diff --git a/hgext3rd/p4fastimport/__init__.py b/hgext3rd/p4fastimport/__init__.py
--- a/hgext3rd/p4fastimport/__init__.py
+++ b/hgext3rd/p4fastimport/__init__.py
@@ -20,6 +20,10 @@
     # and a p4fastimporter import
     ignore-time-delta = None
 
+    # The P4 database can become corrupted when it tracks symlinks to
+    # directories. Keep this corruption out of the Mercurial repo.
+    checksymlinks = True
+
 """
 from __future__ import absolute_import
 
diff --git a/hgext3rd/p4fastimport/importer.py b/hgext3rd/p4fastimport/importer.py
--- a/hgext3rd/p4fastimport/importer.py
+++ b/hgext3rd/p4fastimport/importer.py
@@ -125,6 +125,45 @@
                     continue
                 info = fileinfo[depotname]
                 localname, baserev = info['localname'], info['baserev']
+
+                if self._ui.configbool('p4fastimport', 'checksymlinks', True):
+                    # Under rare situations, when a symlink points to a directory,
+                    # the P4 server can report a file "under" it (as if it really
+                    # were a directory). 'p4 sync' reports this as an error and
+                    # continues, but 'hg update' will abort if it encounters this.
+                    # We need to keep such damage out of the hg repository.
+                    depotparentname = os.path.dirname(depotname)
+
+                    # The manifest's flags for the parent haven't been updated to
+                    # reflect this changelist yet. If the parent's flags are
+                    # changing right now, use them. Otherwise, use the manifest's
+                    # flags.
+                    parentflags = None
+                    parentinfo = fileinfo.get(depotparentname, None)
+                    if parentinfo:
+                        parentflags = parentinfo['flags'].get(change.cl, None)
+
+                    localparentname = localname
+                    while parentflags == None:
+                        # This P4 commit didn't change parent's flags at all.
+                        # Therefore, we can consult the Hg metadata.
+                        localparentname = os.path.dirname(localparentname)
+                        if localparentname == '':
+                            # There was no parent file above localname; only
+                            # directories. That's good/expected.
+                            parentflags = ''
+                            break
+                        parentflags = mf.flags(localparentname, None)
+
+                    if 'l' in parentflags:
+                        # It turns out that some parent is a symlink, so this file
+                        # can't exist. However, we already wrote the filelog! Oh
+                        # well. Just don't reference it in the manifest.
+                        # TODO: hgfilelog.strip()?
+                        self._ui.warn("warning: ignoring {} because it's under a "
+                                "symlink ({})\n".format(localname, localparentname))
+                        continue
+
                 hgfilelog = self._repo.file(localname)
                 try:
                     mf[localname] = hgfilelog.node(baserev)
diff --git a/tests/test-p4fastimport-import-badsymlink.t b/tests/test-p4fastimport-import-badsymlink.t
new file mode 100644
--- /dev/null
+++ b/tests/test-p4fastimport-import-badsymlink.t
@@ -0,0 +1,82 @@
+#require p4
+
+  $ . $TESTDIR/p4setup.sh
+
+populate the depot
+
+  $ mkdir Main
+  $ mkdir Main/b
+  $ echo a > Main/a
+  $ echo c > Main/b/c
+  $ ln -s b Main/d
+  $ p4 add Main/a Main/b/c Main/d
+  //depot/Main/a#1 - opened for add
+  //depot/Main/b/c#1 - opened for add
+  //depot/Main/d#1 - opened for add
+  $ p4 submit -d initial
+  Submitting change 1.
+  Locking 3 files ...
+  add //depot/Main/a#1
+  add //depot/Main/b/c#1
+  add //depot/Main/d#1
+  Change 1 submitted.
+  $ rm Main/d
+  $ mkdir -p Main/d
+  $ echo d > Main/d/d
+  $ p4 add Main/d/d
+  //depot/Main/d/d#1 - opened for add
+  $ p4 submit -d two
+  Submitting change 2.
+  Locking 1 files ...
+  add //depot/Main/d/d#1
+  Change 2 submitted.
+  $ p4 files ...
+  //depot/Main/a#1 - add change 1 (text)
+  //depot/Main/b/c#1 - add change 1 (text)
+  //depot/Main/d#1 - add change 1 (symlink)
+  //depot/Main/d/d#1 - add change 2 (text)
+
+According to P4, Main/d/d is a file inside Main/d, which is a symlink(!)
+
+  $ cd $hgwd
+  $ hg init --config 'format.usefncache=False'
+  $ hg p4fastimport --bookmark master -P $P4ROOT hg-p4-import
+  warning: ignoring Main/d/d because it's under a symlink (Main/d)
+  $ hg update
+  3 files updated, 0 files merged, 0 files removed, 0 files unresolved
+  $ ls -l Main
+  total 8
+  -rw-r--r-- 1 .* a (re)
+  drwxr-xr-x 2 .* b (re)
+  lrwxrwxrwx 1 .* d -> b (re)
+
+Repeat with a file nested under several directories
+
+  $ cd $p4wd
+  $ mkdir -p Main/d/e
+  $ echo e > Main/d/e/e
+  $ p4 add Main/d/e/e
+  //depot/Main/d/e/e#1 - opened for add
+  $ p4 submit -d three
+  Submitting change 3.
+  Locking 1 files ...
+  add //depot/Main/d/e/e#1
+  Change 3 submitted.
+  $ p4 files ...
+  //depot/Main/a#1 - add change 1 (text)
+  //depot/Main/b/c#1 - add change 1 (text)
+  //depot/Main/d#1 - add change 1 (symlink)
+  //depot/Main/d/d#1 - add change 2 (text)
+  //depot/Main/d/e/e#1 - add change 3 (text)
+
+Second import
+
+  $ cd $hgwd
+  $ hg p4fastimport --bookmark master -P $P4ROOT hg-p4-import
+  warning: ignoring Main/d/e/e because it's under a symlink (Main/d)
+  $ hg update
+  0 files updated, 0 files merged, 0 files removed, 0 files unresolved
+
+End Test
+
+  stopping the p4 server