diff --git a/hgext/largefiles/lfcommands.py b/hgext/largefiles/lfcommands.py
--- a/hgext/largefiles/lfcommands.py
+++ b/hgext/largefiles/lfcommands.py
@@ -248,7 +248,7 @@ def _commitcontext(rdst, parents, ctx, d
     mctx = context.memctx(rdst, parents, ctx.description(), dstfiles,
                           getfilectx, ctx.user(), ctx.date(), ctx.extra())
     ret = rdst.commitctx(mctx)
-    rdst.dirstate.setparents(ret)
+    rdst.setparents(ret)
     revmap[ctx.node()] = rdst.changelog.tip()
 
 # Generate list of changed files
diff --git a/hgext/mq.py b/hgext/mq.py
--- a/hgext/mq.py
+++ b/hgext/mq.py
@@ -749,7 +749,7 @@ class queue(object):
                 for f in merged:
                     repo.dirstate.merge(f)
                 p1, p2 = repo.dirstate.parents()
-                repo.dirstate.setparents(p1, merge)
+                repo.setparents(p1, merge)
 
             match = scmutil.matchfiles(repo, files or [])
             oldtip = repo['tip']
@@ -1355,7 +1355,7 @@ class queue(object):
                     fctx = ctx[f]
                     repo.wwrite(f, fctx.data(), fctx.flags())
                     repo.dirstate.normal(f)
-                repo.dirstate.setparents(qp, nullid)
+                repo.setparents(qp, nullid)
             for patch in reversed(self.applied[start:end]):
                 self.ui.status(_("popping %s\n") % patch.name)
             del self.applied[start:end]
@@ -1546,7 +1546,7 @@ class queue(object):
                 oldphase = repo[top].phase()
 
                 # assumes strip can roll itself back if interrupted
-                repo.dirstate.setparents(*cparents)
+                repo.setparents(*cparents)
                 self.applied.pop()
                 self.applieddirty = True
                 self.strip(repo, [top], update=False,
diff --git a/hgext/rebase.py b/hgext/rebase.py
--- a/hgext/rebase.py
+++ b/hgext/rebase.py
@@ -277,7 +277,7 @@ def rebase(ui, repo, **opts):
                                           editor=editor)
                 else:
                     # Skip commit if we are collapsing
-                    repo.dirstate.setparents(repo[p1].node())
+                    repo.setparents(repo[p1].node())
                     newrev = None
                 # Update the state
                 if newrev is not None:
@@ -361,7 +361,7 @@ def checkexternal(repo, state, targetanc
 def concludenode(repo, rev, p1, p2, commitmsg=None, editor=None, extrafn=None):
     'Commit the changes and store useful information in extra'
     try:
-        repo.dirstate.setparents(repo[p1].node(), repo[p2].node())
+        repo.setparents(repo[p1].node(), repo[p2].node())
         ctx = repo[rev]
         if commitmsg is None:
             commitmsg = ctx.description()
diff --git a/hgext/transplant.py b/hgext/transplant.py
--- a/hgext/transplant.py
+++ b/hgext/transplant.py
@@ -274,7 +274,7 @@ class transplanter(object):
             files = None
         if merge:
             p1, p2 = repo.dirstate.parents()
-            repo.dirstate.setparents(p1, node)
+            repo.setparents(p1, node)
             m = match.always(repo.root, '')
         else:
             m = match.exact(repo.root, '', files)
@@ -340,7 +340,7 @@ class transplanter(object):
                     _('working dir not at transplant parent %s') %
                                  revlog.hex(parent))
             if merge:
-                repo.dirstate.setparents(p1, parents[1])
+                repo.setparents(p1, parents[1])
             n = repo.commit(message, user, date, extra=extra,
                             editor=self.editor)
             if not n:
diff --git a/mercurial/cmdutil.py b/mercurial/cmdutil.py
--- a/mercurial/cmdutil.py
+++ b/mercurial/cmdutil.py
@@ -1384,7 +1384,7 @@ def amend(ui, repo, commitfunc, old, ext
         newid = repo.commitctx(new)
         if newid != old.node():
             # Reroute the working copy parent to the new changeset
-            repo.dirstate.setparents(newid, nullid)
+            repo.setparents(newid, nullid)
 
             # Move bookmarks from old parent to amend commit
             bms = repo.nodebookmarks(old.node())
diff --git a/mercurial/commands.py b/mercurial/commands.py
--- a/mercurial/commands.py
+++ b/mercurial/commands.py
@@ -2270,7 +2270,7 @@ def debugsetparents(ui, repo, rev1, rev2
 
     wlock = repo.wlock()
     try:
-        repo.dirstate.setparents(r1, r2)
+        repo.setparents(r1, r2)
     finally:
         wlock.release()
 
@@ -2693,7 +2693,7 @@ def graft(ui, repo, *revs, **opts):
                 finally:
                     ui.setconfig('ui', 'forcemerge', '')
                 # drop the second merge parent
-                repo.dirstate.setparents(current.node(), nullid)
+                repo.setparents(current.node(), nullid)
                 repo.dirstate.write()
                 # fix up dirstate for copies and renames
                 cmdutil.duplicatecopies(repo, ctx.rev(), ctx.p1().rev())
@@ -3635,7 +3635,7 @@ def import_(ui, repo, patch1=None, *patc
                 if p1 != parents[0]:
                     hg.clean(repo, p1.node())
                 if p2 != parents[1]:
-                    repo.dirstate.setparents(p1.node(), p2.node())
+                    repo.setparents(p1.node(), p2.node())
 
                 if opts.get('exact') or opts.get('import_branch'):
                     repo.dirstate.setbranch(branch or 'default')
diff --git a/mercurial/dirstate.py b/mercurial/dirstate.py
--- a/mercurial/dirstate.py
+++ b/mercurial/dirstate.py
@@ -237,14 +237,26 @@ class dirstate(object):
         return encoding.tolocal(self._branch)
 
     def setparents(self, p1, p2=nullid):
+        """Set dirstate parents to p1 and p2.
+
+        When moving from two parents to one, 'm' merged entries a
+        adjusted to normal and previous copy records discarded and
+        returned by the call.
+
+        See localrepo.setparents()
+        """
         self._dirty = self._dirtypl = True
         oldp2 = self._pl[1]
         self._pl = p1, p2
+        copies = {}
         if oldp2 != nullid and p2 == nullid:
             # Discard 'm' markers when moving away from a merge state
             for f, s in self._map.iteritems():
                 if s[0] == 'm':
+                    if f in self._copymap:
+                        copies[f] = self._copymap[f]
                     self.normallookup(f)
+        return copies
 
     def setbranch(self, branch):
         if branch in ['tip', '.', 'null']:
diff --git a/mercurial/localrepo.py b/mercurial/localrepo.py
--- a/mercurial/localrepo.py
+++ b/mercurial/localrepo.py
@@ -633,6 +633,17 @@ class localrepository(repo.repository):
         '''get list of changectxs for parents of changeid'''
         return self[changeid].parents()
 
+    def setparents(self, p1, p2=nullid):
+        copies = self.dirstate.setparents(p1, p2)
+        if copies:
+            # Adjust copy records, the dirstate cannot do it, it
+            # requires access to parents manifests. Preserve them
+            # only for entries added to first parent.
+            pctx = self[p1]
+            for f in copies:
+                if f not in pctx and copies[f] in pctx:
+                    self.dirstate.copy(copies[f], f)
+
     def filectx(self, path, changeid=None, fileid=None):
         """changeid can be a changeset revision, node, or tag.
            fileid can be a file revision or node."""
diff --git a/mercurial/merge.py b/mercurial/merge.py
--- a/mercurial/merge.py
+++ b/mercurial/merge.py
@@ -596,7 +596,7 @@ def update(repo, node, branchmerge, forc
         stats = applyupdates(repo, action, wc, p2, pa, overwrite)
 
         if not partial:
-            repo.dirstate.setparents(fp1, fp2)
+            repo.setparents(fp1, fp2)
             recordupdates(repo, action, branchmerge)
             if not branchmerge:
                 repo.dirstate.setbranch(p2.branch())
diff --git a/tests/bundles/rename.sh b/tests/bundles/rename.sh
new file mode 100755
--- /dev/null
+++ b/tests/bundles/rename.sh
@@ -0,0 +1,30 @@
+#!/bin/sh
+
+#  @  3: 'move2'
+#  |
+#  o  2: 'move1'
+#  |
+#  | o  1: 'change'
+#  |/
+#  o  0: 'add'
+
+hg init copies
+cd copies
+echo a > a
+echo b > b
+echo c > c
+hg ci -Am add
+echo a >> a
+echo b >> b
+echo c >> c
+hg ci -m change
+hg up -qC 0
+hg cp a d
+hg mv b e
+hg mv c f
+hg ci -m move1
+hg mv e g
+hg mv f c
+hg ci -m move2
+hg bundle -a ../renames.hg
+cd ..
diff --git a/tests/bundles/renames.hg b/tests/bundles/renames.hg
new file mode 100644
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diff --git a/tests/test-rebase-collapse.t b/tests/test-rebase-collapse.t
--- a/tests/test-rebase-collapse.t
+++ b/tests/test-rebase-collapse.t
@@ -541,3 +541,52 @@ Interactions between collapse and keepbr
   @@ -0,0 +1,2 @@
   +d
   +blah
+
+  $ cd ..
+
+Rebase, collapse and copies
+
+  $ hg init copies
+  $ cd copies
+  $ hg unbundle "$TESTDIR/bundles/renames.hg"
+  adding changesets
+  adding manifests
+  adding file changes
+  added 4 changesets with 11 changes to 7 files (+1 heads)
+  (run 'hg heads' to see heads, 'hg merge' to merge)
+  $ hg up -q tip
+  $ hg tglog
+  @  3: 'move2'
+  |
+  o  2: 'move1'
+  |
+  | o  1: 'change'
+  |/
+  o  0: 'add'
+  
+  $ hg rebase --collapse -d 1
+  merging a and d to d
+  merging b and e to e
+  merging c and f to f
+  merging e and g to g
+  merging f and c to c
+  saved backup bundle to $TESTTMP/copies/.hg/strip-backup/*-backup.hg (glob)
+  $ hg st
+  $ hg st --copies --change .
+  A d
+    a
+  A g
+    b
+  R b
+  $ cat c
+  c
+  c
+  $ cat d
+  a
+  a
+  $ cat g
+  b
+  b
+  $ hg log -r . --template "{file_copies}\n"
+  d (a)g (b)
+  $ cd ..