diff --git a/hgext/extdiff.py b/hgext/extdiff.py
--- a/hgext/extdiff.py
+++ b/hgext/extdiff.py
@@ -121,7 +121,7 @@ def dodiff(ui, repo, diffcmd, diffopts, 
 
     revs = opts.get('rev')
     change = opts.get('change')
-    args = ' '.join(diffopts)
+    args = ' '.join(map(util.shellquote, diffopts))
     do3way = '$parent2' in args
 
     if revs and change:
@@ -280,8 +280,7 @@ def uisetup(ui):
             cmd = cmd[4:]
             if not path:
                 path = cmd
-            diffopts = ui.config('extdiff', 'opts.' + cmd, '')
-            diffopts = diffopts and [diffopts] or []
+            diffopts = shlex.split(ui.config('extdiff', 'opts.' + cmd, ''))
         elif cmd.startswith('opts.'):
             continue
         else:
diff --git a/tests/test-extdiff.t b/tests/test-extdiff.t
--- a/tests/test-extdiff.t
+++ b/tests/test-extdiff.t
@@ -19,6 +19,8 @@ Should diff cloned directories:
   $ echo "[extdiff]" >> $HGRCPATH
   $ echo "cmd.falabala=echo" >> $HGRCPATH
   $ echo "opts.falabala=diffing" >> $HGRCPATH
+  $ echo "cmd.edspace=echo" >> $HGRCPATH
+  $ echo 'opts.edspace="name  <user@example.com>"' >> $HGRCPATH
 
   $ hg falabala
   diffing a.000000000000 a
@@ -168,6 +170,16 @@ Test extdiff with --option:
   diffing this */extdiff.*/a.8a5febb7f867/a a.34eed99112ab/a (glob)
   [1]
 
+Test extdiff's handling of options with spaces in them:
+
+  $ hg edspace -c 1
+  name  <user@example.com> */extdiff.*/a.8a5febb7f867/a a.34eed99112ab/a (glob)
+  [1]
+
+  $ hg extdiff -p echo -o "name  <user@example.com>" -c 1
+  name  <user@example.com> */extdiff.*/a.8a5febb7f867/a a.34eed99112ab/a (glob)
+  [1]
+
 Test with revsets:
 
   $ hg extdif -p echo -c "rev(1)"