diff --git a/src/diff.c b/src/diff.c
index 9bc1d96..4420623 100644
--- a/src/diff.c
+++ b/src/diff.c
@@ -122,6 +122,7 @@ enum
   NO_IGNORE_FILE_NAME_CASE_OPTION,
   NORMAL_OPTION,
   SDIFF_MERGE_ASSIST_OPTION,
+  EXCLUDE_DIRECTORY_OPTION,
   STRIP_TRAILING_CR_OPTION,
   SUPPRESS_BLANK_EMPTY_OPTION,
   SUPPRESS_COMMON_LINES_OPTION,
@@ -208,6 +209,7 @@ static struct option const longopts[] =
   {"show-function-line", 1, 0, 'F'},
   {"side-by-side", 0, 0, 'y'},
   {"speed-large-files", 0, 0, 'H'},
+  {"exclude-directory", 0, 0, EXCLUDE_DIRECTORY_OPTION},
   {"starting-file", 1, 0, 'S'},
   {"strip-trailing-cr", 0, 0, STRIP_TRAILING_CR_OPTION},
   {"suppress-blank-empty", 0, 0, SUPPRESS_BLANK_EMPTY_OPTION},
@@ -592,6 +594,10 @@ main (int argc, char **argv)
 	  sdiff_merge_assist = true;
 	  break;
 
+	case EXCLUDE_DIRECTORY_OPTION:
+	  exclude_directory = true;
+	  break;
+
 	case STRIP_TRAILING_CR_OPTION:
 	  strip_trailing_cr = true;
 	  break;
@@ -911,6 +917,7 @@ static char const * const option_help_msgid[] = {
   N_("    --no-ignore-file-name-case  consider case when comparing file names"),
   N_("-x, --exclude=PAT               exclude files that match PAT"),
   N_("-X, --exclude-from=FILE         exclude files that match any pattern in FILE"),
+  N_("    --exclude-directory         exclude directories matching exclude pattern"),
   N_("-S, --starting-file=FILE        start with FILE when comparing directories"),
   N_("    --from-file=FILE1           compare FILE1 to all operands;\n"
      "                                  FILE1 can be a directory"),
diff --git a/src/diff.h b/src/diff.h
index 0983e7c..413790a 100644
--- a/src/diff.h
+++ b/src/diff.h
@@ -224,6 +224,9 @@ XTERN bool speed_large_files;
 /* Patterns that match file names to be excluded.  */
 XTERN struct exclude *excluded;
 
+/* Include directory as part of exclude matching. */
+XTERN bool exclude_directory;
+
 /* Don't discard lines.  This makes things slower (sometimes much
    slower) but will find a guaranteed minimal set of changes.  */
 XTERN bool minimal;
diff --git a/src/dir.c b/src/dir.c
index c8aa6a5..e9c70d6 100644
--- a/src/dir.c
+++ b/src/dir.c
@@ -96,8 +96,15 @@ dir_read (struct file_data const *dir, struct dirdata *dirdata)
 	      && (d_name[1] == 0 || (d_name[1] == '.' && d_name[2] == 0)))
 	    continue;
 
-	  if (excluded_file_name (excluded, d_name))
-	    continue;
+	  /* Exclude filename matches from diff */
+	  if (exclude_directory) {
+	    if (excluded_file_name (excluded,
+	      file_name_concat(dir->name, d_name, NULL)))
+	      continue;
+	  } else {
+	    if (excluded_file_name (excluded, d_name))
+	      continue;
+	  }
 
 	  while (data_alloc < data_used + d_size)
 	    {
diff --git a/tests/exclude-directory b/tests/exclude-directory
new file mode 100755
index 0000000..825154a
--- /dev/null
+++ b/tests/exclude-directory
@@ -0,0 +1,48 @@
+#!/bin/sh
+# exclude directory tests
+
+. "${srcdir=.}/init.sh"; path_prepend_ ../src
+
+TZ=UTC0
+export TZ
+
+fail=0
+
+# Generate directory structure
+mkdir a
+mkdir b
+echo ac > a/c
+echo bc > b/c
+
+epoch='1970-01-01 00:00:00'
+touch --date="$epoch" a b a/c b/c
+
+gen_exp_default()
+{
+    printf '%s' \
+"diff -r '--exclude=b/*' a/c b/c
+1c1
+< ac
+---
+> bc
+"
+}
+
+gen_exp_excluded()
+{
+    printf '%s' \
+"Only in a: c
+"
+}
+
+diff -r --exclude="b/*" a b > out
+test $? = 1 || fail=1
+gen_exp_default > exp || framework_failure_
+compare exp out || fail=1
+
+diff -r --exclude-directory --exclude="b/*" a b > out
+test $? = 1 || fail=1
+gen_exp_excluded > exp || framework_failure_
+compare exp out || fail=1
+
+Exit $fail