diff --git a/packages/git-diff/lib/helpers.js b/packages/git-diff/lib/helpers.js
index 974d2ff429c..4d3d12d0d0c 100644
--- a/packages/git-diff/lib/helpers.js
+++ b/packages/git-diff/lib/helpers.js
@@ -1,10 +1,9 @@
 'use babel';
+import { Directory } from 'atom';
 
 export default async function(goalPath) {
-  for (const directory of atom.project.getDirectories()) {
-    if (goalPath === directory.getPath() || directory.contains(goalPath)) {
-      return atom.project.repositoryForDirectory(directory);
-    }
+  if (goalPath) {
+    return atom.project.repositoryForDirectory(new Directory(goalPath));
   }
   return null;
 }
diff --git a/packages/git-diff/spec/git-diff-subfolder-spec.js b/packages/git-diff/spec/git-diff-subfolder-spec.js
new file mode 100644
index 00000000000..db1cf0c392c
--- /dev/null
+++ b/packages/git-diff/spec/git-diff-subfolder-spec.js
@@ -0,0 +1,75 @@
+const path = require('path');
+const fs = require('fs-plus');
+const temp = require('temp').track();
+
+describe('GitDiff when targeting nested repository', () => {
+  let editor, editorElement, projectPath, screenUpdates;
+
+  beforeEach(() => {
+    screenUpdates = 0;
+    spyOn(window, 'requestAnimationFrame').andCallFake(fn => {
+      fn();
+      screenUpdates++;
+    });
+    spyOn(window, 'cancelAnimationFrame').andCallFake(i => null);
+
+    projectPath = temp.mkdirSync('git-diff-spec-');
+
+    fs.copySync(path.join(__dirname, 'fixtures', 'working-dir'), projectPath);
+    fs.moveSync(
+      path.join(projectPath, 'git.git'),
+      path.join(projectPath, '.git')
+    );
+
+    // The nested repo doesn't need to be managed by the temp module because
+    // it's a part of our test environment.
+    const nestedPath = path.join(projectPath, 'nested-repository');
+    // Initialize the repository contents.
+    fs.copySync(path.join(__dirname, 'fixtures', 'working-dir'), nestedPath);
+    fs.moveSync(
+      path.join(nestedPath, 'git.git'),
+      path.join(nestedPath, '.git')
+    );
+
+    atom.project.setPaths([projectPath]);
+
+    jasmine.attachToDOM(atom.workspace.getElement());
+
+    waitsForPromise(async () => {
+      await atom.workspace.open(path.join(nestedPath, 'sample.js'));
+      await atom.packages.activatePackage('git-diff');
+    });
+
+    runs(() => {
+      editor = atom.workspace.getActiveTextEditor();
+      editorElement = atom.views.getView(editor);
+    });
+  });
+
+  afterEach(() => {
+    temp.cleanup();
+  });
+
+  describe('When git-diff targets a file in a nested git-repository', () => {
+    /***
+     * Non-hack regression prevention for nested repositories. If we know
+     * that our project path contains two repositories, we can ensure that
+     * git-diff is targeting the correct one by creating an artificial change
+     * in the ancestor repository, which is percieved differently within the
+     * child. In this case, creating a new file will not generate markers in
+     * the ancestor repo, even if there are changes; but changes will be
+     * marked within the child repo. So all we have to do is check if
+     * markers exist and we know we're targeting the proper repository,
+     * If no markers exist, we're targeting an ancestor repo.
+     */
+    it('uses the innermost repository', () => {
+      editor.insertText('a');
+      waitsFor(() => screenUpdates > 0);
+      runs(() => {
+        expect(
+          editorElement.querySelectorAll('.git-line-modified').length
+        ).toBe(1);
+      });
+    });
+  });
+});