--- a/mercurial/cmdutil.py	Tue Sep 07 15:31:56 2010 +0200
+++ b/mercurial/cmdutil.py	Tue Sep 07 16:23:55 2010 +0200
@@ -682,10 +682,17 @@
 
     if listsubrepos:
         ctx1 = repo[node1]
-        for subpath in ctx1.substate:
-            sub = ctx1.sub(subpath)
+        ctx2 = repo[node2]
+        # Create a (subpath, ctx) mapping where we prefer subpaths
+        # from ctx1. The subpaths from ctx2 are important when the
+        # .hgsub file has been modified (in ctx2) but not yet
+        # committed (in ctx1).
+        subpaths = dict.fromkeys(ctx2.substate, ctx2)
+        subpaths.update(dict.fromkeys(ctx1.substate, ctx1))
+        for subpath, ctx in subpaths.iteritems():
+            sub = ctx.sub(subpath)
             if node2 is not None:
-                node2 = bin(repo[node2].substate[subpath][1])
+                node2 = bin(ctx2.substate[subpath][1])
             submatch = matchmod.narrowmatcher(subpath, match)
             sub.diff(diffopts, node2, submatch, changes=changes,
                      stat=stat, fp=fp, prefix=prefix)

--- a/mercurial/localrepo.py	Tue Sep 07 15:31:56 2010 +0200
+++ b/mercurial/localrepo.py	Tue Sep 07 16:23:55 2010 +0200
@@ -1161,8 +1161,14 @@
         r = modified, added, removed, deleted, unknown, ignored, clean
 
         if listsubrepos:
-            for subpath in ctx1.substate:
-                sub = ctx1.sub(subpath)
+            # Create a (subpath, ctx) mapping where we prefer subpaths
+            # from ctx1. The subpaths from ctx2 are important when the
+            # .hgsub file has been modified (in ctx2) but not yet
+            # committed (in ctx1).
+            subpaths = dict.fromkeys(ctx2.substate, ctx2)
+            subpaths.update(dict.fromkeys(ctx1.substate, ctx1))
+            for subpath, ctx in subpaths.iteritems():
+                sub = ctx.sub(subpath)
                 if working:
                     rev2 = None
                 else:

--- a/tests/test-subrepo-recursion.t	Tue Sep 07 15:31:56 2010 +0200
+++ b/tests/test-subrepo-recursion.t	Tue Sep 07 16:23:55 2010 +0200
@@ -28,6 +28,36 @@
   $ echo 'foo = foo' > .hgsub
   $ hg add .hgsub
 
+Test recursive status without committing anything:
+
+  $ hg status
+  A .hgsub
+  A foo/.hgsub
+  A foo/bar/z.txt
+  A foo/y.txt
+  A x.txt
+
+Test recursive diff without committing anything:
+
+  $ hg diff foo
+  diff -r 000000000000 foo/.hgsub
+  --- /dev/null
+  +++ b/foo/.hgsub
+  @@ -0,0 +1,1 @@
+  +bar = bar
+  diff -r 000000000000 foo/y.txt
+  --- /dev/null
+  +++ b/foo/y.txt
+  @@ -0,0 +1,1 @@
+  +y1
+  diff -r 000000000000 foo/bar/z.txt
+  --- /dev/null
+  +++ b/foo/bar/z.txt
+  @@ -0,0 +1,1 @@
+  +z1
+
+Commits:
+
   $ hg commit -m 0-0-0
   committing subrepository foo
   committing subrepository foo/bar