diff --git a/t/t1092-sparse-checkout-compatibility.sh b/t/t1092-sparse-checkout-compatibility.sh
index 9ef7cd8..b1dcaa0 100755
--- a/t/t1092-sparse-checkout-compatibility.sh
+++ b/t/t1092-sparse-checkout-compatibility.sh
@@ -278,6 +278,13 @@
 	test_all_match git status --porcelain=v2 -uno
 '
 
+test_expect_success 'status with diff in unexpanded sparse directory' '
+	init_repos &&
+	test_all_match git checkout rename-base &&
+	test_all_match git reset --soft rename-out-to-out &&
+	test_all_match git status --porcelain=v2
+'
+
 test_expect_success 'status reports sparse-checkout' '
 	init_repos &&
 	git -C sparse-checkout status >full &&
diff --git a/wt-status.c b/wt-status.c
index 335e723..7da8bbe 100644
--- a/wt-status.c
+++ b/wt-status.c
@@ -651,6 +651,15 @@ static void wt_status_collect_changes_index(struct wt_status *s)
 	rev.diffopt.detect_rename = s->detect_rename >= 0 ? s->detect_rename : rev.diffopt.detect_rename;
 	rev.diffopt.rename_limit = s->rename_limit >= 0 ? s->rename_limit : rev.diffopt.rename_limit;
 	rev.diffopt.rename_score = s->rename_score >= 0 ? s->rename_score : rev.diffopt.rename_score;
+
+	/*
+	 * The `recursive` option must be enabled to allow the diff to recurse
+	 * into subdirectories of sparse directory index entries. If it is not
+	 * enabled, a subdirectory containing file(s) with changes is reported
+	 * as "modified", rather than the modified files themselves.
+	 */
+	rev.diffopt.flags.recursive = 1;
+
 	copy_pathspec(&rev.prune_data, &s->pathspec);
 	run_diff_index(&rev, 1);
 	object_array_clear(&rev.pending);