diff --git a/Documentation/git-am.txt b/Documentation/git-am.txt
index e640fc75c..2387a8d6c 100644
--- a/Documentation/git-am.txt
+++ b/Documentation/git-am.txt
@@ -9,7 +9,7 @@ git-am - Apply a series of patches from a mailbox
 SYNOPSIS
 --------
 [verse]
-'git-am' [--signoff] [--dotest=<dir>] [--keep] [--utf8 | --no-utf8]
+'git-am' [--signoff] [--keep] [--utf8 | --no-utf8]
          [--3way] [--interactive] [--binary]
          [--whitespace=<option>] [-C<n>] [-p<n>]
          <mbox>|<Maildir>...
@@ -32,10 +32,6 @@ OPTIONS
 	Add `Signed-off-by:` line to the commit message, using
 	the committer identity of yourself.
 
--d=<dir>, --dotest=<dir>::
-	Instead of `.dotest` directory, use <dir> as a working
-	area to store extracted patches.
-
 -k, --keep::
 	Pass `-k` flag to `git-mailinfo` (see linkgit:git-mailinfo[1]).
 
diff --git a/contrib/completion/git-completion.bash b/contrib/completion/git-completion.bash
index 49e6df096..848c067b5 100755
--- a/contrib/completion/git-completion.bash
+++ b/contrib/completion/git-completion.bash
@@ -70,7 +70,15 @@ __git_ps1 ()
 		local b
 		if [ -d "$g/../.dotest" ]
 		then
-			r="|AM/REBASE"
+			if test -f "$g/../.dotest/rebasing"
+			then
+				r="|REBASE"
+			elif test -f "$g/../.dotest/applying"
+			then
+				r="|AM"
+			else
+				r="|AM/REBASE"
+			fi
 			b="$(git symbolic-ref HEAD 2>/dev/null)"
 		elif [ -f "$g/.dotest-merge/interactive" ]
 		then
diff --git a/git-am.sh b/git-am.sh
index a2c6fea47..1f6b5e02c 100755
--- a/git-am.sh
+++ b/git-am.sh
@@ -9,7 +9,7 @@ git-am [options] <mbox>|<Maildir>...
 git-am [options] --resolved
 git-am [options] --skip
 --
-d,dotest=       use <dir> and not .dotest
+d,dotest=       (removed -- do not use)
 i,interactive   run interactively
 b,binary        pass --allo-binary-replacement to git-apply
 3,3way          allow fall back on 3way merging if needed
@@ -21,9 +21,11 @@ C=              pass it through git-apply
 p=              pass it through git-apply
 resolvemsg=     override error message when patch failure occurs
 r,resolved      to be used after a patch failure
-skip            skip the current patch"
+skip            skip the current patch
+rebasing        (internal use for git-rebase)"
 
 . git-sh-setup
+prefix=$(git rev-parse --show-prefix)
 set_reflog_action am
 require_work_tree
 cd_to_toplevel
@@ -49,10 +51,6 @@ stop_here_user_resolve () {
     then
         cmdline="$cmdline -3"
     fi
-    if test '.dotest' != "$dotest"
-    then
-        cmdline="$cmdline -d=$dotest"
-    fi
     echo "When you have resolved this problem run \"$cmdline --resolved\"."
     echo "If you would prefer to skip this patch, instead run \"$cmdline --skip\"."
 
@@ -124,7 +122,8 @@ reread_subject () {
 }
 
 prec=4
-dotest=.dotest sign= utf8=t keep= skip= interactive= resolved= binary=
+dotest=".dotest"
+sign= utf8=t keep= skip= interactive= resolved= binary= rebasing=
 resolvemsg= resume=
 git_apply_opt=
 
@@ -149,8 +148,11 @@ do
 		resolved=t ;;
 	--skip)
 		skip=t ;;
+	--rebasing)
+		rebasing=t threeway=t keep=t binary=t ;;
 	-d|--dotest)
-		shift; dotest=$1;;
+		die "-d option is no longer supported.  Do not use."
+		;;
 	--resolvemsg)
 		shift; resolvemsg=$1 ;;
 	--whitespace)
@@ -186,7 +188,7 @@ then
 	0,)
 		# No file input but without resume parameters; catch
 		# user error to feed us a patch from standard input
-		# when there is already .dotest.  This is somewhat
+		# when there is already $dotest.  This is somewhat
 		# unreliable -- stdin could be /dev/null for example
 		# and the caller did not intend to feed us a patch but
 		# wanted to continue unattended.
@@ -206,6 +208,24 @@ else
 	# Start afresh.
 	mkdir -p "$dotest" || exit
 
+	if test -n "$prefix" && test $# != 0
+	then
+		first=t
+		for arg
+		do
+			test -n "$first" && {
+				set x
+				first=
+			}
+			case "$arg" in
+			/*)
+				set "$@" "$arg" ;;
+			*)
+				set "$@" "$prefix$arg" ;;
+			esac
+		done
+		shift
+	fi
 	git mailsplit -d"$prec" -o"$dotest" -b -- "$@" > "$dotest/last" ||  {
 		rm -fr "$dotest"
 		exit 1
@@ -220,6 +240,12 @@ else
 	echo "$utf8" >"$dotest/utf8"
 	echo "$keep" >"$dotest/keep"
 	echo 1 >"$dotest/next"
+	if test -n "$rebasing"
+	then
+		: >"$dotest/rebasing"
+	else
+		: >"$dotest/applying"
+	fi
 fi
 
 case "$resolved" in
diff --git a/git-rebase.sh b/git-rebase.sh
index 6b9af962a..452c5e7e0 100755
--- a/git-rebase.sh
+++ b/git-rebase.sh
@@ -376,7 +376,7 @@ fi
 if test -z "$do_merge"
 then
 	git format-patch -k --stdout --full-index --ignore-if-in-upstream "$upstream"..ORIG_HEAD |
-	git am $git_am_opt --binary -3 -k --resolvemsg="$RESOLVEMSG" &&
+	git am $git_am_opt --rebasing --resolvemsg="$RESOLVEMSG" &&
 	move_to_original_branch
 	ret=$?
 	test 0 != $ret -a -d .dotest &&
diff --git a/t/t4150-am-subdir.sh b/t/t4150-am-subdir.sh
new file mode 100755
index 000000000..929d2cbd8
--- /dev/null
+++ b/t/t4150-am-subdir.sh
@@ -0,0 +1,72 @@
+#!/bin/sh
+
+test_description='git am running from a subdirectory'
+
+. ./test-lib.sh
+
+test_expect_success setup '
+	echo hello >world &&
+	git add world &&
+	test_tick &&
+	git commit -m initial &&
+	git tag initial &&
+	echo goodbye >world &&
+	git add world &&
+	test_tick &&
+	git commit -m second &&
+	git format-patch --stdout HEAD^ >patchfile &&
+	: >expect
+'
+
+test_expect_success 'am regularly from stdin' '
+	git checkout initial &&
+	git am <patchfile &&
+	git diff master >actual &&
+	diff -u expect actual
+'
+
+test_expect_success 'am regularly from file' '
+	git checkout initial &&
+	git am patchfile &&
+	git diff master >actual &&
+	diff -u expect actual
+'
+
+test_expect_success 'am regularly from stdin in subdirectory' '
+	rm -fr subdir &&
+	git checkout initial &&
+	(
+		mkdir -p subdir &&
+		cd subdir &&
+		git am <../patchfile
+	) &&
+	git diff master>actual &&
+	diff -u expect actual
+'
+
+test_expect_success 'am regularly from file in subdirectory' '
+	rm -fr subdir &&
+	git checkout initial &&
+	(
+		mkdir -p subdir &&
+		cd subdir &&
+		git am ../patchfile
+	) &&
+	git diff master >actual &&
+	diff -u expect actual
+'
+
+test_expect_success 'am regularly from file in subdirectory with full path' '
+	rm -fr subdir &&
+	git checkout initial &&
+	P=$(pwd) &&
+	(
+		mkdir -p subdir &&
+		cd subdir &&
+		git am "$P/patchfile"
+	) &&
+	git diff master >actual &&
+	diff -u expect actual
+'
+
+test_done