diff --git a/hgext3rd/sparse.py b/hgext3rd/sparse.py
--- a/hgext3rd/sparse.py
+++ b/hgext3rd/sparse.py
@@ -31,6 +31,7 @@
     _setuplog(ui)
     _setupadd(ui)
     _setupdirstate(ui)
+    _setupdiff(ui)
     # if fsmonitor is enabled, tell it to use our hash function
     try:
         fsmonitor = extensions.find('fsmonitor')
@@ -340,6 +341,18 @@
             return orig(self, *args)
         extensions.wrapfunction(dirstate.dirstate, func, _wrapper)
 
+def _setupdiff(ui):
+    # wrap workingfilectx's data function to return the data for files
+    # outside the sparse checkout by fetching from the working copy parent.
+    def workingfilectxdata(orig, self):
+        sparsematch = self.repo().sparsematch()
+        if sparsematch(self._path):
+            return orig(self)
+        else:
+            basectx = self._changectx._parents[0]
+            return basectx[self._path].data()
+    extensions.wrapfunction(context.workingfilectx, 'data', workingfilectxdata)
+
 def _wraprepo(ui, repo):
     class SparseRepo(repo.__class__):
         def readsparseconfig(self, raw):
diff --git a/tests/test-sparse-diff.t b/tests/test-sparse-diff.t
new file mode 100644
--- /dev/null
+++ b/tests/test-sparse-diff.t
@@ -0,0 +1,31 @@
+  $ hg init repo
+  $ cd repo
+  $ cat > .hg/hgrc <<EOF
+  > [extensions]
+  > sparse=$TESTDIR/../hgext3rd/sparse.py
+  > EOF
+  $ mkdir a b
+  $ echo a1 > a/a
+  $ echo b1 > b/b
+  $ hg add a/a b/b
+  $ hg commit -m "add files"
+  $ echo a2 > a/a
+  $ echo b2 > b/b
+  $ hg commit -m "modify files"
+  $ hg sparse --exclude b
+
+Run diff.  This should still show the file contents of excluded files (and should not crash).
+
+  $ hg diff -r ".^"
+  diff -r 45479a47b024 a/a
+  --- a/a/a	Thu Jan 01 00:00:00 1970 +0000
+  +++ b/a/a	Thu Jan 01 00:00:00 1970 +0000
+  @@ -1,1 +1,1 @@
+  -a1
+  +a2
+  diff -r 45479a47b024 b/b
+  --- a/b/b	Thu Jan 01 00:00:00 1970 +0000
+  +++ b/b/b	Thu Jan 01 00:00:00 1970 +0000
+  @@ -1,1 +1,1 @@
+  -b1
+  +b2