--- a/mercurial/match.py	Fri Jul 24 16:43:21 2015 -0700
+++ b/mercurial/match.py	Fri Jul 24 16:44:52 2015 -0700
@@ -289,7 +289,8 @@
                 continue
             elif kind == 'include':
                 try:
-                    includepats = readpatternfile(pat, self._warn)
+                    fullpath = pathutil.join(root, pat)
+                    includepats = readpatternfile(fullpath, self._warn)
                     for k, p, source in self._normalize(includepats, default,
                                                         root, cwd, auditor):
                         kindpats.append((k, p, source or pat))

--- a/tests/test-hgignore.t	Fri Jul 24 16:43:21 2015 -0700
+++ b/tests/test-hgignore.t	Fri Jul 24 16:44:52 2015 -0700
@@ -186,8 +186,9 @@
 
 Check recursive uses of 'include:'
 
-  $ echo "include:nestedignore" >> otherignore
-  $ echo "glob:*ignore" > nestedignore
+  $ echo "include:nested/ignore" >> otherignore
+  $ mkdir nested
+  $ echo "glob:*ignore" > nested/ignore
   $ hg status
   A dir/b.o
 
@@ -199,6 +200,13 @@
 
   $ mv goodignore otherignore
 
+Check using 'include:' while in a non-root directory
+
+  $ cd ..
+  $ hg -R ignorerepo status
+  A dir/b.o
+  $ cd ignorerepo
+
 Check including subincludes
 
   $ hg revert -q --all