diff --git a/autoload/gitgutter/diff_highlight.vim b/autoload/gitgutter/diff_highlight.vim
index 3031582..4851058 100644
--- a/autoload/gitgutter/diff_highlight.vim
+++ b/autoload/gitgutter/diff_highlight.vim
@@ -1,3 +1,9 @@
+" This is the minimum number of characters required between regions of change
+" in a line.  It's somewhat arbitrary: higher values mean less visual busyness;
+" lower values mean more detail.
+let s:gap_between_regions = 5
+
+
 " Calculates the changed portions of lines.
 "
 " Based on:
@@ -42,70 +48,121 @@ function! gitgutter#diff_highlight#process(hunk_body)
     let rline = a:hunk_body[i]
     let aline = a:hunk_body[i + removed]
 
-    let prefix = s:common_prefix(rline, aline)
-    let [rsuffix, asuffix] = s:common_suffix(rline, aline, prefix+1)
-
-    let rtext = rline[prefix+1:rsuffix-1]
-    let atext = aline[prefix+1:asuffix-1]
-
-    " singular insertion
-    if empty(rtext)
-      if len(atext) != len(aline)  " not whole line
-        call add(regions, [i+1+removed, '+', prefix+1+1, asuffix+1-1])
-      endif
-      continue
-    endif
-
-    " singular deletion
-    if empty(atext)
-      if len(rtext) != len(rline)  " not whole line
-        call add(regions, [i+1, '-', prefix+1+1, rsuffix+1-1])
-      endif
-      continue
-    endif
-
-    " two insertions
-    let j = stridx(atext, rtext)
-    if j != -1
-      call add(regions, [i+1+removed, '+', prefix+1+1, prefix+j+1])
-      call add(regions, [i+1+removed, '+', prefix+1+1+j+len(rtext), asuffix+1-1])
-      continue
-    endif
-
-    " two deletions
-    let j = stridx(rtext, atext)
-    if j != -1
-      call add(regions, [i+1, '-', prefix+1+1, prefix+j+1])
-      call add(regions, [i+1, '-', prefix+1+1+j+len(atext), rsuffix+1-1])
-      continue
-    endif
-
-    " fall back to highlighting entire changed area
-
-    " if a change (but not the whole line)
-    if (prefix != 0 || rsuffix != len(rline)) && prefix+1 < rsuffix
-      call add(regions, [i+1, '-', prefix+1+1, rsuffix+1-1])
-    endif
-
-    " if a change (but not the whole line)
-    if (prefix != 0 || asuffix != len(aline)) && prefix+1 < asuffix
-      call add(regions, [i+1+removed, '+', prefix+1+1, asuffix+1-1])
-    endif
+    call s:diff(rline, aline, i, i+removed, 0, 0, regions, 1)
   endfor
 
   return regions
 endfunction
 
 
+function! s:diff(rline, aline, rlinenr, alinenr, rprefix, aprefix, regions, whole_line)
+  " diff marker does not count as a difference in prefix
+  let start = a:whole_line ? 1 : 0
+  let prefix = s:common_prefix(a:rline[start:], a:aline[start:])
+  if a:whole_line
+    let prefix += 1
+  endif
+  let [rsuffix, asuffix] = s:common_suffix(a:rline, a:aline, prefix+1)
+
+  let rtext = a:rline[prefix+1:rsuffix-1]
+  let atext = a:aline[prefix+1:asuffix-1]
+
+  " singular insertion
+  if empty(rtext)
+    if !a:whole_line || len(atext) != len(a:aline)  " not whole line
+      call add(a:regions, [a:alinenr+1, '+', a:aprefix+prefix+1+1, a:aprefix+asuffix+1-1])
+    endif
+    return
+  endif
+
+  " singular deletion
+  if empty(atext)
+    if !a:whole_line || len(rtext) != len(a:rline)  " not whole line
+      call add(a:regions, [a:rlinenr+1, '-', a:rprefix+prefix+1+1, a:rprefix+rsuffix+1-1])
+    endif
+    return
+  endif
+
+  " two insertions
+  let j = stridx(atext, rtext)
+  if j != -1
+    call add(a:regions, [a:alinenr+1, '+', a:aprefix+prefix+1+1, a:aprefix+prefix+j+1])
+    call add(a:regions, [a:alinenr+1, '+', a:aprefix+prefix+1+1+j+len(rtext), a:aprefix+asuffix+1-1])
+    return
+  endif
+
+  " two deletions
+  let j = stridx(rtext, atext)
+  if j != -1
+    call add(a:regions, [a:rlinenr+1, '-', a:rprefix+prefix+1+1, a:rprefix+prefix+j+1])
+    call add(a:regions, [a:rlinenr+1, '-', a:rprefix+prefix+1+1+j+len(atext), a:rprefix+rsuffix+1-1])
+    return
+  endif
+
+  " two edits
+  let lcs = s:lcs(rtext, atext)
+  if len(lcs) > s:gap_between_regions
+    let redits = split(rtext, lcs)
+    let aedits = split(atext, lcs)
+    call s:diff(redits[0], aedits[0], a:rlinenr, a:alinenr, prefix+1,                         prefix+1,                         a:regions, 0)
+    call s:diff(redits[1], aedits[1], a:rlinenr, a:alinenr, prefix+1+len(redits[0])+len(lcs), prefix+1+len(aedits[0])+len(lcs), a:regions, 0)
+    return
+  endif
+
+  " fall back to highlighting entire changed area
+
+  " if a change (but not the whole line)
+  if !a:whole_line || ((prefix != 0 || rsuffix != len(a:rline)) && prefix+1 < rsuffix)
+    call add(a:regions, [a:rlinenr+1, '-', a:rprefix+prefix+1+1, a:rprefix+rsuffix+1-1])
+  endif
+
+  " if a change (but not the whole line)
+  if !a:whole_line || ((prefix != 0 || asuffix != len(a:aline)) && prefix+1 < asuffix)
+    call add(a:regions, [a:alinenr+1, '+', a:aprefix+prefix+1+1, a:aprefix+asuffix+1-1])
+  endif
+endfunction
+
+
+function! s:lcs(s1, s2)
+  if empty(a:s1) || empty(a:s2)
+    return ''
+  endif
+
+  let matrix = map(repeat([repeat([0], len(a:s2)+1)], len(a:s1)+1), 'copy(v:val)')
+
+  let maxlength = 0
+  let endindex = len(a:s1)
+
+  for i in range(1, len(a:s1))
+    for j in range(1, len(a:s2))
+      if a:s1[i] ==# a:s2[j]
+        let matrix[i][j] = 1 + matrix[i-1][j-1]
+        if matrix[i][j] > maxlength
+          let maxlength = matrix[i][j]
+          let endindex = i
+        endif
+      endif
+    endfor
+  endfor
+
+  return a:s1[endindex - maxlength + 1 : endindex]
+endfunction
+
+if $VIM_GITGUTTER_TEST
+  function! gitgutter#diff_highlight#lcs(s1, s2)
+    return s:lcs(a:s1, a:s2)
+  endfunction
+endif
+
+
 " Returns 0-based index of last character of common prefix
-" Does not treat leading +/- as different.
+" If there is no common prefix, returns -1.
 "
 " a, b - strings
 "
 function! s:common_prefix(a, b)
   let len = min([len(a:a), len(a:b)])
-  " ignore initial +/-
-  for i in range(1, len - 1)
+  for i in range(len)
     if a:a[i:i] != a:b[i:i]
       return i - 1
     endif
diff --git a/test/test_gitgutter.vim b/test/test_gitgutter.vim
index c3c1d02..5dd313f 100644
--- a/test/test_gitgutter.vim
+++ b/test/test_gitgutter.vim
@@ -917,14 +917,22 @@ endfunction
 
 function Test_common_prefix()
   " nothing in common
-  call assert_equal(0, gitgutter#diff_highlight#common_prefix('-abcde', '+pqrst'))
+  call assert_equal(-1, gitgutter#diff_highlight#common_prefix('-abcde', '+pqrst'))
+  call assert_equal(-1, gitgutter#diff_highlight#common_prefix('abcde', 'pqrst'))
   " something in common
-  call assert_equal(3, gitgutter#diff_highlight#common_prefix('-abcde', '+abcpq'))
+  call assert_equal(-1, gitgutter#diff_highlight#common_prefix('-abcde', '+abcpq'))
+  call assert_equal(2, gitgutter#diff_highlight#common_prefix('abcde', 'abcpq'))
+  call assert_equal(0, gitgutter#diff_highlight#common_prefix('abc', 'apq'))
   " everything in common
-  call assert_equal(5, gitgutter#diff_highlight#common_prefix('-abcde', '+abcde'))
+  call assert_equal(-1, gitgutter#diff_highlight#common_prefix('-abcde', '+abcde'))
+  call assert_equal(4, gitgutter#diff_highlight#common_prefix('abcde', 'abcde'))
   " different lengths
-  call assert_equal(2, gitgutter#diff_highlight#common_prefix('-abcde', '+abx'))
-  call assert_equal(2, gitgutter#diff_highlight#common_prefix('-abx',   '+abcde'))
+  call assert_equal(-1, gitgutter#diff_highlight#common_prefix('-abcde', '+abx'))
+  call assert_equal(1, gitgutter#diff_highlight#common_prefix('abcde', 'abx'))
+  call assert_equal(-1, gitgutter#diff_highlight#common_prefix('-abx',   '+abcde'))
+  call assert_equal(1, gitgutter#diff_highlight#common_prefix('abx',   'abcde'))
+  call assert_equal(-1, gitgutter#diff_highlight#common_prefix('-abcde', '+abc'))
+  call assert_equal(2, gitgutter#diff_highlight#common_prefix('abcde', 'abc'))
 endfunction
 
 
@@ -1010,5 +1018,12 @@ function Test_diff_highlight()
 
   " two edits
   let hunk = ['-The cat in the hat.', '+The ox in the box.']
-  call assert_equal([[1, '-', 6, 8], [1, '-', 17, 19], [2, '+', 6, 7], [2, '+', 16, 18]], gitgutter#diff_highlight#process(hunk))
+  call assert_equal([[1, '-', 6, 8], [2, '+', 6, 7], [1, '-', 17, 19], [2, '+', 16, 18]], gitgutter#diff_highlight#process(hunk))
+endfunction
+
+
+function Test_lcs()
+  call assert_equal('', gitgutter#diff_highlight#lcs('', 'foo'))
+  call assert_equal('', gitgutter#diff_highlight#lcs('foo', ''))
+  call assert_equal('bar', gitgutter#diff_highlight#lcs('foobarbaz', 'bbart'))
 endfunction