diff --git a/README.md b/README.md
index c6e666b..12c3645 100644
--- a/README.md
+++ b/README.md
@@ -230,7 +230,7 @@ first argument. The most common subcommands are:
 
 Sets the global version of Ruby to be used in all shells by writing
 the version name to the `~/.rbenv/version` file. This version can be
-overridden by a per-project `.rbenv-version` file, or by setting the
+overridden by a per-project `.ruby-version` file, or by setting the
 `RBENV_VERSION` environment variable.
 
     $ rbenv global 1.9.3-p327
@@ -244,7 +244,7 @@ currently configured global version.
 ### rbenv local ###
 
 Sets a local per-project Ruby version by writing the version name to
-an `.rbenv-version` file in the current directory. This version
+a `.ruby-version` file in the current directory. This version
 overrides the global, and can be overridden itself by setting the
 `RBENV_VERSION` environment variable or with the `rbenv shell`
 command.
@@ -256,6 +256,11 @@ configured local version. You can also unset the local version:
 
     $ rbenv local --unset
 
+Previous versions of rbenv stored local version specifications in a
+file named `.rbenv-version`. For backwards compatibility, rbenv will
+read a local version specified in an `.rbenv-version` file, but a
+`.ruby-version` file in the same directory will take precedence.
+
 ### rbenv shell ###
 
 Sets a shell-specific Ruby version by setting the `RBENV_VERSION`
@@ -284,7 +289,7 @@ the currently active version.
     $ rbenv versions
       1.8.7-p352
       1.9.2-p290
-    * 1.9.3-p327 (set by /Users/sam/.rbenv/global)
+    * 1.9.3-p327 (set by /Users/sam/.rbenv/version)
       jruby-1.7.1
       rbx-1.2.4
       ree-1.8.7-2011.03
@@ -295,7 +300,7 @@ Displays the currently active Ruby version, along with information on
 how it was set.
 
     $ rbenv version
-    1.8.7-p352 (set by /Volumes/37signals/basecamp/.rbenv-version)
+    1.8.7-p352 (set by /Volumes/37signals/basecamp/.ruby-version)
 
 ### rbenv rehash ###
 
diff --git a/libexec/rbenv-local b/libexec/rbenv-local
index a0b3fe7..9da4481 100755
--- a/libexec/rbenv-local
+++ b/libexec/rbenv-local
@@ -6,14 +6,18 @@
 #        rbenv local --unset
 #
 # Sets the local directory-specific Ruby version by writing the version
-# name to a file named `.rbenv-version'.
+# name to a file named `.ruby-version'.
 #
-# When you run a Ruby command, rbenv will look for an `.rbenv-version'
+# When you run a Ruby command, rbenv will look for a `.ruby-version'
 # file in the current directory and each parent directory. If no such
 # file is found in the tree, rbenv will use the global Ruby version
 # specified with `rbenv global', or the version specified in the
 # RBENV_VERSION environment variable.
 #
+# For backwards compatibility, rbenv will also read version
+# specifications from `.rbenv-version' files, but a `.ruby-version'
+# file in the same directory takes precedence.
+#
 # <version> should be a string matching a Ruby version known to rbenv.
 # The special version string `system' will use your default system Ruby.
 # Run `rbenv versions' for a list of available Ruby versions.
@@ -29,14 +33,20 @@ if [ "$1" = "--complete" ]; then
 fi
 
 RBENV_VERSION="$1"
-RBENV_VERSION_FILE=".rbenv-version"
 
 if [ "$RBENV_VERSION" = "--unset" ]; then
-  rm -f "$RBENV_VERSION_FILE"
+  rm -f .ruby-version .rbenv-version
 elif [ -n "$RBENV_VERSION" ]; then
-  rbenv-version-file-write "$RBENV_VERSION_FILE" "$RBENV_VERSION"
+  if [ "$(RBENV_VERSION= rbenv-version-origin)" -ef .rbenv-version ]; then
+    rm -f .rbenv-version
+    { echo "rbenv: removed existing \`.rbenv-version' file and migrated"
+      echo "       local version specification to \`.ruby-version' file"
+    } >&2
+  fi
+  rbenv-version-file-write .ruby-version "$RBENV_VERSION"
 else
-  rbenv-version-file-read "$RBENV_VERSION_FILE" ||
+  rbenv-version-file-read .ruby-version ||
+  rbenv-version-file-read .rbenv-version ||
   { echo "rbenv: no local version configured for this directory"
     exit 1
   } >&2
diff --git a/libexec/rbenv-version-file b/libexec/rbenv-version-file
index 1beea0f..2413834 100755
--- a/libexec/rbenv-version-file
+++ b/libexec/rbenv-version-file
@@ -6,7 +6,10 @@ set -e
 find_local_version_file() {
   local root="$1"
   while [ -n "$root" ]; do
-    if [ -e "${root}/.rbenv-version" ]; then
+    if [ -e "${root}/.ruby-version" ]; then
+      echo "${root}/.ruby-version"
+      exit
+    elif [ -e "${root}/.rbenv-version" ]; then
       echo "${root}/.rbenv-version"
       exit
     fi
diff --git a/libexec/rbenv-version-name b/libexec/rbenv-version-name
index cd1d18f..3eef70a 100755
--- a/libexec/rbenv-version-name
+++ b/libexec/rbenv-version-name
@@ -13,10 +13,18 @@ if [ -z "$RBENV_VERSION" ] || [ "$RBENV_VERSION" = "system" ]; then
   exit
 fi
 
-RBENV_VERSION_PATH="${RBENV_ROOT}/versions/${RBENV_VERSION}"
+version_exists() {
+  local version="$1"
+  [ -d "${RBENV_ROOT}/versions/${version}" ]
+}
 
-if [ -d "$RBENV_VERSION_PATH" ]; then
+if version_exists "$RBENV_VERSION"; then
   echo "$RBENV_VERSION"
+elif version_exists "${RBENV_VERSION#ruby-}"; then
+  { echo "warning: ignoring extraneous \`ruby-' prefix in version \`${RBENV_VERSION}'"
+    echo "         (set by $(rbenv-version-origin))"
+  } >&2
+  echo "${RBENV_VERSION#ruby-}"
 else
   echo "rbenv: version \`$RBENV_VERSION' is not installed" >&2
   exit 1
diff --git a/libexec/rbenv-versions b/libexec/rbenv-versions
index 5bfa72e..ea28e5c 100755
--- a/libexec/rbenv-versions
+++ b/libexec/rbenv-versions
@@ -21,7 +21,7 @@ fi
 
 print_version() {
   if [ "$1" == "$current_version" ]; then
-    echo "${hit_prefix}$(rbenv-version)"
+    echo "${hit_prefix}$(rbenv-version 2>/dev/null)"
   else
     echo "${miss_prefix}$1"
   fi