diff --git a/hgext3rd/sparse.py b/hgext3rd/sparse.py
--- a/hgext3rd/sparse.py
+++ b/hgext3rd/sparse.py
@@ -9,7 +9,7 @@
 """
 
 from mercurial import util, cmdutil, extensions, context, dirstate, commands
-from mercurial import localrepo, error, hg, pathutil, registrar
+from mercurial import localrepo, error, hg, pathutil, registrar, patch
 from mercurial import match as matchmod
 from mercurial import merge as mergemod
 from mercurial.node import nullid
@@ -342,6 +342,9 @@
         extensions.wrapfunction(dirstate.dirstate, func, _wrapper)
 
 def _setupdiff(ui):
+    entry = commands.table['^diff']
+    entry[1].append(('s', 'sparse', None,
+                     'only show changes in files in the sparse config'))
     # 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):
@@ -353,6 +356,27 @@
             return basectx[self._path].data()
     extensions.wrapfunction(context.workingfilectx, 'data', workingfilectxdata)
 
+    # wrap trydiff to filter diffs if '--sparse' is set
+    def trydiff(orig, repo, revs, ctx1, ctx2, modified, added, removed,
+                copy, getfilectx, opts, losedatafn, prefix, relroot):
+        sparsematch = repo.sparsematch()
+        modified = filter(sparsematch, modified)
+        added = filter(sparsematch, added)
+        removed = filter(sparsematch, removed)
+        copy = dict((d, s) for d, s in copy.items() if sparsematch(s))
+        return orig(repo, revs, ctx1, ctx2, modified, added, removed,
+                    copy, getfilectx, opts, losedatafn, prefix, relroot)
+    def diff(orig, ui, repo, *pats, **opts):
+        issparse = bool(opts.get('sparse'))
+        if issparse:
+            extensions.wrapfunction(patch, 'trydiff', trydiff)
+        try:
+            orig(ui, repo, *pats, **opts)
+        finally:
+            if issparse:
+                extensions.unwrapfunction(patch, 'trydiff', trydiff)
+    extensions.wrapcommand(commands.table, 'diff', diff)
+
 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
--- a/tests/test-sparse-diff.t
+++ b/tests/test-sparse-diff.t
@@ -4,28 +4,102 @@
   > [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
+  $ mkdir show hide
+  $ echo show-modify-1 > show/modify
+  $ echo show-remove-1 > show/remove
+  $ echo hide-modify-1 > hide/modify
+  $ echo hide-remove-1 > hide/remove
+  $ echo show-moveout > show/moveout
+  $ echo show-movein > hide/movein
+  $ hg add show/modify show/remove hide/modify hide/remove show/moveout hide/movein
+  $ hg commit -m "first revision"
+  $ echo show-modify-2 > show/modify
+  $ echo show-add-2 > show/add ; hg add show/add
+  $ hg rm show/remove
+  $ echo hide-modify-2 > hide/modify
+  $ echo hide-add-2 > hide/add ; hg add hide/add
+  $ hg rm hide/remove
+  $ hg mv hide/movein show/movein
+  $ hg mv show/moveout hide/moveout
+  $ hg commit -m "second revision"
+  $ hg sparse --exclude hide
 
 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
+  $ hg diff -r ".^" --git
+  diff --git a/hide/add b/hide/add
+  new file mode 100644
+  --- /dev/null
+  +++ b/hide/add
+  @@ -0,0 +1,1 @@
+  +hide-add-2
+  diff --git a/hide/modify b/hide/modify
+  --- a/hide/modify
+  +++ b/hide/modify
+  @@ -1,1 +1,1 @@
+  -hide-modify-1
+  +hide-modify-2
+  diff --git a/show/moveout b/hide/moveout
+  rename from show/moveout
+  rename to hide/moveout
+  diff --git a/hide/remove b/hide/remove
+  deleted file mode 100644
+  --- a/hide/remove
+  +++ /dev/null
+  @@ -1,1 +0,0 @@
+  -hide-remove-1
+  diff --git a/show/add b/show/add
+  new file mode 100644
+  --- /dev/null
+  +++ b/show/add
+  @@ -0,0 +1,1 @@
+  +show-add-2
+  diff --git a/show/modify b/show/modify
+  --- a/show/modify
+  +++ b/show/modify
   @@ -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
+  -show-modify-1
+  +show-modify-2
+  diff --git a/hide/movein b/show/movein
+  rename from hide/movein
+  rename to show/movein
+  diff --git a/show/remove b/show/remove
+  deleted file mode 100644
+  --- a/show/remove
+  +++ /dev/null
+  @@ -1,1 +0,0 @@
+  -show-remove-1
+
+Run diff --sparse.  This should only show files within the sparse profile.
+
+  $ hg diff --sparse --git -r ".^"
+  diff --git a/show/add b/show/add
+  new file mode 100644
+  --- /dev/null
+  +++ b/show/add
+  @@ -0,0 +1,1 @@
+  +show-add-2
+  diff --git a/show/modify b/show/modify
+  --- a/show/modify
+  +++ b/show/modify
   @@ -1,1 +1,1 @@
-  -b1
-  +b2
+  -show-modify-1
+  +show-modify-2
+  diff --git a/show/movein b/show/movein
+  new file mode 100644
+  --- /dev/null
+  +++ b/show/movein
+  @@ -0,0 +1,1 @@
+  +show-movein
+  diff --git a/show/moveout b/show/moveout
+  deleted file mode 100644
+  --- a/show/moveout
+  +++ /dev/null
+  @@ -1,1 +0,0 @@
+  -show-moveout
+  diff --git a/show/remove b/show/remove
+  deleted file mode 100644
+  --- a/show/remove
+  +++ /dev/null
+  @@ -1,1 +0,0 @@
+  -show-remove-1