($sha1 eq $null_sha1) || ($sha1 eq $wt_sha1);
+	return ($use, $wt_sha1);
+}
+
+sub changed_files
+{
+	my ($repo_path, $index, $worktree) = @_;
+	$ENV{GIT_INDEX_FILE} = $index;
+	$ENV{GIT_WORK_TREE} = $worktree;
+	my $must_unset_git_dir = 0;
+	if (not defined($ENV{GIT_DIR})) {
+		$must_unset_git_dir = 1;
+		$ENV{GIT_DIR} = $repo_path;
+	}
+
+	my @refreshargs = qw/update-index --really-refresh -q --unmerged/;
+	my @gitargs = qw/diff-files --name-only -z/;
+	try {
+		Git::command_oneline(@refreshargs);
+	} catch Git::Error::Command with {};
+
+	my $line = Git::command_oneline(@gitargs);
+	my @files;
+	if (defined $line) {
+		@files = split('\0', $line);
+	} else {
+		@files = ();
+	}
+
+	delete($ENV{GIT_INDEX_FILE});
+	delete($ENV{GIT_WORK_TREE});
+	delete($ENV{GIT_DIR}) if ($must_unset_git_dir);
+
+	return map { $_ => 1 } @files;
 }
 
 sub setup_dir_diff
@@ -121,6 +152,7 @@ sub setup_dir_diff
 	my $null_sha1 = '0' x 40;
 	my $lindex = '';
 	my $rindex = '';
+	my $wtindex = '';
 	my %submodule;
 	my %symlink;
 	my @working_tree = ();
@@ -174,8 +206,12 @@ EOF
 		}
 
 		if ($rmode ne $null_mode) {
-			if (use_wt_file($repo, $workdir, $dst_path, $rsha1, $symlinks)) {
-				push(@working_tree, $dst_path);
+			my ($use, $wt_sha1) = use_wt_file($repo, $workdir,
+							  $dst_path, $rsha1,
+							  $symlinks);
+			if ($use) {
+				push @working_tree, $dst_path;
+				$wtindex .= "$rmode $wt_sha1\t$dst_path\0";
 			} else {
 				$rindex .= "$rmode $rsha1\t$dst_path\0";
 			}
@@ -218,6 +254,12 @@ EOF
 	$rc = system('git', 'checkout-index', '--all', "--prefix=$rdir/");
 	exit_cleanup($tmpdir, $rc) if $rc != 0;
 
+	$ENV{GIT_INDEX_FILE} = "$tmpdir/wtindex";
+	($inpipe, $ctx) =
+		$repo->command_input_pipe(qw(update-index --info-only -z --index-info));
+	print($inpipe $wtindex);
+	$repo->command_close_pipe($inpipe, $ctx);
+
 	# If $GIT_DIR was explicitly set just for the update/checkout
 	# commands, then it should be unset before continuing.
 	delete($ENV{GIT_DIR}) if ($must_unset_git_dir);
@@ -390,19 +432,34 @@ sub dir_diff
 	# should be copied back to the working tree.
 	# Do not copy back files when symlinks are used and the
 	# external tool did not replace the original link with a file.
+	#
+	# These hashes are loaded lazily since they aren't needed
+	# in the common case of --symlinks and the difftool updating
+	# files through the symlink.
+	my %wt_modified;
+	my %tmp_modified;
+	my $indices_loaded = 0;
+
 	for my $file (@worktree) {
 		next if $symlinks && -l "$b/$file";
 		next if ! -f "$b/$file";
 
-		my $diff = compare("$b/$file", "$workdir/$file");
-		if ($diff == 0) {
-			next;
-		} elsif ($diff == -1) {
-			my $errmsg = "warning: Could not compare ";
-			$errmsg += "'$b/$file' with '$workdir/$file'\n";
+		if (!$indices_loaded) {
+			%wt_modified = changed_files($repo->repo_path(),
+				"$tmpdir/wtindex", "$workdir");
+			%tmp_modified = changed_files($repo->repo_path(),
+				"$tmpdir/wtindex", "$b");
+			$indices_loaded = 1;
+		}
+
+		if (exists $wt_modified{$file} and exists $tmp_modified{$file}) {
+			my $errmsg = "warning: Both files modified: ";
+			$errmsg .= "'$workdir/$file' and '$b/$file'.\n";
+			$errmsg .= "warning: Working tree file has been left.\n";
+			$errmsg .= "warning:\n";
 			warn $errmsg;
 			$error = 1;
-		} elsif ($diff == 1) {
+		} elsif (exists $tmp_modified{$file}) {
 			my $mode = stat("$b/$file")->mode;
 			copy("$b/$file", "$workdir/$file") or
 			exit_cleanup($tmpdir, 1);
diff --git a/t/t7800-difftool.sh b/t/t7800-difftool.sh
index e6a16cda79..017f55adf4 100755
--- a/t/t7800-difftool.sh
+++ b/t/t7800-difftool.sh
@@ -377,4 +377,34 @@ test_expect_success PERL,SYMLINKS 'difftool --dir-diff --symlink without unstage
 	test_cmp actual expect
 '
 
+write_script modify-file <<\EOF
+echo "new content" >file
+EOF
+
+test_expect_success PERL 'difftool --no-symlinks does not overwrite working tree file ' '
+	echo "orig content" >file &&
+	git difftool --dir-diff --no-symlinks --extcmd "$(pwd)/modify-file" branch &&
+	echo "new content" >expect &&
+	test_cmp expect file
+'
+
+write_script modify-both-files <<\EOF
+echo "wt content" >file &&
+echo "tmp content" >"$2/file" &&
+echo "$2" >tmpdir
+EOF
+
+test_expect_success PERL 'difftool --no-symlinks detects conflict ' '
+	(
+		TMPDIR=$TRASH_DIRECTORY &&
+		export TMPDIR &&
+		echo "orig content" >file &&
+		test_must_fail git difftool --dir-diff --no-symlinks --extcmd "$(pwd)/modify-both-files" branch &&
+		echo "wt content" >expect &&
+		test_cmp expect file &&
+		echo "tmp content" >expect &&
+		test_cmp expect "$(cat tmpdir)/file"
+	)
+'
+
 test_done