diff --git a/builtin/diff.c b/builtin/diff.c
index efc37483b3..9b6cdabe15 100644
--- a/builtin/diff.c
+++ b/builtin/diff.c
@@ -465,6 +465,15 @@ int cmd_diff(int argc, const char **argv, const char *prefix)
 			no_index = DIFF_NO_INDEX_IMPLICIT;
 	}
 
+	/*
+	 * When operating outside of a Git repository we need to have a hash
+	 * algorithm at hand so that we can generate the blob hashes. We
+	 * default to SHA1 here, but may eventually want to change this to be
+	 * configurable via a command line option.
+	 */
+	if (nongit)
+		repo_set_hash_algo(the_repository, GIT_HASH_SHA1);
+
 	init_diff_ui_defaults();
 	git_config(git_diff_ui_config, NULL);
 	prefix = precompose_argv_prefix(argc, argv, prefix);