diff --git a/Source/cmSourceFileLocation.cxx b/Source/cmSourceFileLocation.cxx
index 24e646fc9..c05020236 100644
--- a/Source/cmSourceFileLocation.cxx
+++ b/Source/cmSourceFileLocation.cxx
@@ -60,6 +60,11 @@ cmSourceFileLocation
   this->AmbiguousDirectory = !cmSystemTools::FileIsFullPath(name.c_str());
   this->AmbiguousExtension = true;
   this->Directory = cmSystemTools::GetFilenamePath(name);
+  if (cmSystemTools::FileIsFullPath(this->Directory.c_str()))
+    {
+    this->Directory
+                  = cmSystemTools::CollapseFullPath(this->Directory.c_str());
+    }
   this->Name = cmSystemTools::GetFilenameName(name);
   this->UpdateExtension(name);
 }
diff --git a/Tests/Properties/CMakeLists.txt b/Tests/Properties/CMakeLists.txt
index 285d5965e..11fca45b0 100644
--- a/Tests/Properties/CMakeLists.txt
+++ b/Tests/Properties/CMakeLists.txt
@@ -143,3 +143,5 @@ set_property(CACHE SOME_ENTRY PROPERTY VALUE "${expect_VALUE}")
 set_property(CACHE SOME_ENTRY PROPERTY ADVANCED "${expect_ADVANCED}")
 set_property(CACHE SOME_ENTRY PROPERTY STRINGS "${expect_STRINGS}")
 check_cache_props()
+
+add_subdirectory(SubDir2)
diff --git a/Tests/Properties/SubDir2/CMakeLists.txt b/Tests/Properties/SubDir2/CMakeLists.txt
new file mode 100644
index 000000000..377dc830e
--- /dev/null
+++ b/Tests/Properties/SubDir2/CMakeLists.txt
@@ -0,0 +1,5 @@
+
+set_source_files_properties("${CMAKE_CURRENT_SOURCE_DIR}/../subdirtest.cxx"
+  PROPERTIES COMPILE_DEFINITIONS SUBDIR_TEST)
+
+add_executable(subdirtest "${CMAKE_CURRENT_SOURCE_DIR}/../subdirtest.cxx")
diff --git a/Tests/Properties/subdirtest.cxx b/Tests/Properties/subdirtest.cxx
new file mode 100644
index 000000000..02d8f3d3f
--- /dev/null
+++ b/Tests/Properties/subdirtest.cxx
@@ -0,0 +1,9 @@
+
+#ifndef SUBDIR_TEST
+#error Expected SUBDIR_TEST
+#endif
+
+int main(int, char**)
+{
+  return 0;
+}