diff --git a/mercurial/filemerge.py b/mercurial/filemerge.py
--- a/mercurial/filemerge.py
+++ b/mercurial/filemerge.py
@@ -114,8 +114,16 @@ class absentfilectx(object):
 def _findtool(ui, tool):
     if tool in internals:
         return tool
+    cmd = _toolstr(ui, tool, "executable", tool)
+    if cmd.startswith('python:'):
+        return cmd
     return findexternaltool(ui, tool)
 
+def _quotetoolpath(cmd):
+    if cmd.startswith('python:'):
+        return cmd
+    return procutil.shellquote(cmd)
+
 def findexternaltool(ui, tool):
     for kn in ("regkey", "regkeyalt"):
         k = _toolstr(ui, tool, kn)
@@ -165,7 +173,7 @@ def _picktool(repo, ui, path, binary, sy
             return ":prompt", None
         else:
             if toolpath:
-                return (force, procutil.shellquote(toolpath))
+                return (force, _quotetoolpath(toolpath))
             else:
                 # mimic HGMERGE if given tool not found
                 return (force, force)
@@ -183,7 +191,7 @@ def _picktool(repo, ui, path, binary, sy
         mf = match.match(repo.root, '', [pat])
         if mf(path) and check(tool, pat, symlink, False, changedelete):
             toolpath = _findtool(ui, tool)
-            return (tool, procutil.shellquote(toolpath))
+            return (tool, _quotetoolpath(toolpath))
 
     # then merge tools
     tools = {}
@@ -208,7 +216,7 @@ def _picktool(repo, ui, path, binary, sy
     for p, t in tools:
         if check(t, None, symlink, binary, changedelete):
             toolpath = _findtool(ui, t)
-            return (t, procutil.shellquote(toolpath))
+            return (t, _quotetoolpath(toolpath))
 
     # internal merge or prompt as last resort
     if symlink or binary or changedelete:
@@ -325,7 +333,7 @@ def _underlyingfctxifabsent(filectx):
         return filectx
 
 def _premerge(repo, fcd, fco, fca, toolconf, files, labels=None):
-    tool, toolpath, binary, symlink = toolconf
+    tool, toolpath, binary, symlink, scriptfn = toolconf
     if symlink or fcd.isabsent() or fco.isabsent():
         return 1
     unused, unused, unused, back = files
@@ -361,7 +369,7 @@ def _premerge(repo, fcd, fco, fca, toolc
     return 1 # continue merging
 
 def _mergecheck(repo, mynode, orig, fcd, fco, fca, toolconf):
-    tool, toolpath, binary, symlink = toolconf
+    tool, toolpath, binary, symlink, scriptfn = toolconf
     if symlink:
         repo.ui.warn(_('warning: internal %s cannot merge symlinks '
                        'for %s\n') % (tool, fcd.path()))
@@ -430,7 +438,7 @@ def _imergeauto(repo, mynode, orig, fcd,
     Generic driver for _imergelocal and _imergeother
     """
     assert localorother is not None
-    tool, toolpath, binary, symlink = toolconf
+    tool, toolpath, binary, symlink, scriptfn = toolconf
     r = simplemerge.simplemerge(repo.ui, fcd, fca, fco, label=labels,
                                 localorother=localorother)
     return True, r
@@ -510,7 +518,7 @@ def _xmergeimm(repo, mynode, orig, fcd, 
                                             'external merge tools')
 
 def _xmerge(repo, mynode, orig, fcd, fco, fca, toolconf, files, labels=None):
-    tool, toolpath, binary, symlink = toolconf
+    tool, toolpath, binary, symlink, scriptfn = toolconf
     if fcd.isabsent() or fco.isabsent():
         repo.ui.warn(_('warning: %s cannot merge change/delete conflict '
                        'for %s\n') % (tool, fcd.path()))
@@ -551,12 +559,36 @@ def _xmerge(repo, mynode, orig, fcd, fco
         args = util.interpolate(
             br'\$', replace, args,
             lambda s: procutil.shellquote(util.localpath(s)))
-        cmd = toolpath + ' ' + args
         if _toolbool(ui, tool, "gui"):
             repo.ui.status(_('running merge tool %s for file %s\n') %
                            (tool, fcd.path()))
-        repo.ui.debug('launching merge tool: %s\n' % cmd)
-        r = ui.system(cmd, cwd=repo.root, environ=env, blockedtag='mergetool')
+        if scriptfn is None:
+            cmd = toolpath + ' ' + args
+            repo.ui.debug('launching merge tool: %s\n' % cmd)
+            r = ui.system(cmd, cwd=repo.root, environ=env,
+                          blockedtag='mergetool')
+        else:
+            repo.ui.debug('launching python merge script: %s:%s\n' %
+                          (toolpath, scriptfn))
+            r = 0
+            try:
+                # avoid cycle cmdutil->merge->filemerge->extensions->cmdutil
+                from . import extensions
+                mod = extensions.loadpath(toolpath, 'hgmerge.%s' % scriptfn)
+            except Exception:
+                raise error.Abort(_("loading python merge script failed: %s") %
+                                  toolpath)
+            mergefn = getattr(mod, scriptfn, None)
+            if mergefn is None:
+                raise error.Abort(_("%s does not have function: %s") %
+                                  (toolpath, scriptfn))
+            argslist = procutil.shellsplit(args)
+            # avoid cycle cmdutil->merge->filemerge->hook->extensions->cmdutil
+            from . import hook
+            ret, raised = hook.pythonhook(ui, repo, "merge", toolpath,
+                                          mergefn, {'args': argslist}, True)
+            if raised:
+                r = 1
         repo.ui.debug('merge tool returned: %d\n' % r)
         return True, r, False
 
@@ -751,9 +783,24 @@ def _filemerge(premerge, repo, wctx, myn
     symlink = 'l' in fcd.flags() + fco.flags()
     changedelete = fcd.isabsent() or fco.isabsent()
     tool, toolpath = _picktool(repo, ui, fd, binary, symlink, changedelete)
+    scriptfn = None
     if tool in internals and tool.startswith('internal:'):
         # normalize to new-style names (':merge' etc)
         tool = tool[len('internal'):]
+    if toolpath and toolpath.startswith('python:'):
+        invalidsyntax = False
+        if toolpath.count(':') >= 2:
+            script, scriptfn = toolpath[7:].rsplit(':', 1)
+            if not scriptfn:
+                invalidsyntax = True
+            # missing :callable can lead to spliting on windows drive letter
+            if '\\' in scriptfn or '/' in scriptfn:
+                invalidsyntax = True
+        else:
+            invalidsyntax = True
+        if invalidsyntax:
+            raise error.Abort(_("invalid 'python:' syntax: %s") % toolpath)
+        toolpath = script
     ui.debug("picked tool '%s' for %s (binary %s symlink %s changedelete %s)\n"
              % (tool, fd, pycompat.bytestr(binary), pycompat.bytestr(symlink),
                     pycompat.bytestr(changedelete)))
@@ -774,7 +821,7 @@ def _filemerge(premerge, repo, wctx, myn
         precheck = None
         isexternal = True
 
-    toolconf = tool, toolpath, binary, symlink
+    toolconf = tool, toolpath, binary, symlink, scriptfn
 
     if mergetype == nomerge:
         r, deleted = func(repo, mynode, orig, fcd, fco, fca, toolconf, labels)
diff --git a/mercurial/hook.py b/mercurial/hook.py
--- a/mercurial/hook.py
+++ b/mercurial/hook.py
@@ -24,7 +24,7 @@ from .utils import (
     stringutil,
 )
 
-def _pythonhook(ui, repo, htype, hname, funcname, args, throw):
+def pythonhook(ui, repo, htype, hname, funcname, args, throw):
     '''call python hook. hook is callable object, looked up as
     name in python module. if callable returns "true", hook
     fails, else passes. if hook raises exception, treated as
@@ -242,7 +242,7 @@ def runhooks(ui, repo, htype, hooks, thr
                 r = 1
                 raised = False
             elif callable(cmd):
-                r, raised = _pythonhook(ui, repo, htype, hname, cmd, args,
+                r, raised = pythonhook(ui, repo, htype, hname, cmd, args,
                                         throw)
             elif cmd.startswith('python:'):
                 if cmd.count(':') >= 2:
@@ -258,7 +258,7 @@ def runhooks(ui, repo, htype, hooks, thr
                     hookfn = getattr(mod, cmd)
                 else:
                     hookfn = cmd[7:].strip()
-                r, raised = _pythonhook(ui, repo, htype, hname, hookfn, args,
+                r, raised = pythonhook(ui, repo, htype, hname, hookfn, args,
                                         throw)
             else:
                 r = _exthook(ui, repo, htype, hname, cmd, args, throw)
diff --git a/tests/test-merge-tools.t b/tests/test-merge-tools.t
--- a/tests/test-merge-tools.t
+++ b/tests/test-merge-tools.t
@@ -329,6 +329,183 @@ and true.executable set to cat with path
   # hg resolve --list
   R f
 
+executable set to python script that succeeds:
+
+  $ cat > "$TESTTMP/myworkingmerge.py" <<EOF
+  > def myworkingmergefn(ui, repo, args, **kwargs):
+  >     return False
+  > EOF
+  $ beforemerge
+  [merge-tools]
+  false.whatever=
+  true.priority=1
+  true.executable=cat
+  # hg update -C 1
+  $ hg merge -r 2 --config merge-tools.true.executable="python:$TESTTMP/myworkingmerge.py:myworkingmergefn"
+  merging f
+  0 files updated, 1 files merged, 0 files removed, 0 files unresolved
+  (branch merge, don't forget to commit)
+  $ aftermerge
+  # cat f
+  revision 1
+  space
+  # hg stat
+  M f
+  # hg resolve --list
+  R f
+
+executable set to python script that fails:
+
+  $ cat > "$TESTTMP/mybrokenmerge.py" <<EOF
+  > def mybrokenmergefn(ui, repo, args, **kwargs):
+  >     ui.write(b"some fail message\n")
+  >     return True
+  > EOF
+  $ beforemerge
+  [merge-tools]
+  false.whatever=
+  true.priority=1
+  true.executable=cat
+  # hg update -C 1
+  $ hg merge -r 2 --config merge-tools.true.executable="python:$TESTTMP/mybrokenmerge.py:mybrokenmergefn"
+  merging f
+  some fail message
+  abort: $TESTTMP/mybrokenmerge.py hook failed
+  [255]
+  $ aftermerge
+  # cat f
+  revision 1
+  space
+  # hg stat
+  ? f.orig
+  # hg resolve --list
+  U f
+
+executable set to python script that is missing function:
+
+  $ beforemerge
+  [merge-tools]
+  false.whatever=
+  true.priority=1
+  true.executable=cat
+  # hg update -C 1
+  $ hg merge -r 2 --config merge-tools.true.executable="python:$TESTTMP/myworkingmerge.py:missingFunction"
+  merging f
+  abort: $TESTTMP/myworkingmerge.py does not have function: missingFunction
+  [255]
+  $ aftermerge
+  # cat f
+  revision 1
+  space
+  # hg stat
+  ? f.orig
+  # hg resolve --list
+  U f
+
+executable set to missing python script:
+
+  $ beforemerge
+  [merge-tools]
+  false.whatever=
+  true.priority=1
+  true.executable=cat
+  # hg update -C 1
+  $ hg merge -r 2 --config merge-tools.true.executable="python:$TESTTMP/missingpythonscript.py:mergefn"
+  merging f
+  abort: loading python merge script failed: $TESTTMP/missingpythonscript.py
+  [255]
+  $ aftermerge
+  # cat f
+  revision 1
+  space
+  # hg stat
+  ? f.orig
+  # hg resolve --list
+  U f
+
+executable set to python script but callable function is missing:
+
+  $ beforemerge
+  [merge-tools]
+  false.whatever=
+  true.priority=1
+  true.executable=cat
+  # hg update -C 1
+  $ hg merge -r 2 --config merge-tools.true.executable="python:$TESTTMP/myworkingmerge.py"
+  abort: invalid 'python:' syntax: python:$TESTTMP/myworkingmerge.py
+  [255]
+  $ aftermerge
+  # cat f
+  revision 1
+  space
+  # hg stat
+  # hg resolve --list
+  U f
+
+executable set to python script but callable function is empty string:
+
+  $ beforemerge
+  [merge-tools]
+  false.whatever=
+  true.priority=1
+  true.executable=cat
+  # hg update -C 1
+  $ hg merge -r 2 --config merge-tools.true.executable="python:$TESTTMP/myworkingmerge.py:"
+  abort: invalid 'python:' syntax: python:$TESTTMP/myworkingmerge.py:
+  [255]
+  $ aftermerge
+  # cat f
+  revision 1
+  space
+  # hg stat
+  # hg resolve --list
+  U f
+
+executable set to python script but callable function is missing and path contains colon:
+
+  $ beforemerge
+  [merge-tools]
+  false.whatever=
+  true.priority=1
+  true.executable=cat
+  # hg update -C 1
+  $ hg merge -r 2 --config merge-tools.true.executable="python:$TESTTMP/some:dir/myworkingmerge.py"
+  abort: invalid 'python:' syntax: python:$TESTTMP/some:dir/myworkingmerge.py
+  [255]
+  $ aftermerge
+  # cat f
+  revision 1
+  space
+  # hg stat
+  # hg resolve --list
+  U f
+
+executable set to python script filename that contains spaces:
+
+  $ mkdir -p "$TESTTMP/my path"
+  $ cat > "$TESTTMP/my path/my working merge with spaces in filename.py" <<EOF
+  > def myworkingmergefn(ui, repo, args, **kwargs):
+  >     return False
+  > EOF
+  $ beforemerge
+  [merge-tools]
+  false.whatever=
+  true.priority=1
+  true.executable=cat
+  # hg update -C 1
+  $ hg merge -r 2 --config "merge-tools.true.executable=python:$TESTTMP/my path/my working merge with spaces in filename.py:myworkingmergefn"
+  merging f
+  0 files updated, 1 files merged, 0 files removed, 0 files unresolved
+  (branch merge, don't forget to commit)
+  $ aftermerge
+  # cat f
+  revision 1
+  space
+  # hg stat
+  M f
+  # hg resolve --list
+  R f
+
 #if unix-permissions
 
 environment variables in true.executable are handled: