diff --git a/Documentation/config/index.txt b/Documentation/config/index.txt
index 7cb50b37e98dba..75f3a2d1054146 100644
--- a/Documentation/config/index.txt
+++ b/Documentation/config/index.txt
@@ -14,6 +14,11 @@ index.recordOffsetTable::
 	Defaults to 'true' if index.threads has been explicitly enabled,
 	'false' otherwise.
 
+index.sparse::
+	When enabled, write the index using sparse-directory entries. This
+	has no effect unless `core.sparseCheckout` and
+	`core.sparseCheckoutCone` are both enabled. Defaults to 'false'.
+
 index.threads::
 	Specifies the number of threads to spawn when loading the index.
 	This is meant to reduce index load time on multiprocessor machines.
diff --git a/Documentation/git-sparse-checkout.txt b/Documentation/git-sparse-checkout.txt
index a0eeaeb02ee310..fdcf43f87cb373 100644
--- a/Documentation/git-sparse-checkout.txt
+++ b/Documentation/git-sparse-checkout.txt
@@ -45,6 +45,20 @@ To avoid interfering with other worktrees, it first enables the
 When `--cone` is provided, the `core.sparseCheckoutCone` setting is
 also set, allowing for better performance with a limited set of
 patterns (see 'CONE PATTERN SET' below).
++
+Use the `--[no-]sparse-index` option to toggle the use of the sparse
+index format. This reduces the size of the index to be more closely
+aligned with your sparse-checkout definition. This can have significant
+performance advantages for commands such as `git status` or `git add`.
+This feature is still experimental. Some commands might be slower with
+a sparse index until they are properly integrated with the feature.
++
+**WARNING:** Using a sparse index requires modifying the index in a way
+that is not completely understood by external tools. If you have trouble
+with this compatibility, then run `git sparse-checkout init --no-sparse-index`
+to rewrite your index to not be sparse. Older versions of Git will not
+understand the sparse directory entries index extension and may fail to
+interact with your repository until it is disabled.
 
 'set'::
 	Write a set of patterns to the sparse-checkout file, as given as
diff --git a/Documentation/technical/index-format.txt b/Documentation/technical/index-format.txt
index d363a71c37ec46..65da0daaa5634c 100644
--- a/Documentation/technical/index-format.txt
+++ b/Documentation/technical/index-format.txt
@@ -44,6 +44,13 @@ Git index format
   localization, no special casing of directory separator '/'). Entries
   with the same name are sorted by their stage field.
 
+  An index entry typically represents a file. However, if sparse-checkout
+  is enabled in cone mode (`core.sparseCheckoutCone` is enabled) and the
+  `extensions.sparseIndex` extension is enabled, then the index may
+  contain entries for directories outside of the sparse-checkout definition.
+  These entries have mode `040000`, include the `SKIP_WORKTREE` bit, and
+  the path ends in a directory separator.
+
   32-bit ctime seconds, the last time a file's metadata changed
     this is stat(2) data
 
@@ -385,3 +392,15 @@ The remaining data of each directory block is grouped by type:
 	in this block of entries.
 
     - 32-bit count of cache entries in this block
+
+== Sparse Directory Entries
+
+  When using sparse-checkout in cone mode, some entire directories within
+  the index can be summarized by pointing to a tree object instead of the
+  entire expanded list of paths within that tree. An index containing such
+  entries is a "sparse index". Index format versions 4 and less were not
+  implemented with such entries in mind. Thus, for these versions, an
+  index containing sparse directory entries will include this extension
+  with signature { 's', 'd', 'i', 'r' }. Like the split-index extension,
+  tools should avoid interacting with a sparse index unless they understand
+  this extension.
diff --git a/Documentation/technical/sparse-index.txt b/Documentation/technical/sparse-index.txt
new file mode 100644
index 00000000000000..8d3d808046048b
--- /dev/null
+++ b/Documentation/technical/sparse-index.txt
@@ -0,0 +1,175 @@
+Git Sparse-Index Design Document
+================================
+
+The sparse-checkout feature allows users to focus a working directory on
+a subset of the files at HEAD. The cone mode patterns, enabled by
+`core.sparseCheckoutCone`, allow for very fast pattern matching to
+discover which files at HEAD belong in the sparse-checkout cone.
+
+Three important scale dimensions for a Git working directory are:
+
+* `HEAD`: How many files are present at `HEAD`?
+
+* Populated: How many files are within the sparse-checkout cone.
+
+* Modified: How many files has the user modified in the working directory?
+
+We will use big-O notation -- O(X) -- to denote how expensive certain
+operations are in terms of these dimensions.
+
+These dimensions are ordered by their magnitude: users (typically) modify
+fewer files than are populated, and we can only populate files at `HEAD`.
+
+Problems occur if there is an extreme imbalance in these dimensions. For
+example, if `HEAD` contains millions of paths but the populated set has
+only tens of thousands, then commands like `git status` and `git add` can
+be dominated by operations that require O(`HEAD`) operations instead of
+O(Populated). Primarily, the cost is in parsing and rewriting the index,
+which is filled primarily with files at `HEAD` that are marked with the
+`SKIP_WORKTREE` bit.
+
+The sparse-index intends to take these commands that read and modify the
+index from O(`HEAD`) to O(Populated). To do this, we need to modify the
+index format in a significant way: add "sparse directory" entries.
+
+With cone mode patterns, it is possible to detect when an entire
+directory will have its contents outside of the sparse-checkout definition.
+Instead of listing all of the files it contains as individual entries, a
+sparse-index contains an entry with the directory name, referencing the
+object ID of the tree at `HEAD` and marked with the `SKIP_WORKTREE` bit.
+If we need to discover the details for paths within that directory, we
+can parse trees to find that list.
+
+At time of writing, sparse-directory entries violate expectations about the
+index format and its in-memory data structure. There are many consumers in
+the codebase that expect to iterate through all of the index entries and
+see only files. In fact, these loops expect to see a reference to every
+staged file. One way to handle this is to parse trees to replace a
+sparse-directory entry with all of the files within that tree as the index
+is loaded. However, parsing trees is slower than parsing the index format,
+so that is a slower operation than if we left the index alone. The plan is
+to make all of these integrations "sparse aware" so this expansion through
+tree parsing is unnecessary and they use fewer resources than when using a
+full index.
+
+The implementation plan below follows four phases to slowly integrate with
+the sparse-index. The intention is to incrementally update Git commands to
+interact safely with the sparse-index without significant slowdowns. This
+may not always be possible, but the hope is that the primary commands that
+users need in their daily work are dramatically improved.
+
+Phase I: Format and initial speedups
+------------------------------------
+
+During this phase, Git learns to enable the sparse-index and safely parse
+one. Protections are put in place so that every consumer of the in-memory
+data structure can operate with its current assumption of every file at
+`HEAD`.
+
+At first, every index parse will call a helper method,
+`ensure_full_index()`, which scans the index for sparse-directory entries
+(pointing to trees) and replaces them with the full list of paths (with
+blob contents) by parsing tree objects. This will be slower in all cases.
+The only noticeable change in behavior will be that the serialized index
+file contains sparse-directory entries.
+
+To start, we use a new required index extension, `sdir`, to allow
+inserting sparse-directory entries into indexes with file format
+versions 2, 3, and 4. This prevents Git versions that do not understand
+the sparse-index from operating on one, while allowing tools that do not
+understand the sparse-index to operate on repositories as long as they do
+not interact with the index. A new format, index v5, will be introduced
+that includes sparse-directory entries by default. It might also
+introduce other features that have been considered for improving the
+index, as well.
+
+Next, consumers of the index will be guarded against operating on a
+sparse-index by inserting calls to `ensure_full_index()` or
+`expand_index_to_path()`. After these guards are in place, we can begin
+leaving sparse-directory entries in the in-memory index structure.
+
+Even after inserting these guards, we will keep expanding sparse-indexes
+for most Git commands using the `command_requires_full_index` repository
+setting. This setting will be on by default and disabled one builtin at a
+time until we have sufficient confidence that all of the index operations
+are properly guarded.
+
+To complete this phase, the commands `git status` and `git add` will be
+integrated with the sparse-index so that they operate with O(Populated)
+performance. They will be carefully tested for operations within and
+outside the sparse-checkout definition.
+
+Phase II: Careful integrations
+------------------------------
+
+This phase focuses on ensuring that all index extensions and APIs work
+well with a sparse-index. This requires significant increases to our test
+coverage, especially for operations that interact with the working
+directory outside of the sparse-checkout definition. Some of these
+behaviors may not be the desirable ones, such as some tests already
+marked for failure in `t1092-sparse-checkout-compatibility.sh`.
+
+The index extensions that may require special integrations are:
+
+* FS Monitor
+* Untracked cache
+
+While integrating with these features, we should look for patterns that
+might lead to better APIs for interacting with the index. Coalescing
+common usage patterns into an API call can reduce the number of places
+where sparse-directories need to be handled carefully.
+
+Phase III: Important command speedups
+-------------------------------------
+
+At this point, the patterns for testing and implementing sparse-directory
+logic should be relatively stable. This phase focuses on updating some of
+the most common builtins that use the index to operate as O(Populated).
+Here is a potential list of commands that could be valuable to integrate
+at this point:
+
+* `git commit`
+* `git checkout`
+* `git merge`
+* `git rebase`
+
+Hopefully, commands such as `git merge` and `git rebase` can benefit
+instead from merge algorithms that do not use the index as a data
+structure, such as the merge-ORT strategy. As these topics mature, we
+may enable the ORT strategy by default for repositories using the
+sparse-index feature.
+
+Along with `git status` and `git add`, these commands cover the majority
+of users' interactions with the working directory. In addition, we can
+integrate with these commands:
+
+* `git grep`
+* `git rm`
+
+These have been proposed as some whose behavior could change when in a
+repo with a sparse-checkout definition. It would be good to include this
+behavior automatically when using a sparse-index. Some clarity is needed
+to make the behavior switch clear to the user.
+
+This phase is the first where parallel work might be possible without too
+much conflicts between topics.
+
+Phase IV: The long tail
+-----------------------
+
+This last phase is less a "phase" and more "the new normal" after all of
+the previous work.
+
+To start, the `command_requires_full_index` option could be removed in
+favor of expanding only when hitting an API guard.
+
+There are many Git commands that could use special attention to operate as
+O(Populated), while some might be so rare that it is acceptable to leave
+them with additional overhead when a sparse-index is present.
+
+Here are some commands that might be useful to update:
+
+* `git sparse-checkout set`
+* `git am`
+* `git clean`
+* `git stash`
diff --git a/Makefile b/Makefile
index dfb0f1000fa311..89b1d5374107b3 100644
--- a/Makefile
+++ b/Makefile
@@ -985,6 +985,7 @@ LIB_OBJS += setup.o
 LIB_OBJS += shallow.o
 LIB_OBJS += sideband.o
 LIB_OBJS += sigchain.o
+LIB_OBJS += sparse-index.o
 LIB_OBJS += split-index.o
 LIB_OBJS += stable-qsort.o
 LIB_OBJS += strbuf.o
diff --git a/builtin/sparse-checkout.c b/builtin/sparse-checkout.c
index 2306a9ad98e08a..585343fa1972ca 100644
--- a/builtin/sparse-checkout.c
+++ b/builtin/sparse-checkout.c
@@ -14,6 +14,7 @@
 #include "unpack-trees.h"
 #include "wt-status.h"
 #include "quote.h"
+#include "sparse-index.h"
 
 static const char *empty_base = "";
 
@@ -110,6 +111,8 @@ static int update_working_directory(struct pattern_list *pl)
 	if (is_index_unborn(r->index))
 		return UPDATE_SPARSITY_SUCCESS;
 
+	r->index->sparse_checkout_patterns = pl;
+
 	memset(&o, 0, sizeof(o));
 	o.verbose_update = isatty(2);
 	o.update = 1;
@@ -138,6 +141,7 @@ static int update_working_directory(struct pattern_list *pl)
 	else
 		rollback_lock_file(&lock_file);
 
+	r->index->sparse_checkout_patterns = NULL;
 	return result;
 }
 
@@ -276,16 +280,20 @@ static int set_config(enum sparse_checkout_mode mode)
 				      "core.sparseCheckoutCone",
 				      mode == MODE_CONE_PATTERNS ? "true" : NULL);
 
+	if (mode == MODE_NO_PATTERNS)
+		set_sparse_index_config(the_repository, 0);
+
 	return 0;
 }
 
 static char const * const builtin_sparse_checkout_init_usage[] = {
-	N_("git sparse-checkout init [--cone]"),
+	N_("git sparse-checkout init [--cone] [--[no-]sparse-index]"),
 	NULL
 };
 
 static struct sparse_checkout_init_opts {
 	int cone_mode;
+	int sparse_index;
 } init_opts;
 
 static int sparse_checkout_init(int argc, const char **argv)
@@ -300,11 +308,15 @@ static int sparse_checkout_init(int argc, const char **argv)
 	static struct option builtin_sparse_checkout_init_options[] = {
 		OPT_BOOL(0, "cone", &init_opts.cone_mode,
 			 N_("initialize the sparse-checkout in cone mode")),
+		OPT_BOOL(0, "sparse-index", &init_opts.sparse_index,
+			 N_("toggle the use of a sparse index")),
 		OPT_END(),
 	};
 
 	repo_read_index(the_repository);
 
+	init_opts.sparse_index = -1;
+
 	argc = parse_options(argc, argv, NULL,
 			     builtin_sparse_checkout_init_options,
 			     builtin_sparse_checkout_init_usage, 0);
@@ -323,10 +335,20 @@ static int sparse_checkout_init(int argc, const char **argv)
 	sparse_filename = get_sparse_checkout_filename();
 	res = add_patterns_from_file_to_list(sparse_filename, "", 0, &pl, NULL);
 
+	if (init_opts.sparse_index >= 0) {
+		if (set_sparse_index_config(the_repository, init_opts.sparse_index) < 0)
+			die(_("failed to modify sparse-index config"));
+
+		/* force an index rewrite */
+		repo_read_index(the_repository);
+		the_repository->index->updated_workdir = 1;
+	}
+
+	core_apply_sparse_checkout = 1;
+
 	/* If we already have a sparse-checkout file, use it. */
 	if (res >= 0) {
 		free(sparse_filename);
-		core_apply_sparse_checkout = 1;
 		return update_working_directory(NULL);
 	}
 
@@ -348,6 +370,7 @@ static int sparse_checkout_init(int argc, const char **argv)
 	add_pattern(strbuf_detach(&pattern, NULL), empty_base, 0, &pl, 0);
 	strbuf_addstr(&pattern, "!/*/");
 	add_pattern(strbuf_detach(&pattern, NULL), empty_base, 0, &pl, 0);
+	pl.use_cone_patterns = init_opts.cone_mode;
 
 	return write_patterns_and_update(&pl);
 }
@@ -517,19 +540,18 @@ static int modify_pattern_list(int argc, const char **argv, enum modify_type m)
 {
 	int result;
 	int changed_config = 0;
-	struct pattern_list pl;
-	memset(&pl, 0, sizeof(pl));
+	struct pattern_list *pl = xcalloc(1, sizeof(*pl));
 
 	switch (m) {
 	case ADD:
 		if (core_sparse_checkout_cone)
-			add_patterns_cone_mode(argc, argv, &pl);
+			add_patterns_cone_mode(argc, argv, pl);
 		else
-			add_patterns_literal(argc, argv, &pl);
+			add_patterns_literal(argc, argv, pl);
 		break;
 
 	case REPLACE:
-		add_patterns_from_input(&pl, argc, argv);
+		add_patterns_from_input(pl, argc, argv);
 		break;
 	}
 
@@ -539,12 +561,13 @@ static int modify_pattern_list(int argc, const char **argv, enum modify_type m)
 		changed_config = 1;
 	}
 
-	result = write_patterns_and_update(&pl);
+	result = write_patterns_and_update(pl);
 
 	if (result && changed_config)
 		set_config(MODE_NO_PATTERNS);
 
-	clear_pattern_list(&pl);
+	clear_pattern_list(pl);
+	free(pl);
 	return result;
 }
 
@@ -614,6 +637,9 @@ static int sparse_checkout_disable(int argc, const char **argv)
 	strbuf_addstr(&match_all, "/*");
 	add_pattern(strbuf_detach(&match_all, NULL), empty_base, 0, &pl, 0);
 
+	prepare_repo_settings(the_repository);
+	the_repository->settings.sparse_index = 0;
+
 	if (update_working_directory(&pl))
 		die(_("error while refreshing working directory"));
 
diff --git a/cache-tree.c b/cache-tree.c
index 2fb483d3c08389..11bf1fcae6e1d6 100644
--- a/cache-tree.c
+++ b/cache-tree.c
@@ -6,6 +6,7 @@
 #include "object-store.h"
 #include "replace-object.h"
 #include "promisor-remote.h"
+#include "sparse-index.h"
 
 #ifndef DEBUG_CACHE_TREE
 #define DEBUG_CACHE_TREE 0
@@ -255,6 +256,24 @@ static int update_one(struct cache_tree *it,
 
 	*skip_count = 0;
 
+	/*
+	 * If the first entry of this region is a sparse directory
+	 * entry corresponding exactly to 'base', then this cache_tree
+	 * struct is a "leaf" in the data structure, pointing to the
+	 * tree OID specified in the entry.
+	 */
+	if (entries > 0) {
+		const struct cache_entry *ce = cache[0];
+
+		if (S_ISSPARSEDIR(ce->ce_mode) &&
+		    ce->ce_namelen == baselen &&
+		    !strncmp(ce->name, base, baselen)) {
+			it->entry_count = 1;
+			oidcpy(&it->oid, &ce->oid);
+			return 1;
+		}
+	}
+
 	if (0 <= it->entry_count && has_object_file(&it->oid))
 		return it->entry_count;
 
@@ -442,6 +461,8 @@ int cache_tree_update(struct index_state *istate, int flags)
 	if (i)
 		return i;
 
+	ensure_full_index(istate);
+
 	if (!istate->cache_tree)
 		istate->cache_tree = cache_tree();
 
@@ -787,6 +808,19 @@ int cache_tree_matches_traversal(struct cache_tree *root,
 	return 0;
 }
 
+static void verify_one_sparse(struct repository *r,
+			      struct index_state *istate,
+			      struct cache_tree *it,
+			      struct strbuf *path,
+			      int pos)
+{
+	struct cache_entry *ce = istate->cache[pos];
+
+	if (!S_ISSPARSEDIR(ce->ce_mode))
+		BUG("directory '%s' is present in index, but not sparse",
+		    path->buf);
+}
+
 static void verify_one(struct repository *r,
 		       struct index_state *istate,
 		       struct cache_tree *it,
@@ -809,6 +843,12 @@ static void verify_one(struct repository *r,
 
 	if (path->len) {
 		pos = index_name_pos(istate, path->buf, path->len);
+
+		if (pos >= 0) {
+			verify_one_sparse(r, istate, it, path, pos);
+			return;
+		}
+
 		pos = -pos - 1;
 	} else {
 		pos = 0;
diff --git a/cache.h b/cache.h
index bb317abc91fbc1..8aede373aeb34f 100644
--- a/cache.h
+++ b/cache.h
@@ -204,6 +204,8 @@ struct cache_entry {
 #error "CE_EXTENDED_FLAGS out of range"
 #endif
 
+#define S_ISSPARSEDIR(m) ((m) == S_IFDIR)
+
 /* Forward structure decls */
 struct pathspec;
 struct child_process;
@@ -249,6 +251,8 @@ static inline unsigned int create_ce_mode(unsigned int mode)
 {
 	if (S_ISLNK(mode))
 		return S_IFLNK;
+	if (S_ISSPARSEDIR(mode))
+		return S_IFDIR;
 	if (S_ISDIR(mode) || S_ISGITLINK(mode))
 		return S_IFGITLINK;
 	return S_IFREG | ce_permissions(mode);
@@ -305,6 +309,7 @@ static inline unsigned int canon_mode(unsigned int mode)
 struct split_index;
 struct untracked_cache;
 struct progress;
+struct pattern_list;
 
 struct index_state {
 	struct cache_entry **cache;
@@ -319,7 +324,14 @@ struct index_state {
 		 drop_cache_tree : 1,
 		 updated_workdir : 1,
 		 updated_skipworktree : 1,
-		 fsmonitor_has_run_once : 1;
+		 fsmonitor_has_run_once : 1,
+
+		 /*
+		  * sparse_index == 1 when sparse-directory
+		  * entries exist. Requires sparse-checkout
+		  * in cone mode.
+		  */
+		 sparse_index : 1;
 	struct hashmap name_hash;
 	struct hashmap dir_hash;
 	struct object_id oid;
@@ -329,6 +341,7 @@ struct index_state {
 	struct mem_pool *ce_mem_pool;
 	struct progress *progress;
 	struct repository *repo;
+	struct pattern_list *sparse_checkout_patterns;
 };
 
 /* Name hashing */
@@ -722,6 +735,8 @@ int read_index_from(struct index_state *, const char *path,
 		    const char *gitdir);
 int is_index_unborn(struct index_state *);
 
+void ensure_full_index(struct index_state *istate);
+
 /* For use with `write_locked_index()`. */
 #define COMMIT_LOCK		(1 << 0)
 #define SKIP_IF_UNCHANGED	(1 << 1)
@@ -1044,6 +1059,7 @@ struct repository_format {
 	int worktree_config;
 	int is_bare;
 	int hash_algo;
+	int sparse_index;
 	char *work_tree;
 	struct string_list unknown_extensions;
 	struct string_list v1_only_extensions;
diff --git a/read-cache.c b/read-cache.c
index 1e9a50c6c73437..2410e6e0df13ca 100644
--- a/read-cache.c
+++ b/read-cache.c
@@ -25,6 +25,7 @@
 #include "fsmonitor.h"
 #include "thread-utils.h"
 #include "progress.h"
+#include "sparse-index.h"
 
 /* Mask for the name length in ce_flags in the on-disk index */
 
@@ -47,6 +48,7 @@
 #define CACHE_EXT_FSMONITOR 0x46534D4E	  /* "FSMN" */
 #define CACHE_EXT_ENDOFINDEXENTRIES 0x454F4945	/* "EOIE" */
 #define CACHE_EXT_INDEXENTRYOFFSETTABLE 0x49454F54 /* "IEOT" */
+#define CACHE_EXT_SPARSE_DIRECTORIES 0x73646972 /* "sdir" */
 
 /* changes that can be kept in $GIT_DIR/index (basically all extensions) */
 #define EXTMASK (RESOLVE_UNDO_CHANGED | CACHE_TREE_CHANGED | \
@@ -101,6 +103,9 @@ static const char *alternate_index_output;
 
 static void set_index_entry(struct index_state *istate, int nr, struct cache_entry *ce)
 {
+	if (S_ISSPARSEDIR(ce->ce_mode))
+		istate->sparse_index = 1;
+
 	istate->cache[nr] = ce;
 	add_name_hash(istate, ce);
 }
@@ -999,8 +1004,14 @@ int verify_path(const char *path, unsigned mode)
 
 			c = *path++;
 			if ((c == '.' && !verify_dotfile(path, mode)) ||
-			    is_dir_sep(c) || c == '\0')
+			    is_dir_sep(c))
 				return 0;
+			/*
+			 * allow terminating directory separators for
+			 * sparse directory entries.
+			 */
+			if (c == '\0')
+				return S_ISDIR(mode);
 		} else if (c == '\\' && protect_ntfs) {
 			if (is_ntfs_dotgit(path))
 				return 0;
@@ -1760,6 +1771,10 @@ static int read_index_extension(struct index_state *istate,
 	case CACHE_EXT_INDEXENTRYOFFSETTABLE:
 		/* already handled in do_read_index() */
 		break;
+	case CACHE_EXT_SPARSE_DIRECTORIES:
+		/* no content, only an indicator */
+		istate->sparse_index = 1;
+		break;
 	default:
 		if (*ext < 'A' || 'Z' < *ext)
 			return error(_("index uses %.4s extension, which we do not understand"),
@@ -2273,6 +2288,12 @@ int do_read_index(struct index_state *istate, const char *path, int must_exist)
 	trace2_data_intmax("index", the_repository, "read/cache_nr",
 			   istate->cache_nr);
 
+	if (!istate->repo)
+		istate->repo = the_repository;
+	prepare_repo_settings(istate->repo);
+	if (istate->repo->settings.command_requires_full_index)
+		ensure_full_index(istate);
+
 	return istate->cache_nr;
 
 unmap:
@@ -3011,6 +3032,10 @@ static int do_write_index(struct index_state *istate, struct tempfile *tempfile,
 		if (err)
 			return -1;
 	}
+	if (istate->sparse_index) {
+		if (write_index_ext_header(&c, &eoie_c, newfd, CACHE_EXT_SPARSE_DIRECTORIES, 0) < 0)
+			return -1;
+	}
 
 	/*
 	 * CACHE_EXT_ENDOFINDEXENTRIES must be written as the last entry before the SHA1
@@ -3070,6 +3095,14 @@ static int do_write_locked_index(struct index_state *istate, struct lock_file *l
 				 unsigned flags)
 {
 	int ret;
+	int was_full = !istate->sparse_index;
+
+	ret = convert_to_sparse(istate);
+
+	if (ret) {
+		warning(_("failed to convert to a sparse-index"));
+		return ret;
+	}
 
 	/*
 	 * TODO trace2: replace "the_repository" with the actual repo instance
@@ -3081,6 +3114,9 @@ static int do_write_locked_index(struct index_state *istate, struct lock_file *l
 	trace2_region_leave_printf("index", "do_write_index", the_repository,
 				   "%s", get_lock_file_path(lock));
 
+	if (was_full)
+		ensure_full_index(istate);
+
 	if (ret)
 		return ret;
 	if (flags & COMMIT_LOCK)
@@ -3171,9 +3207,10 @@ static int write_shared_index(struct index_state *istate,
 			      struct tempfile **temp)
 {
 	struct split_index *si = istate->split_index;
-	int ret;
+	int ret, was_full = !istate->sparse_index;
 
 	move_cache_to_base_index(istate);
+	convert_to_sparse(istate);
 
 	trace2_region_enter_printf("index", "shared/do_write_index",
 				   the_repository, "%s", get_tempfile_path(*temp));
@@ -3181,6 +3218,9 @@ static int write_shared_index(struct index_state *istate,
 	trace2_region_leave_printf("index", "shared/do_write_index",
 				   the_repository, "%s", get_tempfile_path(*temp));
 
+	if (was_full)
+		ensure_full_index(istate);
+
 	if (ret)
 		return ret;
 	ret = adjust_shared_perm(get_tempfile_path(*temp));
diff --git a/repo-settings.c b/repo-settings.c
index f7fff0f5ab837e..0cfe8b787db26d 100644
--- a/repo-settings.c
+++ b/repo-settings.c
@@ -77,4 +77,19 @@ void prepare_repo_settings(struct repository *r)
 		UPDATE_DEFAULT_BOOL(r->settings.core_untracked_cache, UNTRACKED_CACHE_KEEP);
 
 	UPDATE_DEFAULT_BOOL(r->settings.fetch_negotiation_algorithm, FETCH_NEGOTIATION_DEFAULT);
+
+	/*
+	 * This setting guards all index reads to require a full index
+	 * over a sparse index. After suitable guards are placed in the
+	 * codebase around uses of the index, this setting will be
+	 * removed.
+	 */
+	r->settings.command_requires_full_index = 1;
+
+	/*
+	 * Initialize this as off.
+	 */
+	r->settings.sparse_index = 0;
+	if (!repo_config_get_bool(r, "index.sparse", &value) && value)
+		r->settings.sparse_index = 1;
 }
diff --git a/repository.c b/repository.c
index c98298acd017b5..a8acae002f712c 100644
--- a/repository.c
+++ b/repository.c
@@ -10,6 +10,7 @@
 #include "object.h"
 #include "lockfile.h"
 #include "submodule-config.h"
+#include "sparse-index.h"
 
 /* The main repository */
 static struct repository the_repo;
@@ -261,6 +262,8 @@ void repo_clear(struct repository *repo)
 
 int repo_read_index(struct repository *repo)
 {
+	int res;
+
 	if (!repo->index)
 		repo->index = xcalloc(1, sizeof(*repo->index));
 
@@ -270,7 +273,13 @@ int repo_read_index(struct repository *repo)
 	else if (repo->index->repo != repo)
 		BUG("repo's index should point back at itself");
 
-	return read_index_from(repo->index, repo->index_file, repo->gitdir);
+	res = read_index_from(repo->index, repo->index_file, repo->gitdir);
+
+	prepare_repo_settings(repo);
+	if (repo->settings.command_requires_full_index)
+		ensure_full_index(repo->index);
+
+	return res;
 }
 
 int repo_hold_locked_index(struct repository *repo,
diff --git a/repository.h b/repository.h
index b385ca3c94b62b..a45f7520fd9e12 100644
--- a/repository.h
+++ b/repository.h
@@ -41,6 +41,9 @@ struct repo_settings {
 	enum fetch_negotiation_setting fetch_negotiation_algorithm;
 
 	int core_multi_pack_index;
+
+	unsigned command_requires_full_index:1,
+		 sparse_index:1;
 };
 
 struct repository {
diff --git a/sparse-index.c b/sparse-index.c
new file mode 100644
index 00000000000000..95ea17174da3b8
--- /dev/null
+++ b/sparse-index.c
@@ -0,0 +1,285 @@
+#include "cache.h"
+#include "repository.h"
+#include "sparse-index.h"
+#include "tree.h"
+#include "pathspec.h"
+#include "trace2.h"
+#include "cache-tree.h"
+#include "config.h"
+#include "dir.h"
+#include "fsmonitor.h"
+
+static struct cache_entry *construct_sparse_dir_entry(
+				struct index_state *istate,
+				const char *sparse_dir,
+				struct cache_tree *tree)
+{
+	struct cache_entry *de;
+
+	de = make_cache_entry(istate, S_IFDIR, &tree->oid, sparse_dir, 0, 0);
+
+	de->ce_flags |= CE_SKIP_WORKTREE;
+	return de;
+}
+
+/*
+ * Returns the number of entries "inserted" into the index.
+ */
+static int convert_to_sparse_rec(struct index_state *istate,
+				 int num_converted,
+				 int start, int end,
+				 const char *ct_path, size_t ct_pathlen,
+				 struct cache_tree *ct)
+{
+	int i, can_convert = 1;
+	int start_converted = num_converted;
+	enum pattern_match_result match;
+	int dtype;
+	struct strbuf child_path = STRBUF_INIT;
+	struct pattern_list *pl = istate->sparse_checkout_patterns;
+
+	/*
+	 * Is the current path outside of the sparse cone?
+	 * Then check if the region can be replaced by a sparse
+	 * directory entry (everything is sparse and merged).
+	 */
+	match = path_matches_pattern_list(ct_path, ct_pathlen,
+					  NULL, &dtype, pl, istate);
+	if (match != NOT_MATCHED)
+		can_convert = 0;
+
+	for (i = start; can_convert && i < end; i++) {
+		struct cache_entry *ce = istate->cache[i];
+
+		if (ce_stage(ce) ||
+		    S_ISGITLINK(ce->ce_mode) ||
+		    !(ce->ce_flags & CE_SKIP_WORKTREE))
+			can_convert = 0;
+	}
+
+	if (can_convert) {
+		struct cache_entry *se;
+		se = construct_sparse_dir_entry(istate, ct_path, ct);
+
+		istate->cache[num_converted++] = se;
+		return 1;
+	}
+
+	for (i = start; i < end; ) {
+		int count, span, pos = -1;
+		const char *base, *slash;
+		struct cache_entry *ce = istate->cache[i];
+
+		/*
+		 * Detect if this is a normal entry outside of any subtree
+		 * entry.
+		 */
+		base = ce->name + ct_pathlen;
+		slash = strchr(base, '/');
+
+		if (slash)
+			pos = cache_tree_subtree_pos(ct, base, slash - base);
+
+		if (pos < 0) {
+			istate->cache[num_converted++] = ce;
+			i++;
+			continue;
+		}
+
+		strbuf_setlen(&child_path, 0);
+		strbuf_add(&child_path, ce->name, slash - ce->name + 1);
+
+		span = ct->down[pos]->cache_tree->entry_count;
+		count = convert_to_sparse_rec(istate,
+					      num_converted, i, i + span,
+					      child_path.buf, child_path.len,
+					      ct->down[pos]->cache_tree);
+		num_converted += count;
+		i += span;
+	}
+
+	strbuf_release(&child_path);
+	return num_converted - start_converted;
+}
+
+static int set_index_sparse_config(struct repository *repo, int enable)
+{
+	int res;
+	char *config_path = repo_git_path(repo, "config.worktree");
+	res = git_config_set_in_file_gently(config_path,
+					    "index.sparse",
+					    enable ? "true" : NULL);
+	free(config_path);
+
+	prepare_repo_settings(repo);
+	repo->settings.sparse_index = 1;
+	return res;
+}
+
+int set_sparse_index_config(struct repository *repo, int enable)
+{
+	int res = set_index_sparse_config(repo, enable);
+
+	prepare_repo_settings(repo);
+	repo->settings.sparse_index = enable;
+	return res;
+}
+
+int convert_to_sparse(struct index_state *istate)
+{
+	int test_env;
+	if (istate->split_index || istate->sparse_index ||
+	    !core_apply_sparse_checkout || !core_sparse_checkout_cone)
+		return 0;
+
+	if (!istate->repo)
+		istate->repo = the_repository;
+
+	/*
+	 * The GIT_TEST_SPARSE_INDEX environment variable triggers the
+	 * index.sparse config variable to be on.
+	 */
+	test_env = git_env_bool("GIT_TEST_SPARSE_INDEX", -1);
+	if (test_env >= 0)
+		set_sparse_index_config(istate->repo, test_env);
+
+	/*
+	 * Only convert to sparse if index.sparse is set.
+	 */
+	prepare_repo_settings(istate->repo);
+	if (!istate->repo->settings.sparse_index)
+		return 0;
+
+	if (!istate->sparse_checkout_patterns) {
+		istate->sparse_checkout_patterns = xcalloc(1, sizeof(struct pattern_list));
+		if (get_sparse_checkout_patterns(istate->sparse_checkout_patterns) < 0)
+			return 0;
+	}
+
+	if (!istate->sparse_checkout_patterns->use_cone_patterns) {
+		warning(_("attempting to use sparse-index without cone mode"));
+		return -1;
+	}
+
+	if (cache_tree_update(istate, 0)) {
+		warning(_("unable to update cache-tree, staying full"));
+		return -1;
+	}
+
+	remove_fsmonitor(istate);
+
+	trace2_region_enter("index", "convert_to_sparse", istate->repo);
+	istate->cache_nr = convert_to_sparse_rec(istate,
+						 0, 0, istate->cache_nr,
+						 "", 0, istate->cache_tree);
+
+	/* Clear and recompute the cache-tree */
+	cache_tree_free(&istate->cache_tree);
+	cache_tree_update(istate, 0);
+
+	istate->sparse_index = 1;
+	trace2_region_leave("index", "convert_to_sparse", istate->repo);
+	return 0;
+}
+
+static void set_index_entry(struct index_state *istate, int nr, struct cache_entry *ce)
+{
+	ALLOC_GROW(istate->cache, nr + 1, istate->cache_alloc);
+
+	istate->cache[nr] = ce;
+	add_name_hash(istate, ce);
+}
+
+static int add_path_to_index(const struct object_id *oid,
+			     struct strbuf *base, const char *path,
+			     unsigned int mode, void *context)
+{
+	struct index_state *istate = (struct index_state *)context;
+	struct cache_entry *ce;
+	size_t len = base->len;
+
+	if (S_ISDIR(mode))
+		return READ_TREE_RECURSIVE;
+
+	strbuf_addstr(base, path);
+
+	ce = make_cache_entry(istate, mode, oid, base->buf, 0, 0);
+	ce->ce_flags |= CE_SKIP_WORKTREE;
+	set_index_entry(istate, istate->cache_nr++, ce);
+
+	strbuf_setlen(base, len);
+	return 0;
+}
+
+void ensure_full_index(struct index_state *istate)
+{
+	int i;
+	struct index_state *full;
+	struct strbuf base = STRBUF_INIT;
+
+	if (!istate || !istate->sparse_index)
+		return;
+
+	if (!istate->repo)
+		istate->repo = the_repository;
+
+	trace2_region_enter("index", "ensure_full_index", istate->repo);
+
+	/* initialize basics of new index */
+	full = xcalloc(1, sizeof(struct index_state));
+	memcpy(full, istate, sizeof(struct index_state));
+
+	/* then change the necessary things */
+	full->sparse_index = 0;
+	full->cache_alloc = (3 * istate->cache_alloc) / 2;
+	full->cache_nr = 0;
+	ALLOC_ARRAY(full->cache, full->cache_alloc);
+
+	for (i = 0; i < istate->cache_nr; i++) {
+		struct cache_entry *ce = istate->cache[i];
+		struct tree *tree;
+		struct pathspec ps;
+
+		if (!S_ISSPARSEDIR(ce->ce_mode)) {
+			set_index_entry(full, full->cache_nr++, ce);
+			continue;
+		}
+		if (!(ce->ce_flags & CE_SKIP_WORKTREE))
+			warning(_("index entry is a directory, but not sparse (%08x)"),
+				ce->ce_flags);
+
+		/* recursively walk into cd->name */
+		tree = lookup_tree(istate->repo, &ce->oid);
+
+		memset(&ps, 0, sizeof(ps));
+		ps.recursive = 1;
+		ps.has_wildcard = 1;
+		ps.max_depth = -1;
+
+		strbuf_setlen(&base, 0);
+		strbuf_add(&base, ce->name, strlen(ce->name));
+
+		read_tree_at(istate->repo, tree, &base, &ps,
+			     add_path_to_index, full);
+
+		/* free directory entries. full entries are re-used */
+		discard_cache_entry(ce);
+	}
+
+	/* Copy back into original index. */
+	memcpy(&istate->name_hash, &full->name_hash, sizeof(full->name_hash));
+	istate->sparse_index = 0;
+	free(istate->cache);
+	istate->cache = full->cache;
+	istate->cache_nr = full->cache_nr;
+	istate->cache_alloc = full->cache_alloc;
+
+	strbuf_release(&base);
+	free(full);
+
+	/* Clear and recompute the cache-tree */
+	cache_tree_free(&istate->cache_tree);
+	cache_tree_update(istate, 0);
+
+	trace2_region_leave("index", "ensure_full_index", istate->repo);
+}
diff --git a/sparse-index.h b/sparse-index.h
new file mode 100644
index 00000000000000..39dcc859735e2b
--- /dev/null
+++ b/sparse-index.h
@@ -0,0 +1,11 @@
+#ifndef SPARSE_INDEX_H__
+#define SPARSE_INDEX_H__
+
+struct index_state;
+void ensure_full_index(struct index_state *istate);
+int convert_to_sparse(struct index_state *istate);
+
+struct repository;
+int set_sparse_index_config(struct repository *repo, int enable);
+
+#endif
diff --git a/t/README b/t/README
index 593d4a4e270cc0..b98bc563aab5bd 100644
--- a/t/README
+++ b/t/README
@@ -439,6 +439,9 @@ and "sha256".
 GIT_TEST_WRITE_REV_INDEX=<boolean>, when true enables the
 'pack.writeReverseIndex' setting.
 
+GIT_TEST_SPARSE_INDEX=<boolean>, when true enables index writes to use the
+sparse-index format by default.
+
 Naming Tests
 ------------
 
diff --git a/t/helper/test-read-cache.c b/t/helper/test-read-cache.c
index 244977a29bdfda..b52c174acc7a1f 100644
--- a/t/helper/test-read-cache.c
+++ b/t/helper/test-read-cache.c
@@ -1,36 +1,82 @@
 #include "test-tool.h"
 #include "cache.h"
 #include "config.h"
+#include "blob.h"
+#include "commit.h"
+#include "tree.h"
+#include "sparse-index.h"
+
+static void print_cache_entry(struct cache_entry *ce)
+{
+	const char *type;
+	printf("%06o ", ce->ce_mode & 0177777);
+
+	if (S_ISSPARSEDIR(ce->ce_mode))
+		type = tree_type;
+	else if (S_ISGITLINK(ce->ce_mode))
+		type = commit_type;
+	else
+		type = blob_type;
+
+	printf("%s %s\t%s\n",
+	       type,
+	       oid_to_hex(&ce->oid),
+	       ce->name);
+}
+
+static void print_cache(struct index_state *istate)
+{
+	int i;
+	for (i = 0; i < istate->cache_nr; i++)
+		print_cache_entry(istate->cache[i]);
+}
 
 int cmd__read_cache(int argc, const char **argv)
 {
+	struct repository *r = the_repository;
 	int i, cnt = 1;
 	const char *name = NULL;
+	int table = 0, expand = 0;
+
+	initialize_the_repository();
+	prepare_repo_settings(r);
+	r->settings.command_requires_full_index = 0;
 
-	if (argc > 1 && skip_prefix(argv[1], "--print-and-refresh=", &name)) {
-		argc--;
-		argv++;
+	for (++argv, --argc; *argv && starts_with(*argv, "--"); ++argv, --argc) {
+		if (skip_prefix(*argv, "--print-and-refresh=", &name))
+			continue;
+		if (!strcmp(*argv, "--table"))
+			table = 1;
+		else if (!strcmp(*argv, "--expand"))
+			expand = 1;
 	}
 
-	if (argc == 2)
-		cnt = strtol(argv[1], NULL, 0);
+	if (argc == 1)
+		cnt = strtol(argv[0], NULL, 0);
 	setup_git_directory();
 	git_config(git_default_config, NULL);
+
 	for (i = 0; i < cnt; i++) {
-		read_cache();
+		repo_read_index(r);
+
+		if (expand)
+			ensure_full_index(r->index);
+
 		if (name) {
 			int pos;
 
-			refresh_index(&the_index, REFRESH_QUIET,
+			refresh_index(r->index, REFRESH_QUIET,
 				      NULL, NULL, NULL);
-			pos = index_name_pos(&the_index, name, strlen(name));
+			pos = index_name_pos(r->index, name, strlen(name));
 			if (pos < 0)
 				die("%s not in index", name);
 			printf("%s is%s up to date\n", name,
-			       ce_uptodate(the_index.cache[pos]) ? "" : " not");
+			       ce_uptodate(r->index->cache[pos]) ? "" : " not");
 			write_file(name, "%d\n", i);
 		}
-		discard_cache();
+		if (table)
+			print_cache(r->index);
+		discard_index(r->index);
 	}
 	return 0;
 }
diff --git a/t/perf/p2000-sparse-operations.sh b/t/perf/p2000-sparse-operations.sh
new file mode 100755
index 00000000000000..94513c97748943
--- /dev/null
+++ b/t/perf/p2000-sparse-operations.sh
@@ -0,0 +1,101 @@
+#!/bin/sh
+
+test_description="test performance of Git operations using the index"
+
+. ./perf-lib.sh
+
+test_perf_default_repo
+
+SPARSE_CONE=f2/f4/f1
+
+test_expect_success 'setup repo and indexes' '
+	git reset --hard HEAD &&
+
+	# Remove submodules from the example repo, because our
+	# duplication of the entire repo creates an unlikely data shape.
+	if git config --file .gitmodules --get-regexp "submodule.*.path" >modules
+	then
+		git rm $(awk "{print \$2}" modules) &&
+		git commit -m "remove submodules" || return 1
+	fi &&
+
+	echo bogus >a &&
+	cp a b &&
+	git add a b &&
+	git commit -m "level 0" &&
+	BLOB=$(git rev-parse HEAD:a) &&
+	OLD_COMMIT=$(git rev-parse HEAD) &&
+	OLD_TREE=$(git rev-parse HEAD^{tree}) &&
+
+	for i in $(test_seq 1 4)
+	do
+		cat >in <<-EOF &&
+			100755 blob $BLOB	a
+			040000 tree $OLD_TREE	f1
+			040000 tree $OLD_TREE	f2
+			040000 tree $OLD_TREE	f3
+			040000 tree $OLD_TREE	f4
+		EOF
+		NEW_TREE=$(git mktree <in) &&
+		NEW_COMMIT=$(git commit-tree $NEW_TREE -p $OLD_COMMIT -m "level $i") &&
+		OLD_TREE=$NEW_TREE &&
+		OLD_COMMIT=$NEW_COMMIT || return 1
+	done &&
+
+	git sparse-checkout init --cone &&
+	git branch -f wide $OLD_COMMIT &&
+	git -c core.sparseCheckoutCone=true clone --branch=wide --sparse . full-index-v3 &&
+	(
+		cd full-index-v3 &&
+		git sparse-checkout init --cone &&
+		git sparse-checkout set $SPARSE_CONE &&
+		git config index.version 3 &&
+		git update-index --index-version=3
+	) &&
+	git -c core.sparseCheckoutCone=true clone --branch=wide --sparse . full-index-v4 &&
+	(
+		cd full-index-v4 &&
+		git sparse-checkout init --cone &&
+		git sparse-checkout set $SPARSE_CONE &&
+		git config index.version 4 &&
+		git update-index --index-version=4
+	) &&
+	git -c core.sparseCheckoutCone=true clone --branch=wide --sparse . sparse-index-v3 &&
+	(
+		cd sparse-index-v3 &&
+		git sparse-checkout init --cone --sparse-index &&
+		git sparse-checkout set $SPARSE_CONE &&
+		git config index.version 3 &&
+		git update-index --index-version=3
+	) &&
+	git -c core.sparseCheckoutCone=true clone --branch=wide --sparse . sparse-index-v4 &&
+	(
+		cd sparse-index-v4 &&
+		git sparse-checkout init --cone --sparse-index &&
+		git sparse-checkout set $SPARSE_CONE &&
+		git config index.version 4 &&
+		git update-index --index-version=4
+	)
+'
+
+test_perf_on_all () {
+	command="$@"
+	for repo in full-index-v3 full-index-v4 \
+		    sparse-index-v3 sparse-index-v4
+	do
+		test_perf "$command ($repo)" "
+			(
+				cd $repo &&
+				echo >>$SPARSE_CONE/a &&
+				$command
+			)
+		"
+	done
+}
+
+test_perf_on_all git status
+test_perf_on_all git add -A
+test_perf_on_all git add .
+test_perf_on_all git commit -a -m A
+
+test_done
diff --git a/t/t1091-sparse-checkout-builtin.sh b/t/t1091-sparse-checkout-builtin.sh
index fc64e9ed99f4bf..38fc8340f5c9b7 100755
--- a/t/t1091-sparse-checkout-builtin.sh
+++ b/t/t1091-sparse-checkout-builtin.sh
@@ -205,6 +205,19 @@ test_expect_success 'sparse-checkout disable' '
 	check_files repo a deep folder1 folder2
 '
 
+test_expect_success 'sparse-index enabled and disabled' '
+	git -C repo sparse-checkout init --cone --sparse-index &&
+	test_cmp_config -C repo true index.sparse &&
+	test-tool -C repo read-cache --table >cache &&
+	grep " tree " cache &&
+
+	git -C repo sparse-checkout disable &&
+	test-tool -C repo read-cache --table >cache &&
+	! grep " tree " cache &&
+	git -C repo config --list >config &&
+	! grep index.sparse config
+'
+
 test_expect_success 'cone mode: init and set' '
 	git -C repo sparse-checkout init --cone &&
 	git -C repo config --list >config &&
diff --git a/t/t1092-sparse-checkout-compatibility.sh b/t/t1092-sparse-checkout-compatibility.sh
index 8cd3e5a8d2277f..12e6c453024fdf 100755
--- a/t/t1092-sparse-checkout-compatibility.sh
+++ b/t/t1092-sparse-checkout-compatibility.sh
@@ -2,11 +2,15 @@
 
 test_description='compare full workdir to sparse workdir'
 
+GIT_TEST_SPLIT_INDEX=0
+GIT_TEST_SPARSE_INDEX=
+
 . ./test-lib.sh
 
 test_expect_success 'setup' '
 	git init initial-repo &&
 	(
+		GIT_TEST_SPARSE_INDEX=0 &&
 		cd initial-repo &&
 		echo a >a &&
 		echo "after deep" >e &&
@@ -87,39 +91,102 @@ init_repos () {
 
 	cp -r initial-repo sparse-checkout &&
 	git -C sparse-checkout reset --hard &&
-	git -C sparse-checkout sparse-checkout init --cone &&
+
+	cp -r initial-repo sparse-index &&
+	git -C sparse-index reset --hard &&
 
 	# initialize sparse-checkout definitions
-	git -C sparse-checkout sparse-checkout set deep
+	git -C sparse-checkout sparse-checkout init --cone &&
+	git -C sparse-checkout sparse-checkout set deep &&
+	git -C sparse-index sparse-checkout init --cone --sparse-index &&
+	test_cmp_config -C sparse-index true index.sparse &&
+	git -C sparse-index sparse-checkout set deep
 }
 
 run_on_sparse () {
 	(
 		cd sparse-checkout &&
-		$* >../sparse-checkout-out 2>../sparse-checkout-err
+		"$@" >../sparse-checkout-out 2>../sparse-checkout-err
+	) &&
+	(
+		cd sparse-index &&
+		"$@" >../sparse-index-out 2>../sparse-index-err
 	)
 }
 
 run_on_all () {
 	(
 		cd full-checkout &&
-		$* >../full-checkout-out 2>../full-checkout-err
+		"$@" >../full-checkout-out 2>../full-checkout-err
 	) &&
-	run_on_sparse $*
+	run_on_sparse "$@"
 }
 
 test_all_match () {
-	run_on_all $* &&
+	run_on_all "$@" &&
 	test_cmp full-checkout-out sparse-checkout-out &&
-	test_cmp full-checkout-err sparse-checkout-err
+	test_cmp full-checkout-out sparse-index-out &&
+	test_cmp full-checkout-err sparse-checkout-err &&
+	test_cmp full-checkout-err sparse-index-err
+}
+
+test_sparse_match () {
+	run_on_sparse "$@" &&
+	test_cmp sparse-checkout-out sparse-index-out &&
+	test_cmp sparse-checkout-err sparse-index-err
 }
 
+test_expect_success 'sparse-index contents' '
+	init_repos &&
+
+	test-tool -C sparse-index read-cache --table >cache &&
+	for dir in folder1 folder2 x
+	do
+		TREE=$(git -C sparse-index rev-parse HEAD:$dir) &&
+		grep "040000 tree $TREE	$dir/" cache \
+			|| return 1
+	done &&
+
+	git -C sparse-index sparse-checkout set folder1 &&
+
+	test-tool -C sparse-index read-cache --table >cache &&
+	for dir in deep folder2 x
+	do
+		TREE=$(git -C sparse-index rev-parse HEAD:$dir) &&
+		grep "040000 tree $TREE	$dir/" cache \
+			|| return 1
+	done &&
+
+	git -C sparse-index sparse-checkout set deep/deeper1 &&
+
+	test-tool -C sparse-index read-cache --table >cache &&
+	for dir in deep/deeper2 folder1 folder2 x
+	do
+		TREE=$(git -C sparse-index rev-parse HEAD:$dir) &&
+		grep "040000 tree $TREE	$dir/" cache \
+			|| return 1
+	done &&
+
+	# Disabling the sparse-index removes tree entries with full ones
+	git -C sparse-index sparse-checkout init --no-sparse-index &&
+
+	test-tool -C sparse-index read-cache --table >cache &&
+	! grep "040000 tree" cache &&
+	test_sparse_match test-tool read-cache --table
+'
+
+test_expect_success 'expanded in-memory index matches full index' '
+	init_repos &&
+	test_sparse_match test-tool read-cache --expand --table
+'
+
 test_expect_success 'status with options' '
 	init_repos &&
+	test_sparse_match ls &&
 	test_all_match git status --porcelain=v2 &&
 	test_all_match git status --porcelain=v2 -z -u &&
 	test_all_match git status --porcelain=v2 -uno &&
-	run_on_all "touch README.md" &&
+	run_on_all touch README.md &&
 	test_all_match git status --porcelain=v2 &&
 	test_all_match git status --porcelain=v2 -z -u &&
 	test_all_match git status --porcelain=v2 -uno &&
@@ -135,7 +202,7 @@ test_expect_success 'add, commit, checkout' '
 	write_script edit-contents <<-\EOF &&
 	echo text >>$1
 	EOF
-	run_on_all "../edit-contents README.md" &&
+	run_on_all ../edit-contents README.md &&
 
 	test_all_match git add README.md &&
 	test_all_match git status --porcelain=v2 &&
@@ -144,7 +211,7 @@ test_expect_success 'add, commit, checkout' '
 	test_all_match git checkout HEAD~1 &&
 	test_all_match git checkout - &&
 
-	run_on_all "../edit-contents README.md" &&
+	run_on_all ../edit-contents README.md &&
 
 	test_all_match git add -A &&
 	test_all_match git status --porcelain=v2 &&
@@ -153,7 +220,7 @@ test_expect_success 'add, commit, checkout' '
 	test_all_match git checkout HEAD~1 &&
 	test_all_match git checkout - &&
 
-	run_on_all "../edit-contents deep/newfile" &&
+	run_on_all ../edit-contents deep/newfile &&
 
 	test_all_match git status --porcelain=v2 -uno &&
 	test_all_match git status --porcelain=v2 &&
@@ -186,7 +253,7 @@ test_expect_success 'diff --staged' '
 	write_script edit-contents <<-\EOF &&
 	echo text >>README.md
 	EOF
-	run_on_all "../edit-contents" &&
+	run_on_all ../edit-contents &&
 
 	test_all_match git diff &&
 	test_all_match git diff --staged &&
@@ -252,6 +319,17 @@ test_expect_failure 'checkout and reset (mixed)' '
 	test_all_match git reset update-folder2
 '
 
+# Ensure that sparse-index behaves identically to
+# sparse-checkout with a full index.
+test_expect_success 'checkout and reset (mixed) [sparse]' '
+	init_repos &&
+
+	test_sparse_match git checkout -b reset-test update-deep &&
+	test_sparse_match git reset deepest &&
+	test_sparse_match git reset update-folder1 &&
+	test_sparse_match git reset update-folder2
+'
+
 test_expect_success 'merge' '
 	init_repos &&
 
@@ -280,7 +358,7 @@ test_expect_success 'clean' '
 	echo bogus >>.gitignore &&
 	run_on_all cp ../.gitignore . &&
 	test_all_match git add .gitignore &&
-	test_all_match git commit -m ignore-bogus-files &&
+	test_all_match git commit -m "ignore bogus files" &&
 
 	run_on_sparse mkdir folder1 &&
 	run_on_all touch folder1/bogus &&
@@ -288,14 +366,51 @@ test_expect_success 'clean' '
 	test_all_match git status --porcelain=v2 &&
 	test_all_match git clean -f &&
 	test_all_match git status --porcelain=v2 &&
+	test_sparse_match ls &&
+	test_sparse_match ls folder1 &&
 
 	test_all_match git clean -xf &&
 	test_all_match git status --porcelain=v2 &&
+	test_sparse_match ls &&
+	test_sparse_match ls folder1 &&
 
 	test_all_match git clean -xdf &&
 	test_all_match git status --porcelain=v2 &&
+	test_sparse_match ls &&
+	test_sparse_match ls folder1 &&
+
+	test_sparse_match test_path_is_dir folder1
+'
+
+test_expect_success 'submodule handling' '
+	init_repos &&
+
+	test_all_match mkdir modules &&
+	test_all_match touch modules/a &&
+	test_all_match git add modules &&
+	test_all_match git commit -m "add modules directory" &&
+
+	run_on_all git submodule add "$(pwd)/initial-repo" modules/sub &&
+	test_all_match git commit -m "add submodule" &&
+
+	# having a submodule prevents "modules" from collapse
+	test-tool -C sparse-index read-cache --table >cache &&
+	grep "100644 blob .*	modules/a" cache &&
+	grep "160000 commit $(git -C initial-repo rev-parse HEAD)	modules/sub" cache
+'
+
+test_expect_success 'sparse-index is expanded and converted back' '
+	init_repos &&
+
+	GIT_TRACE2_EVENT="$(pwd)/trace2.txt" GIT_TRACE2_EVENT_NESTING=10 \
+		git -C sparse-index -c core.fsmonitor="" reset --hard &&
+	test_region index convert_to_sparse trace2.txt &&
+	test_region index ensure_full_index trace2.txt &&
 
-	test_path_is_dir sparse-checkout/folder1
+	rm trace2.txt &&
+	GIT_TRACE2_EVENT="$(pwd)/trace2.txt" GIT_TRACE2_EVENT_NESTING=10 \
+		git -C sparse-index -c core.fsmonitor="" status -uno &&
+	test_region index ensure_full_index trace2.txt
 '
 
 test_done
diff --git a/unpack-trees.c b/unpack-trees.c
index f5f668f532d8d5..0b888dab2246ee 100644
--- a/unpack-trees.c
+++ b/unpack-trees.c
@@ -746,9 +746,13 @@ static int index_pos_by_traverse_info(struct name_entry *names,
 	strbuf_make_traverse_path(&name, info, names->path, names->pathlen);
 	strbuf_addch(&name, '/');
 	pos = index_name_pos(o->src_index, name.buf, name.len);
-	if (pos >= 0)
-		BUG("This is a directory and should not exist in index");
-	pos = -pos - 1;
+	if (pos >= 0) {
+		if (!o->src_index->sparse_index ||
+		    !(o->src_index->cache[pos]->ce_flags & CE_SKIP_WORKTREE))
+			BUG("This is a directory and should not exist in index");
+	} else {
+		pos = -pos - 1;
+	}
 	if (pos >= o->src_index->cache_nr ||
 	    !starts_with(o->src_index->cache[pos]->name, name.buf) ||
 	    (pos > 0 && starts_with(o->src_index->cache[pos-1]->name, name.buf)))
@@ -1567,6 +1571,7 @@ static int verify_absent(const struct cache_entry *,
  */
 int unpack_trees(unsigned len, struct tree_desc *t, struct unpack_trees_options *o)
 {
+	struct repository *repo = the_repository;
 	int i, ret;
 	static struct cache_entry *dfc;
 	struct pattern_list pl;
@@ -1578,6 +1583,12 @@ int unpack_trees(unsigned len, struct tree_desc *t, struct unpack_trees_options
 	trace_performance_enter();
 	trace2_region_enter("unpack_trees", "unpack_trees", the_repository);
 
+	prepare_repo_settings(repo);
+	if (repo->settings.command_requires_full_index) {
+		ensure_full_index(o->src_index);
+		ensure_full_index(o->dst_index);
+	}
+
 	if (!core_apply_sparse_checkout || !o->update)
 		o->skip_sparse_checkout = 1;
 	if (!o->skip_sparse_checkout && !o->pl) {