diff --git a/plugins/git4idea/src/git4idea/GitUtil.java b/plugins/git4idea/src/git4idea/GitUtil.java
index adcc40604db6..9d21bab8482c 100644
--- a/plugins/git4idea/src/git4idea/GitUtil.java
+++ b/plugins/git4idea/src/git4idea/GitUtil.java
@@ -48,6 +48,7 @@ import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
 
 import java.io.File;
+import java.io.IOException;
 import java.io.UnsupportedEncodingException;
 import java.nio.charset.Charset;
 import java.util.*;
@@ -93,6 +94,43 @@ public class GitUtil {
     // do nothing
   }
 
+  @Nullable
+  public static VirtualFile findGitDir(@NotNull VirtualFile rootDir) {
+    VirtualFile child = rootDir.findChild(".git");
+    if (child == null) {
+      return null;
+    }
+    if (child.isDirectory()) {
+      return child;
+    }
+
+    // this is standard for submodules, although probably it can
+    String content = readFile(child);
+    String pathToDir;
+    String prefix = "gitdir:";
+    if (content.startsWith(prefix)) {
+      pathToDir = content.substring(prefix.length()).trim();
+    }
+    else {
+      pathToDir = content;
+    }
+    return VcsUtil.getVirtualFile(pathToDir);
+  }
+
+  @NotNull
+  private static String readFile(@NotNull VirtualFile file) {
+    Exception exception = null;
+    for (int attempts = 0; attempts < 3; attempts++) {
+      try {
+        return new String(file.contentsToByteArray());
+      }
+      catch (IOException e) {
+        exception = e;
+      }
+    }
+    throw new RuntimeException("Couldn't read " + file, exception);
+  }
+
   /**
    * Sort files by Git root
    *
diff --git a/plugins/git4idea/src/git4idea/repo/GitRepository.java b/plugins/git4idea/src/git4idea/repo/GitRepository.java
index b3d88b4b5efc..12f571199f28 100644
--- a/plugins/git4idea/src/git4idea/repo/GitRepository.java
+++ b/plugins/git4idea/src/git4idea/repo/GitRepository.java
@@ -26,6 +26,7 @@ import com.intellij.util.messages.MessageBus;
 import com.intellij.util.messages.MessageBusConnection;
 import com.intellij.util.messages.Topic;
 import git4idea.GitBranch;
+import git4idea.GitUtil;
 import git4idea.branch.GitBranchesCollection;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
@@ -174,12 +175,12 @@ public final class GitRepository implements Disposable {
     myProject = project;
     Disposer.register(parentDisposable, this);
     
-    myGitDir = myRootDir.findChild(".git");
+    myGitDir = GitUtil.findGitDir(myRootDir);
     assert myGitDir != null : ".git directory wasn't found under " + rootDir.getPresentableUrl();
     
     myReader = new GitRepositoryReader(VfsUtil.virtualToIoFile(myGitDir));
     
-    myUntrackedFilesHolder = new GitUntrackedFilesHolder(rootDir, project);
+    myUntrackedFilesHolder = new GitUntrackedFilesHolder(this);
     Disposer.register(this, myUntrackedFilesHolder);
 
     myMessageBus = project.getMessageBus();
@@ -222,6 +223,11 @@ public final class GitRepository implements Disposable {
     return myRootDir;
   }
 
+  @NotNull
+  public VirtualFile getGitDir() {
+    return myGitDir;
+  }
+
   @NotNull
   public String getPresentableUrl() {
     return getRoot().getPresentableUrl();
diff --git a/plugins/git4idea/src/git4idea/repo/GitRepositoryFiles.java b/plugins/git4idea/src/git4idea/repo/GitRepositoryFiles.java
index 3dea7f406c29..d4f68bb512f4 100644
--- a/plugins/git4idea/src/git4idea/repo/GitRepositoryFiles.java
+++ b/plugins/git4idea/src/git4idea/repo/GitRepositoryFiles.java
@@ -45,16 +45,13 @@ public class GitRepositoryFiles {
   private final String myCommitMessagePath;
   private final String myExcludePath;
 
-  public static GitRepositoryFiles getInstance(@NotNull VirtualFile root) {
+  public static GitRepositoryFiles getInstance(@NotNull VirtualFile gitDir) {
     // maybe will be cached later to store a single GitRepositoryFiles for a root. 
-    return new GitRepositoryFiles(root);
+    return new GitRepositoryFiles(gitDir);
   }
 
-  private GitRepositoryFiles(@NotNull VirtualFile root) {
+  private GitRepositoryFiles(@NotNull VirtualFile gitDir) {
     // add .git/ and .git/refs/heads to the VFS
-    VirtualFile gitDir = root.findChild(".git");
-    assert gitDir != null;
-
     // save paths of the files, that we will watch
     String gitDirPath = GitFileUtils.stripFileProtocolPrefix(gitDir.getPath());
     myConfigFilePath = gitDirPath + "/config";
diff --git a/plugins/git4idea/src/git4idea/repo/GitRepositoryUpdater.java b/plugins/git4idea/src/git4idea/repo/GitRepositoryUpdater.java
index cce8a02bf5ba..b495b534a295 100644
--- a/plugins/git4idea/src/git4idea/repo/GitRepositoryUpdater.java
+++ b/plugins/git4idea/src/git4idea/repo/GitRepositoryUpdater.java
@@ -50,11 +50,10 @@ final class GitRepositoryUpdater implements Disposable, BulkFileListener {
     myRepository = repository;
     VirtualFile root = repository.getRoot();
 
-    VirtualFile gitDir = root.findChild(".git");
-    assert gitDir != null;
+    VirtualFile gitDir = repository.getGitDir();
     LocalFileSystem.getInstance().addRootToWatch(gitDir.getPath(), true);
     
-    myRepositoryFiles = GitRepositoryFiles.getInstance(root);
+    myRepositoryFiles = GitRepositoryFiles.getInstance(gitDir);
     visitGitDirVfs(gitDir);
     myHeadsDir = VcsUtil.getVirtualFile(myRepositoryFiles.getRefsHeadsPath());
     myRemotesDir = VcsUtil.getVirtualFile(myRepositoryFiles.getRefsRemotesPath());
diff --git a/plugins/git4idea/src/git4idea/repo/GitUntrackedFilesHolder.java b/plugins/git4idea/src/git4idea/repo/GitUntrackedFilesHolder.java
index 31d2aee06b2c..356ba991486b 100644
--- a/plugins/git4idea/src/git4idea/repo/GitUntrackedFilesHolder.java
+++ b/plugins/git4idea/src/git4idea/repo/GitUntrackedFilesHolder.java
@@ -89,14 +89,18 @@ public class GitUntrackedFilesHolder implements Disposable, BulkFileListener {
   private Set<VirtualFile> myPossiblyTrackedFiles = new HashSet<VirtualFile>();
   private boolean myReady;   // if false, total refresh is needed
   private final Object LOCK = new Object();
+  private final GitRepositoryManager myRepositoryManager;
 
-  GitUntrackedFilesHolder(@NotNull VirtualFile root, @NotNull Project project) {
-    myProject = project;
-    myRoot = root;
-    myRepositoryFiles = GitRepositoryFiles.getInstance(root);
-    myChangeListManager = ChangeListManager.getInstance(project);
-    myDirtyScopeManager = VcsDirtyScopeManager.getInstance(project);
+  GitUntrackedFilesHolder(@NotNull GitRepository repository) {
+    myProject = repository.getProject();
+    myRoot = repository.getRoot();
+    myChangeListManager = ChangeListManager.getInstance(myProject);
+    myDirtyScopeManager = VcsDirtyScopeManager.getInstance(myProject);
     myGit = ServiceManager.getService(Git.class);
+
+    myRepositoryManager = GitUtil.getRepositoryManager(myProject);
+    assert myRepositoryManager != null;
+    myRepositoryFiles = GitRepositoryFiles.getInstance(repository.getGitDir());
   }
 
   void setupVfsListener(@NotNull Project project) {
@@ -302,7 +306,7 @@ public class GitUntrackedFilesHolder implements Disposable, BulkFileListener {
   }
 
   private boolean belongsToThisRepository(VirtualFile file) {
-    final GitRepository repository = GitUtil.getRepositoryManager(myProject).getRepositoryForFile(file);
+    final GitRepository repository = myRepositoryManager.getRepositoryForFile(file);
     return repository != null && repository.getRoot().equals(myRoot);
   }