diff --git a/file.rkt b/file.rkt
index 0ecd318..d1cbbff 100644
--- a/file.rkt
+++ b/file.rkt
@@ -10,6 +10,18 @@
   (define-values (dir name dir?) (split-path path))
   dir)
 
+
+(define+provide/contract (find-upward-from source-path filename-to-find)
+  (coerce/path? coerce/path? . -> . (or/c #f path?))
+    (parameterize ([current-directory (dirname (->complete-path source-path))])
+      (let loop ([dir (current-directory)][path filename-to-find])
+        (and dir ; dir is #f when it hits the top of the filesystem
+             (let ([completed-path (path->complete-path path)]) 
+               (if (file-exists? completed-path)
+                   (simplify-path completed-path)
+                   (loop (dirname dir) (build-path 'up path))))))))
+
+
 ;; for files like svg that are not source in pollen terms,
 ;; but have a textual representation separate from their display.
 (define+provide/contract (sourceish? x)
diff --git a/render.rkt b/render.rkt
index 03b6851..f4a7c1c 100644
--- a/render.rkt
+++ b/render.rkt
@@ -229,8 +229,8 @@
     
     (define (get-default-template)
       (and output-path-ext
-           (build-path (world:current-project-root)
-                       (add-ext (world:current-default-template-prefix) output-path-ext))))
+           (let ([default-template-filename (add-ext (world:current-default-template-prefix) output-path-ext)])
+             (find-upward-from source-path default-template-filename))))
     
     (define (get-fallback-template)
       (and output-path-ext
diff --git a/scribblings/render.scrbl b/scribblings/render.scrbl
index ce393d5..e21664f 100644
--- a/scribblings/render.scrbl
+++ b/scribblings/render.scrbl
@@ -79,7 +79,7 @@ Find a template file for @racket[_source-path], with the following priority:
 
 @item{If the @racket[metas] for @racket[_source-path] have a key for @code[(format "~a" world:template-meta-key)], then use the value of this key.}
 
-@item{If this key doesn't exist, or if it points to a nonexistent file, look for a default template in the project directory with the name @code[(format "~a.[output extension]" world:default-template-prefix)]. Meaning, if @racket[_source-path] is @code[(format "intro.html.~a" world:markup-source-ext)], the output path would be @code["intro.html"], so the default template would be @code[(format "~a.html" world:default-template-prefix)].}
+@item{If this key doesn't exist, or refers to a nonexistent file, look for a default template with the name @code[(format "~a.[output extension]" world:default-template-prefix)]. Meaning, if @racket[_source-path] is @code[(format "intro.html.~a" world:markup-source-ext)], the output path would be @code["intro.html"], so the default template would be @code[(format "~a.html" world:default-template-prefix)]. Look for this default template in the same directory as the source file, and then search upwards within successive parent directories. (Corollary: a default template in the project root will apply to all files in the project unless overridden within a subdirectory.)}
 
 @item{If this file doesn't exist, use the fallback template as a last resort. (See @secref["Templates"
          #:tag-prefixes '("tutorial-2")
diff --git a/test/data/subtemplate/one.txt b/test/data/subtemplate/one.txt
new file mode 100644
index 0000000..50fc7ef
--- /dev/null
+++ b/test/data/subtemplate/one.txt
@@ -0,0 +1 @@
+one in main template
\ No newline at end of file
diff --git a/test/data/subtemplate/one.txt.pm b/test/data/subtemplate/one.txt.pm
new file mode 100644
index 0000000..7e78dd6
--- /dev/null
+++ b/test/data/subtemplate/one.txt.pm
@@ -0,0 +1,3 @@
+#lang pollen
+
+one
\ No newline at end of file
diff --git a/test/data/subtemplate/pollen.rkt b/test/data/subtemplate/pollen.rkt
new file mode 100644
index 0000000..bc939b1
--- /dev/null
+++ b/test/data/subtemplate/pollen.rkt
@@ -0,0 +1,8 @@
+#lang racket/base
+(require pollen/world)
+(provide (all-defined-out))
+
+(module config racket/base
+  (provide (all-defined-out))
+  (define poly-targets '(html txt))
+  (define compile-cache-active #f))
\ No newline at end of file
diff --git a/test/data/subtemplate/subdir/subsubdir/template.txt b/test/data/subtemplate/subdir/subsubdir/template.txt
new file mode 100644
index 0000000..04df01e
--- /dev/null
+++ b/test/data/subtemplate/subdir/subsubdir/template.txt
@@ -0,0 +1 @@
+◊(cdr doc) in subsubdir template
\ No newline at end of file
diff --git a/test/data/subtemplate/subdir/subsubdir/three.txt b/test/data/subtemplate/subdir/subsubdir/three.txt
new file mode 100644
index 0000000..4f4f773
--- /dev/null
+++ b/test/data/subtemplate/subdir/subsubdir/three.txt
@@ -0,0 +1 @@
+three in subsubdir template
\ No newline at end of file
diff --git a/test/data/subtemplate/subdir/subsubdir/three.txt.pm b/test/data/subtemplate/subdir/subsubdir/three.txt.pm
new file mode 100644
index 0000000..d5e6e68
--- /dev/null
+++ b/test/data/subtemplate/subdir/subsubdir/three.txt.pm
@@ -0,0 +1,3 @@
+#lang pollen
+
+three
\ No newline at end of file
diff --git a/test/data/subtemplate/subdir/two.txt b/test/data/subtemplate/subdir/two.txt
new file mode 100644
index 0000000..80ded6c
--- /dev/null
+++ b/test/data/subtemplate/subdir/two.txt
@@ -0,0 +1 @@
+two in main template
\ No newline at end of file
diff --git a/test/data/subtemplate/subdir/two.txt.pm b/test/data/subtemplate/subdir/two.txt.pm
new file mode 100644
index 0000000..3e6ede9
--- /dev/null
+++ b/test/data/subtemplate/subdir/two.txt.pm
@@ -0,0 +1,3 @@
+#lang pollen
+
+two
\ No newline at end of file
diff --git a/test/data/subtemplate/template.txt b/test/data/subtemplate/template.txt
new file mode 100644
index 0000000..11505d2
--- /dev/null
+++ b/test/data/subtemplate/template.txt
@@ -0,0 +1 @@
+◊(cdr doc) in main template
\ No newline at end of file
diff --git a/test/test-subtemplate.rkt b/test/test-subtemplate.rkt
new file mode 100644
index 0000000..d0ee0ca
--- /dev/null
+++ b/test/test-subtemplate.rkt
@@ -0,0 +1,15 @@
+#lang at-exp racket/base
+(require rackunit pollen/world racket/runtime-path pollen/render)
+
+;; define-runtime-path only allowed at top level
+(define-runtime-path subtemplate-dir "data/subtemplate")
+(define-runtime-path one-source "data/subtemplate/one.txt.pm")
+(define-runtime-path two-source "data/subtemplate/subdir/two.txt.pm")
+(define-runtime-path three-source "data/subtemplate/subdir/subsubdir/three.txt.pm")
+
+(parameterize ([current-directory subtemplate-dir]
+               [world:current-project-root subtemplate-dir]
+               [current-output-port (open-output-string)])
+  (check-equal? (render one-source) "one in main template")
+  (check-equal? (render two-source) "two in main template")
+  (check-equal? (render three-source) "three in subsubdir template"))
\ No newline at end of file