diff --git a/tests/test-diff-subdir b/tests/test-diff-subdir
new file mode 100644
--- /dev/null
+++ b/tests/test-diff-subdir
@@ -0,0 +1,27 @@
+#!/bin/sh
+
+hg init
+
+mkdir alpha
+touch alpha/one
+mkdir beta
+touch beta/two
+
+hg add alpha/one beta/two
+hg ci -m "start" -d "1000000 0"
+
+echo 1 > alpha/one
+echo 2 > beta/two
+
+echo EVERYTHING
+hg diff | sed -e "s/\(+++ [a-zA-Z0-9_/.-]*\).*/\1/" \
+              -e "s/\(--- [a-zA-Z0-9_/.-]*\).*/\1/"
+
+echo BETA ONLY
+hg diff beta | sed -e "s/\(+++ [a-zA-Z0-9_/.-]*\).*/\1/" \
+                -e "s/\(--- [a-zA-Z0-9_/.-]*\).*/\1/"
+
+echo INSIDE BETA
+cd beta
+hg diff . | sed -e "s/\(+++ [a-zA-Z0-9_/.-]*\).*/\1/" \
+                -e "s/\(--- [a-zA-Z0-9_/.-]*\).*/\1/"
diff --git a/tests/test-diff-subdir.out b/tests/test-diff-subdir.out
new file mode 100644
--- /dev/null
+++ b/tests/test-diff-subdir.out
@@ -0,0 +1,23 @@
+EVERYTHING
+diff -r ec612a6291f1 alpha/one
+--- a/alpha/one
++++ b/alpha/one
+@@ -0,0 +1,1 @@
++1
+diff -r ec612a6291f1 beta/two
+--- a/beta/two
++++ b/beta/two
+@@ -0,0 +1,1 @@
++2
+BETA ONLY
+diff -r ec612a6291f1 beta/two
+--- a/beta/two
++++ b/beta/two
+@@ -0,0 +1,1 @@
++2
+INSIDE BETA
+diff -r ec612a6291f1 beta/two
+--- a/beta/two
++++ b/beta/two
+@@ -0,0 +1,1 @@
++2