diff --git a/Documentation/git-difftool.txt b/Documentation/git-difftool.txt
index fe38f667f9..31fc2e3aed 100644
--- a/Documentation/git-difftool.txt
+++ b/Documentation/git-difftool.txt
@@ -19,6 +19,12 @@ linkgit:git-diff[1].
 
 OPTIONS
 -------
+-d::
+--dir-diff::
+	Copy the modified files to a temporary location and perform
+	a directory diff on them. This mode never prompts before
+	launching the diff tool.
+
 -y::
 --no-prompt::
 	Do not prompt before launching a diff tool.
@@ -30,11 +36,9 @@ OPTIONS
 
 -t <tool>::
 --tool=<tool>::
-	Use the diff tool specified by <tool>.
-	Valid diff tools are:
-	araxis, bc3, deltawalker, diffuse, emerge, ecmerge, gvimdiff,
-	kdiff3,	kompare, meld, opendiff, p4merge, tkdiff, vimdiff and
-	xxdiff.
+	Use the diff tool specified by <tool>.  Valid values include
+	emerge, kompare, meld, and vimdiff. Run `git difftool --tool-help`
+	for the list of valid <tool> settings.
 +
 If a diff tool is not specified, 'git difftool'
 will use the configuration variable `diff.tool`.  If the
@@ -62,6 +66,9 @@ of the diff post-image.  `$MERGED` is the name of the file which is
 being compared. `$BASE` is provided for compatibility
 with custom merge tool commands and has the same value as `$MERGED`.
 
+--tool-help::
+	Print a list of diff tools that may be used with `--tool`.
+
 -x <command>::
 --extcmd=<command>::
 	Specify a custom command for viewing diffs.
diff --git a/git-difftool--helper.sh b/git-difftool--helper.sh
index e6558d1010..3d0fe0cd93 100755
--- a/git-difftool--helper.sh
+++ b/git-difftool--helper.sh
@@ -73,9 +73,16 @@ then
 	fi
 fi
 
-# Launch the merge tool on each path provided by 'git diff'
-while test $# -gt 6
-do
-	launch_merge_tool "$1" "$2" "$5"
-	shift 7
-done
+if test -n "$GIT_DIFFTOOL_DIRDIFF"
+then
+	LOCAL="$1"
+	REMOTE="$2"
+	run_merge_tool "$merge_tool" false
+else
+	# Launch the merge tool on each path provided by 'git diff'
+	while test $# -gt 6
+	do
+		launch_merge_tool "$1" "$2" "$5"
+		shift 7
+	done
+fi
diff --git a/git-difftool.perl b/git-difftool.perl
index 09b65f1770..ae1e0525d8 100755
--- a/git-difftool.perl
+++ b/git-difftool.perl
@@ -1,121 +1,361 @@
-#!/usr/bin/env perl
+#!/usr/bin/perl
 # Copyright (c) 2009, 2010 David Aguilar
+# Copyright (c) 2012 Tim Henigan
 #
 # This is a wrapper around the GIT_EXTERNAL_DIFF-compatible
 # git-difftool--helper script.
 #
 # This script exports GIT_EXTERNAL_DIFF and GIT_PAGER for use by git.
-# GIT_DIFFTOOL_NO_PROMPT, GIT_DIFFTOOL_PROMPT, and GIT_DIFF_TOOL
-# are exported for use by git-difftool--helper.
+# The GIT_DIFF* variables are exported for use by git-difftool--helper.
 #
 # Any arguments that are unknown to this script are forwarded to 'git diff'.
 
 use 5.008;
 use strict;
 use warnings;
-use Cwd qw(abs_path);
 use File::Basename qw(dirname);
+use File::Copy;
+use File::Find;
+use File::stat;
+use File::Path qw(mkpath);
+use File::Temp qw(tempdir);
+use Getopt::Long qw(:config pass_through);
+use Git;
 
-require Git;
-
-my $DIR = abs_path(dirname($0));
-
+my @tools;
+my @working_tree;
+my $rc;
+my $repo = Git->repository();
+my $repo_path = $repo->repo_path();
 
 sub usage
 {
+	my $exitcode = shift;
 	print << 'USAGE';
-usage: git difftool [-t|--tool=<tool>] [-x|--extcmd=<cmd>]
-                    [-y|--no-prompt]   [-g|--gui]
+usage: git difftool [-t|--tool=<tool>] [--tool-help]
+                    [-x|--extcmd=<cmd>]
+                    [-g|--gui] [--no-gui]
+                    [--prompt] [-y|--no-prompt]
+                    [-d|--dir-diff]
                     ['git diff' options]
 USAGE
-	exit 1;
+	exit($exitcode);
 }
 
-sub setup_environment
+sub find_worktree
 {
-	$ENV{PATH} = "$DIR:$ENV{PATH}";
-	$ENV{GIT_PAGER} = '';
-	$ENV{GIT_EXTERNAL_DIFF} = 'git-difftool--helper';
+	# Git->repository->wc_path() does not honor changes to the working
+	# tree location made by $ENV{GIT_WORK_TREE} or the 'core.worktree'
+	# config variable.
+	my $worktree;
+	my $env_worktree = $ENV{GIT_WORK_TREE};
+	my $core_worktree = Git::config('core.worktree');
+
+	if (defined($env_worktree) and (length($env_worktree) > 0)) {
+		$worktree = $env_worktree;
+	} elsif (defined($core_worktree) and (length($core_worktree) > 0)) {
+		$worktree = $core_worktree;
+	} else {
+		$worktree = $repo->wc_path();
+	}
+
+	return $worktree;
 }
 
-sub exe
+my $workdir = find_worktree();
+
+sub filter_tool_scripts
 {
-	my $exe = shift;
-	if ($^O eq 'MSWin32' || $^O eq 'msys') {
-		return "$exe.exe";
+	if (-d $_) {
+		if ($_ ne ".") {
+			# Ignore files in subdirectories
+			$File::Find::prune = 1;
+		}
+	} else {
+		if ((-f $_) && ($_ ne "defaults")) {
+			push(@tools, $_);
+		}
 	}
-	return $exe;
 }
 
-sub generate_command
+sub print_tool_help
 {
-	my @command = (exe('git'), 'diff');
-	my $skip_next = 0;
-	my $idx = -1;
-	my $prompt = '';
-	for my $arg (@ARGV) {
-		$idx++;
-		if ($skip_next) {
-			$skip_next = 0;
-			next;
+	my ($cmd, @found, @notfound);
+	my $gitpath = Git::exec_path();
+
+	find(\&filter_tool_scripts, "$gitpath/mergetools");
+
+	foreach my $tool (@tools) {
+		$cmd  = "TOOL_MODE=diff";
+		$cmd .= ' && . "$(git --exec-path)/git-mergetool--lib"';
+		$cmd .= " && get_merge_tool_path $tool >/dev/null 2>&1";
+		$cmd .= " && can_diff >/dev/null 2>&1";
+		if (system('sh', '-c', $cmd) == 0) {
+			push(@found, $tool);
+		} else {
+			push(@notfound, $tool);
 		}
-		if ($arg eq '-t' || $arg eq '--tool') {
-			usage() if $#ARGV <= $idx;
-			$ENV{GIT_DIFF_TOOL} = $ARGV[$idx + 1];
-			$skip_next = 1;
-			next;
+	}
+
+	print "'git difftool --tool=<tool>' may be set to one of the following:\n";
+	print "\t$_\n" for (sort(@found));
+
+	print "\nThe following tools are valid, but not currently available:\n";
+	print "\t$_\n" for (sort(@notfound));
+
+	print "\nNOTE: Some of the tools listed above only work in a windowed\n";
+	print "environment. If run in a terminal-only session, they will fail.\n";
+
+	exit(0);
+}
+
+sub setup_dir_diff
+{
+	# Run the diff; exit immediately if no diff found
+	# 'Repository' and 'WorkingCopy' must be explicitly set to insure that
+	# if $GIT_DIR and $GIT_WORK_TREE are set in ENV, they are actually used
+	# by Git->repository->command*.
+	my $diffrepo = Git->repository(Repository => $repo_path, WorkingCopy => $workdir);
+	my $diffrtn = $diffrepo->command_oneline('diff', '--raw', '--no-abbrev', '-z', @ARGV);
+	exit(0) if (length($diffrtn) == 0);
+
+	# Setup temp directories
+	my $tmpdir = tempdir('git-diffall.XXXXX', CLEANUP => 1, TMPDIR => 1);
+	my $ldir = "$tmpdir/left";
+	my $rdir = "$tmpdir/right";
+	mkpath($ldir) or die $!;
+	mkpath($rdir) or die $!;
+
+	# Build index info for left and right sides of the diff
+	my $submodule_mode = '160000';
+	my $symlink_mode = '120000';
+	my $null_mode = '0' x 6;
+	my $null_sha1 = '0' x 40;
+	my $lindex = '';
+	my $rindex = '';
+	my %submodule;
+	my %symlink;
+	my @rawdiff = split('\0', $diffrtn);
+
+	my $i = 0;
+	while ($i < $#rawdiff) {
+		if ($rawdiff[$i] =~ /^::/) {
+			print "Combined diff formats ('-c' and '--cc') are not supported in directory diff mode.\n";
+			exit(1);
 		}
-		if ($arg =~ /^--tool=/) {
-			$ENV{GIT_DIFF_TOOL} = substr($arg, 7);
-			next;
+
+		my ($lmode, $rmode, $lsha1, $rsha1, $status) = split(' ', substr($rawdiff[$i], 1));
+		my $src_path = $rawdiff[$i + 1];
+		my $dst_path;
+
+		if ($status =~ /^[CR]/) {
+			$dst_path = $rawdiff[$i + 2];
+			$i += 3;
+		} else {
+			$dst_path = $src_path;
+			$i += 2;
 		}
-		if ($arg eq '-x' || $arg eq '--extcmd') {
-			usage() if $#ARGV <= $idx;
-			$ENV{GIT_DIFFTOOL_EXTCMD} = $ARGV[$idx + 1];
-			$skip_next = 1;
+
+		if (($lmode eq $submodule_mode) or ($rmode eq $submodule_mode)) {
+			$submodule{$src_path}{left} = $lsha1;
+			if ($lsha1 ne $rsha1) {
+				$submodule{$dst_path}{right} = $rsha1;
+			} else {
+				$submodule{$dst_path}{right} = "$rsha1-dirty";
+			}
 			next;
 		}
-		if ($arg =~ /^--extcmd=/) {
-			$ENV{GIT_DIFFTOOL_EXTCMD} = substr($arg, 9);
-			next;
+
+		if ($lmode eq $symlink_mode) {
+			$symlink{$src_path}{left} = $diffrepo->command_oneline('show', "$lsha1");
 		}
-		if ($arg eq '-g' || $arg eq '--gui') {
-			eval {
-				my $tool = Git::command_oneline('config',
-				                                'diff.guitool');
-				if (length($tool)) {
-					$ENV{GIT_DIFF_TOOL} = $tool;
-				}
-			};
-			next;
+
+		if ($rmode eq $symlink_mode) {
+			$symlink{$dst_path}{right} = $diffrepo->command_oneline('show', "$rsha1");
 		}
-		if ($arg eq '-y' || $arg eq '--no-prompt') {
-			$prompt = 'no';
-			next;
+
+		if (($lmode ne $null_mode) and ($status !~ /^C/)) {
+			$lindex .= "$lmode $lsha1\t$src_path\0";
 		}
-		if ($arg eq '--prompt') {
-			$prompt = 'yes';
-			next;
+
+		if ($rmode ne $null_mode) {
+			if ($rsha1 ne $null_sha1) {
+				$rindex .= "$rmode $rsha1\t$dst_path\0";
+			} else {
+				push(@working_tree, $dst_path);
+			}
 		}
-		if ($arg eq '-h') {
-			usage();
+	}
+
+	# If $GIT_DIR is not set prior to calling 'git update-index' and
+	# 'git checkout-index', then those commands will fail if difftool
+	# is called from a directory other than the repo root.
+	my $must_unset_git_dir = 0;
+	if (not defined($ENV{GIT_DIR})) {
+		$must_unset_git_dir = 1;
+		$ENV{GIT_DIR} = $repo_path;
+	}
+
+	# Populate the left and right directories based on each index file
+	my ($inpipe, $ctx);
+	$ENV{GIT_INDEX_FILE} = "$tmpdir/lindex";
+	($inpipe, $ctx) = $repo->command_input_pipe(qw/update-index -z --index-info/);
+	print($inpipe $lindex);
+	$repo->command_close_pipe($inpipe, $ctx);
+	$rc = system('git', 'checkout-index', '--all', "--prefix=$ldir/");
+	exit($rc | ($rc >> 8)) if ($rc != 0);
+
+	$ENV{GIT_INDEX_FILE} = "$tmpdir/rindex";
+	($inpipe, $ctx) = $repo->command_input_pipe(qw/update-index -z --index-info/);
+	print($inpipe $rindex);
+	$repo->command_close_pipe($inpipe, $ctx);
+	$rc = system('git', 'checkout-index', '--all', "--prefix=$rdir/");
+	exit($rc | ($rc >> 8)) if ($rc != 0);
+
+	# If $GIT_DIR was explicitly set just for the update/checkout
+	# commands, then it should be unset before continuing.
+	delete($ENV{GIT_DIR}) if ($must_unset_git_dir);
+	delete($ENV{GIT_INDEX_FILE});
+
+	# Changes in the working tree need special treatment since they are
+	# not part of the index
+	for my $file (@working_tree) {
+		my $dir = dirname($file);
+		unless (-d "$rdir/$dir") {
+			mkpath("$rdir/$dir") or die $!;
+		}
+		copy("$workdir/$file", "$rdir/$file") or die $!;
+		chmod(stat("$workdir/$file")->mode, "$rdir/$file") or die $!;
+	}
+
+	# Changes to submodules require special treatment. This loop writes a
+	# temporary file to both the left and right directories to show the
+	# change in the recorded SHA1 for the submodule.
+	for my $path (keys %submodule) {
+		if (defined($submodule{$path}{left})) {
+			write_to_file("$ldir/$path", "Subproject commit $submodule{$path}{left}");
+		}
+		if (defined($submodule{$path}{right})) {
+			write_to_file("$rdir/$path", "Subproject commit $submodule{$path}{right}");
+		}
+	}
+
+	# Symbolic links require special treatment. The standard "git diff"
+	# shows only the link itself, not the contents of the link target.
+	# This loop replicates that behavior.
+	for my $path (keys %symlink) {
+		if (defined($symlink{$path}{left})) {
+			write_to_file("$ldir/$path", $symlink{$path}{left});
+		}
+		if (defined($symlink{$path}{right})) {
+			write_to_file("$rdir/$path", $symlink{$path}{right});
 		}
-		push @command, $arg;
 	}
-	if ($prompt eq 'yes') {
-		$ENV{GIT_DIFFTOOL_PROMPT} = 'true';
-	} elsif ($prompt eq 'no') {
-		$ENV{GIT_DIFFTOOL_NO_PROMPT} = 'true';
+
+	return ($ldir, $rdir);
+}
+
+sub write_to_file
+{
+	my $path = shift;
+	my $value = shift;
+
+	# Make sure the path to the file exists
+	my $dir = dirname($path);
+	unless (-d "$dir") {
+		mkpath("$dir") or die $!;
 	}
-	return @command
+
+	# If the file already exists in that location, delete it.  This
+	# is required in the case of symbolic links.
+	unlink("$path");
+
+	open(my $fh, '>', "$path") or die $!;
+	print($fh $value);
+	close($fh);
 }
 
-setup_environment();
+# parse command-line options. all unrecognized options and arguments
+# are passed through to the 'git diff' command.
+my ($difftool_cmd, $dirdiff, $extcmd, $gui, $help, $prompt, $tool_help);
+GetOptions('g|gui!' => \$gui,
+	'd|dir-diff' => \$dirdiff,
+	'h' => \$help,
+	'prompt!' => \$prompt,
+	'y' => sub { $prompt = 0; },
+	't|tool:s' => \$difftool_cmd,
+	'tool-help' => \$tool_help,
+	'x|extcmd:s' => \$extcmd);
 
-# ActiveState Perl for Win32 does not implement POSIX semantics of
-# exec* system call. It just spawns the given executable and finishes
-# the starting program, exiting with code 0.
-# system will at least catch the errors returned by git diff,
-# allowing the caller of git difftool better handling of failures.
-my $rc = system(generate_command());
-exit($rc | ($rc >> 8));
+if (defined($help)) {
+	usage(0);
+}
+if (defined($tool_help)) {
+	print_tool_help();
+}
+if (defined($difftool_cmd)) {
+	if (length($difftool_cmd) > 0) {
+		$ENV{GIT_DIFF_TOOL} = $difftool_cmd;
+	} else {
+		print "No <tool> given for --tool=<tool>\n";
+		usage(1);
+	}
+}
+if (defined($extcmd)) {
+	if (length($extcmd) > 0) {
+		$ENV{GIT_DIFFTOOL_EXTCMD} = $extcmd;
+	} else {
+		print "No <cmd> given for --extcmd=<cmd>\n";
+		usage(1);
+	}
+}
+if ($gui) {
+	my $guitool = '';
+	$guitool = Git::config('diff.guitool');
+	if (length($guitool) > 0) {
+		$ENV{GIT_DIFF_TOOL} = $guitool;
+	}
+}
+
+# In directory diff mode, 'git-difftool--helper' is called once
+# to compare the a/b directories.  In file diff mode, 'git diff'
+# will invoke a separate instance of 'git-difftool--helper' for
+# each file that changed.
+if (defined($dirdiff)) {
+	my ($a, $b) = setup_dir_diff();
+	if (defined($extcmd)) {
+		$rc = system($extcmd, $a, $b);
+	} else {
+		$ENV{GIT_DIFFTOOL_DIRDIFF} = 'true';
+		$rc = system('git', 'difftool--helper', $a, $b);
+	}
+
+	exit($rc | ($rc >> 8)) if ($rc != 0);
+
+	# If the diff including working copy files and those
+	# files were modified during the diff, then the changes
+	# should be copied back to the working tree
+	for my $file (@working_tree) {
+		copy("$b/$file", "$workdir/$file") or die $!;
+		chmod(stat("$b/$file")->mode, "$workdir/$file") or die $!;
+	}
+} else {
+	if (defined($prompt)) {
+		if ($prompt) {
+			$ENV{GIT_DIFFTOOL_PROMPT} = 'true';
+		} else {
+			$ENV{GIT_DIFFTOOL_NO_PROMPT} = 'true';
+		}
+	}
+
+	$ENV{GIT_PAGER} = '';
+	$ENV{GIT_EXTERNAL_DIFF} = 'git-difftool--helper';
+
+	# ActiveState Perl for Win32 does not implement POSIX semantics of
+	# exec* system call. It just spawns the given executable and finishes
+	# the starting program, exiting with code 0.
+	# system will at least catch the errors returned by git diff,
+	# allowing the caller of git difftool better handling of failures.
+	my $rc = system('git', 'diff', @ARGV);
+	exit($rc | ($rc >> 8));
+}
diff --git a/t/t7800-difftool.sh b/t/t7800-difftool.sh
index 2763d795f0..9c3e997b9d 100755
--- a/t/t7800-difftool.sh
+++ b/t/t7800-difftool.sh
@@ -105,6 +105,19 @@ test_expect_success PERL 'difftool honors --gui' '
 	restore_test_defaults
 '
 
+test_expect_success PERL 'difftool --gui last setting wins' '
+	git config diff.guitool bogus-tool &&
+	git difftool --no-prompt --gui --no-gui &&
+
+	git config merge.tool bogus-tool &&
+	git config diff.tool bogus-tool &&
+	git config diff.guitool test-tool &&
+	diff=$(git difftool --no-prompt --no-gui --gui branch) &&
+	test "$diff" = "branch" &&
+
+	restore_test_defaults
+'
+
 test_expect_success PERL 'difftool --gui works without configured diff.guitool' '
 	git config diff.tool test-tool &&
 
@@ -317,4 +330,48 @@ test_expect_success PERL 'say no to the second file' '
 	echo "$diff" | stdin_doesnot_contain br2
 '
 
+test_expect_success PERL 'difftool --tool-help' '
+	tool_help=$(git difftool --tool-help) &&
+	echo "$tool_help" | stdin_contains tool
+'
+
+test_expect_success PERL 'setup change in subdirectory' '
+	git checkout master &&
+	mkdir sub &&
+	echo master >sub/sub &&
+	git add sub/sub &&
+	git commit -m "added sub/sub" &&
+	echo test >>file &&
+	echo test >>sub/sub &&
+	git add . &&
+	git commit -m "modified both"
+'
+
+test_expect_success PERL 'difftool -d' '
+	diff=$(git difftool -d --extcmd ls branch) &&
+	echo "$diff" | stdin_contains sub &&
+	echo "$diff" | stdin_contains file
+'
+
+test_expect_success PERL 'difftool --dir-diff' '
+	diff=$(git difftool --dir-diff --extcmd ls branch) &&
+	echo "$diff" | stdin_contains sub &&
+	echo "$diff" | stdin_contains file
+'
+
+test_expect_success PERL 'difftool --dir-diff ignores --prompt' '
+	diff=$(git difftool --dir-diff --prompt --extcmd ls branch) &&
+	echo "$diff" | stdin_contains sub &&
+	echo "$diff" | stdin_contains file
+'
+
+test_expect_success PERL 'difftool --dir-diff from subdirectory' '
+	(
+		cd sub &&
+		diff=$(git difftool --dir-diff --extcmd ls branch) &&
+		echo "$diff" | stdin_contains sub &&
+		echo "$diff" | stdin_contains file
+	)
+'
+
 test_done