diff --git a/setup.c b/setup.c
index 145eca50f4..067f1be3f9 100644
--- a/setup.c
+++ b/setup.c
@@ -206,6 +206,22 @@ static const char *set_work_tree(const char *dir)
 	return NULL;
 }
 
+static int check_repository_format_gently(int *nongit_ok)
+{
+	git_config(check_repository_format_version);
+	if (GIT_REPO_VERSION < repository_format_version) {
+		if (!nongit_ok)
+			die ("Expected git repo version <= %d, found %d",
+			     GIT_REPO_VERSION, repository_format_version);
+		warning("Expected git repo version <= %d, found %d",
+			GIT_REPO_VERSION, repository_format_version);
+		warning("Please upgrade Git");
+		*nongit_ok = -1;
+		return -1;
+	}
+	return 0;
+}
+
 /*
  * We cannot decide in this function whether we are in the work tree or
  * not, since the config can only be read _after_ this function was called.
@@ -230,8 +246,15 @@ const char *setup_git_directory_gently(int *nongit_ok)
 			static char buffer[1024 + 1];
 			const char *retval;
 
-			if (!work_tree_env)
-				return set_work_tree(gitdirenv);
+			if (!work_tree_env) {
+				retval = set_work_tree(gitdirenv);
+				/* config may override worktree */
+				if (check_repository_format_gently(nongit_ok))
+					return NULL;
+				return retval;
+			}
+			if (check_repository_format_gently(nongit_ok))
+				return NULL;
 			retval = get_relative_cwd(buffer, sizeof(buffer) - 1,
 					get_git_work_tree());
 			if (!retval || !*retval)
@@ -270,6 +293,7 @@ const char *setup_git_directory_gently(int *nongit_ok)
 			if (!work_tree_env)
 				inside_work_tree = 0;
 			setenv(GIT_DIR_ENVIRONMENT, ".", 1);
+			check_repository_format_gently(nongit_ok);
 			return NULL;
 		}
 		chdir("..");
@@ -290,6 +314,8 @@ const char *setup_git_directory_gently(int *nongit_ok)
 	if (!work_tree_env)
 		inside_work_tree = 1;
 	git_work_tree_cfg = xstrndup(cwd, offset);
+	if (check_repository_format_gently(nongit_ok))
+		return NULL;
 	if (offset == len)
 		return NULL;
 
@@ -340,11 +366,7 @@ int check_repository_format_version(const char *var, const char *value)
 
 int check_repository_format(void)
 {
-	git_config(check_repository_format_version);
-	if (GIT_REPO_VERSION < repository_format_version)
-		die ("Expected git repo version <= %d, found %d",
-		     GIT_REPO_VERSION, repository_format_version);
-	return 0;
+	return check_repository_format_gently(NULL);
 }
 
 const char *setup_git_directory(void)
diff --git a/t/t1302-repo-version.sh b/t/t1302-repo-version.sh
new file mode 100755
index 0000000000..37fc1c8d36
--- /dev/null
+++ b/t/t1302-repo-version.sh
@@ -0,0 +1,46 @@
+#!/bin/sh
+#
+# Copyright (c) 2007 Nguyễn Thái Ngọc Duy
+#
+
+test_description='Test repository version check'
+
+. ./test-lib.sh
+
+cat >test.patch <<EOF
+diff --git a/test.txt b/test.txt
+new file mode 100644
+--- /dev/null
++++ b/test.txt
+@@ -0,0 +1 @@
++123
+EOF
+
+test_create_repo "test"
+test_create_repo "test2"
+
+GIT_CONFIG=test2/.git/config git config core.repositoryformatversion 99 || exit 1
+
+test_expect_success 'gitdir selection on normal repos' '
+	(test "$(git config core.repositoryformatversion)" = 0 &&
+	cd test &&
+	test "$(git config core.repositoryformatversion)" = 0)'
+
+# Make sure it would stop at test2, not trash
+test_expect_success 'gitdir selection on unsupported repo' '
+	(cd test2 &&
+	test "$(git config core.repositoryformatversion)" = 99)'
+
+test_expect_success 'gitdir not required mode' '
+	(git apply --stat test.patch &&
+	cd test && git apply --stat ../test.patch &&
+	cd ../test2 && git apply --stat ../test.patch)'
+
+test_expect_success 'gitdir required mode on normal repos' '
+	(git apply --check --index test.patch &&
+	cd test && git apply --check --index ../test.patch)'
+
+test_expect_failure 'gitdir required mode on unsupported repo' '
+	(cd test2 && git apply --check --index ../test.patch)'
+
+test_done