diff --git a/hgext/extdiff.py b/hgext/extdiff.py
--- a/hgext/extdiff.py
+++ b/hgext/extdiff.py
@@ -113,12 +113,34 @@ def dodiff(ui, repo, diffcmd, diffopts, 
         return 0
 
     tmproot = tempfile.mkdtemp(prefix='extdiff.')
+    dir2root = ''
     try:
+        # Always make a copy of node1
         dir1 = snapshot_node(ui, repo, modified + removed, node1, tmproot)
+        changes = len(modified) + len(removed) + len(added)
+
+        # If node2 in not the wc or there is >1 change, copy it
         if node2:
             dir2 = snapshot_node(ui, repo, modified + added, node2, tmproot)
+        elif changes > 1:
+            dir2 = snapshot_wdir(ui, repo, modified + added, tmproot)
         else:
-            dir2 = snapshot_wdir(ui, repo, modified + added, tmproot)
+            # This lets the diff tool open the changed file directly
+            dir2 = ''
+            dir2root = repo.root
+
+        # If only one change, diff the files instead of the directories
+        if changes == 1 :
+            if len(modified):
+                dir1 = os.path.join(dir1, util.localpath(modified[0]))
+                dir2 = os.path.join(dir2root, dir2, util.localpath(modified[0]))  
+            elif len(removed) :
+                dir1 = os.path.join(dir1, util.localpath(removed[0]))
+                dir2 = os.devnull
+            else:
+                dir1 = os.devnull
+                dir2 = os.path.join(dir2root, dir2, util.localpath(added[0]))  
+    
         cmdline = ('%s %s %s %s' %
                    (util.shellquote(diffcmd), ' '.join(diffopts),
                     util.shellquote(dir1), util.shellquote(dir2)))
diff --git a/tests/test-extdiff b/tests/test-extdiff
--- a/tests/test-extdiff
+++ b/tests/test-extdiff
@@ -6,7 +6,9 @@ echo "extdiff=" >> $HGRCPATH
 hg init a
 cd a
 echo a > a
+echo b > b
 hg add
+# should diff cloned directories
 hg extdiff -o -r $opt
 
 echo "[extdiff]" >> $HGRCPATH
@@ -22,13 +24,17 @@ hg ci -d '0 0' -mtest1
 echo b >> a
 hg ci -d '1 0' -mtest2
 
+# should diff cloned files directly 
 hg falabala -r 0:1
 
 # test diff during merge
 hg update 0
-echo b >> b
-hg add b
+echo c >> c
+hg add c
 hg ci -m "new branch" -d '1 0'
 hg update -C 1
 hg merge tip
-hg falabala || echo "diff-like tools yield a non-zero exit code"
+# should diff cloned file against wc file 
+hg falabala > out || echo "diff-like tools yield a non-zero exit code"
+# cleanup the output since the wc is a tmp directory
+sed  's:\(.* \).*\(\/test-extdiff\):\1[tmp]\2:' out
diff --git a/tests/test-extdiff.out b/tests/test-extdiff.out
--- a/tests/test-extdiff.out
+++ b/tests/test-extdiff.out
@@ -1,5 +1,7 @@
 adding a
+adding b
 Only in a: a
+Only in a: b
 diffing a.000000000000 a
 hg falabala [OPTION]... [FILE]...
 
@@ -22,10 +24,10 @@ options:
  -X --exclude  exclude names matching the given patterns
 
 use "hg -v help falabala" to show global options
-diffing a.e27a2475d60a a.5e49ec8d3f05
+diffing a.8a5febb7f867/a a.34eed99112ab/a
 1 files updated, 0 files merged, 0 files removed, 0 files unresolved
 1 files updated, 0 files merged, 1 files removed, 0 files unresolved
 1 files updated, 0 files merged, 0 files removed, 0 files unresolved
 (branch merge, don't forget to commit)
-diffing a.5e49ec8d3f05 a
 diff-like tools yield a non-zero exit code
+diffing a.34eed99112ab/c [tmp]/test-extdiff/a/c