diff --git a/dir.c b/dir.c
index 7c97483761..d448902909 100644
--- a/dir.c
+++ b/dir.c
@@ -151,6 +151,7 @@ void add_exclude(const char *string, const char *base,
 static int add_excludes_from_file_1(const char *fname,
 				    const char *base,
 				    int baselen,
+				    char **buf_p,
 				    struct exclude_list *which)
 {
 	struct stat st;
@@ -171,6 +172,8 @@ static int add_excludes_from_file_1(const char *fname,
 		goto err;
 	close(fd);
 
+	if (buf_p)
+		*buf_p = buf;
 	buf[size++] = '\n';
 	entry = buf;
 	for (i = 0; i < size; i++) {
@@ -192,31 +195,63 @@ static int add_excludes_from_file_1(const char *fname,
 
 void add_excludes_from_file(struct dir_struct *dir, const char *fname)
 {
-	if (add_excludes_from_file_1(fname, "", 0,
+	if (add_excludes_from_file_1(fname, "", 0, NULL,
 				     &dir->exclude_list[EXC_FILE]) < 0)
 		die("cannot use %s as an exclude file", fname);
 }
 
-int push_exclude_per_directory(struct dir_struct *dir, const char *base, int baselen)
+static void prep_exclude(struct dir_struct *dir, const char *base, int baselen)
 {
-	char exclude_file[PATH_MAX];
-	struct exclude_list *el = &dir->exclude_list[EXC_DIRS];
-	int current_nr = el->nr;
+	struct exclude_list *el;
+	struct exclude_stack *stk = NULL;
+	int current;
 
-	if (dir->exclude_per_dir) {
-		memcpy(exclude_file, base, baselen);
-		strcpy(exclude_file + baselen, dir->exclude_per_dir);
-		add_excludes_from_file_1(exclude_file, base, baselen, el);
+	if ((!dir->exclude_per_dir) ||
+	    (baselen + strlen(dir->exclude_per_dir) >= PATH_MAX))
+		return; /* too long a path -- ignore */
+
+	/* Pop the ones that are not the prefix of the path being checked. */
+	el = &dir->exclude_list[EXC_DIRS];
+	while ((stk = dir->exclude_stack) != NULL) {
+		if (stk->baselen <= baselen &&
+		    !strncmp(dir->basebuf, base, stk->baselen))
+			break;
+		dir->exclude_stack = stk->prev;
+		while (stk->exclude_ix < el->nr)
+			free(el->excludes[--el->nr]);
+		free(stk->filebuf);
+		free(stk);
 	}
-	return current_nr;
-}
 
-void pop_exclude_per_directory(struct dir_struct *dir, int stk)
-{
-	struct exclude_list *el = &dir->exclude_list[EXC_DIRS];
+	/* Read from the parent directories and push them down. */
+	current = stk ? stk->baselen : -1;
+	while (current < baselen) {
+		struct exclude_stack *stk = xcalloc(1, sizeof(*stk));
+		const char *cp;
 
-	while (stk < el->nr)
-		free(el->excludes[--el->nr]);
+		if (current < 0) {
+			cp = base;
+			current = 0;
+		}
+		else {
+			cp = strchr(base + current + 1, '/');
+			if (!cp)
+				die("oops in prep_exclude");
+			cp++;
+		}
+		stk->prev = dir->exclude_stack;
+		stk->baselen = cp - base;
+		stk->exclude_ix = el->nr;
+		memcpy(dir->basebuf + current, base + current,
+		       stk->baselen - current);
+		strcpy(dir->basebuf + stk->baselen, dir->exclude_per_dir);
+		add_excludes_from_file_1(dir->basebuf,
+					 dir->basebuf, stk->baselen,
+					 &stk->filebuf, el);
+		dir->exclude_stack = stk;
+		current = stk->baselen;
+	}
+	dir->basebuf[baselen] = '\0';
 }
 
 /* Scan the list and let the last match determines the fate.
@@ -283,6 +318,7 @@ int excluded(struct dir_struct *dir, const char *pathname)
 	const char *basename = strrchr(pathname, '/');
 	basename = (basename) ? basename+1 : pathname;
 
+	prep_exclude(dir, pathname, basename-pathname);
 	for (st = EXC_CMDL; st <= EXC_FILE; st++) {
 		switch (excluded_1(pathname, pathlen, basename, &dir->exclude_list[st])) {
 		case 0:
@@ -500,13 +536,10 @@ static int read_directory_recursive(struct dir_struct *dir, const char *path, co
 	int contents = 0;
 
 	if (fdir) {
-		int exclude_stk;
 		struct dirent *de;
 		char fullname[PATH_MAX + 1];
 		memcpy(fullname, base, baselen);
 
-		exclude_stk = push_exclude_per_directory(dir, base, baselen);
-
 		while ((de = readdir(fdir)) != NULL) {
 			int len, dtype;
 			int exclude;
@@ -580,8 +613,6 @@ static int read_directory_recursive(struct dir_struct *dir, const char *path, co
 		}
 exit_early:
 		closedir(fdir);
-
-		pop_exclude_per_directory(dir, exclude_stk);
 	}
 
 	return contents;
@@ -650,37 +681,9 @@ static void free_simplify(struct path_simplify *simplify)
 int read_directory(struct dir_struct *dir, const char *path, const char *base, int baselen, const char **pathspec)
 {
 	struct path_simplify *simplify = create_simplify(pathspec);
-	char *pp = NULL;
-
-	/*
-	 * Make sure to do the per-directory exclude for all the
-	 * directories leading up to our base.
-	 */
-	if (baselen) {
-		if (dir->exclude_per_dir) {
-			char *p;
-			pp = xmalloc(baselen+1);
-			memcpy(pp, base, baselen+1);
-			p = pp;
-			while (1) {
-				char save = *p;
-				*p = 0;
-				push_exclude_per_directory(dir, pp, p-pp);
-				*p++ = save;
-				if (!save)
-					break;
-				p = strchr(p, '/');
-				if (p)
-					p++;
-				else
-					p = pp + baselen;
-			}
-		}
-	}
 
 	read_directory_recursive(dir, path, base, baselen, 0, simplify);
 	free_simplify(simplify);
-	free(pp);
 	qsort(dir->entries, dir->nr, sizeof(struct dir_entry *), cmp_name);
 	qsort(dir->ignored, dir->ignored_nr, sizeof(struct dir_entry *), cmp_name);
 	return dir->nr;
diff --git a/dir.h b/dir.h
index 82009dc13e..d8814dccb2 100644
--- a/dir.h
+++ b/dir.h
@@ -1,17 +1,6 @@
 #ifndef DIR_H
 #define DIR_H
 
-/*
- * We maintain three exclude pattern lists:
- * EXC_CMDL lists patterns explicitly given on the command line.
- * EXC_DIRS lists patterns obtained from per-directory ignore files.
- * EXC_FILE lists patterns from fallback ignore files.
- */
-#define EXC_CMDL 0
-#define EXC_DIRS 1
-#define EXC_FILE 2
-
-
 struct dir_entry {
 	unsigned int len;
 	char name[FLEX_ARRAY]; /* more */
@@ -34,6 +23,13 @@ struct exclude_list {
 	} **excludes;
 };
 
+struct exclude_stack {
+	struct exclude_stack *prev;
+	char *filebuf;
+	int baselen;
+	int exclude_ix;
+};
+
 struct dir_struct {
 	int nr, alloc;
 	int ignored_nr, ignored_alloc;
@@ -48,6 +44,18 @@ struct dir_struct {
 	/* Exclude info */
 	const char *exclude_per_dir;
 	struct exclude_list exclude_list[3];
+	/*
+	 * We maintain three exclude pattern lists:
+	 * EXC_CMDL lists patterns explicitly given on the command line.
+	 * EXC_DIRS lists patterns obtained from per-directory ignore files.
+	 * EXC_FILE lists patterns from fallback ignore files.
+	 */
+#define EXC_CMDL 0
+#define EXC_DIRS 1
+#define EXC_FILE 2
+
+	struct exclude_stack *exclude_stack;
+	char basebuf[PATH_MAX];
 };
 
 extern int common_prefix(const char **pathspec);
@@ -58,8 +66,6 @@ extern int common_prefix(const char **pathspec);
 extern int match_pathspec(const char **pathspec, const char *name, int namelen, int prefix, char *seen);
 
 extern int read_directory(struct dir_struct *, const char *path, const char *base, int baselen, const char **pathspec);
-extern int push_exclude_per_directory(struct dir_struct *, const char *, int);
-extern void pop_exclude_per_directory(struct dir_struct *, int);
 
 extern int excluded(struct dir_struct *, const char *);
 extern void add_excludes_from_file(struct dir_struct *, const char *fname);
diff --git a/unpack-trees.c b/unpack-trees.c
index aea16adde8..e9eb795d64 100644
--- a/unpack-trees.c
+++ b/unpack-trees.c
@@ -71,12 +71,8 @@ static int unpack_trees_rec(struct tree_entry_list **posns, int len,
 	int remove;
 	int baselen = strlen(base);
 	int src_size = len + 1;
-	int i_stk = i_stk;
 	int retval = 0;
 
-	if (o->dir)
-		i_stk = push_exclude_per_directory(o->dir, base, strlen(base));
-
 	do {
 		int i;
 		const char *first;
@@ -255,8 +251,6 @@ static int unpack_trees_rec(struct tree_entry_list **posns, int len,
 	} while (1);
 
  leave_directory:
-	if (o->dir)
-		pop_exclude_per_directory(o->dir, i_stk);
 	return retval;
 }