diff --git a/src/parser/ArcanistBundle.php b/src/parser/ArcanistBundle.php
--- a/src/parser/ArcanistBundle.php
+++ b/src/parser/ArcanistBundle.php
@@ -560,7 +560,16 @@
             }
           }
 
-          if ($jj - $last_change > (($context + 1) * 2)) {
+          // If the context value is "3" and there are 7 unchanged lines
+          // between the two changes, we could either generate one or two hunks
+          // and end up with the same number of output lines. If we generate
+          // one hunk, the middle line will be a line of source. If we generate
+          // two hunks, the middle line will be an "@@ -1,2 +3,4 @@" header.
+
+          // We choose to generate two hunks because this is the behavior of
+          // "diff -u". See PHI838.
+
+          if ($jj - $last_change >= ($context * 2 + 1)) {
             // We definitely aren't going to merge this with the next hunk, so
             // break out of the loop. We'll end the hunk at $break_here.
             break;
diff --git a/src/parser/__tests__/ArcanistBundleTestCase.php b/src/parser/__tests__/ArcanistBundleTestCase.php
--- a/src/parser/__tests__/ArcanistBundleTestCase.php
+++ b/src/parser/__tests__/ArcanistBundleTestCase.php
@@ -642,6 +642,24 @@
         'disjoint-hunks.new')->toUnifiedDiff());
   }
 
+  public function testMergeHunks() {
+    // Hunks should merge if represented by sufficiently few unchanged
+    // lines.
+    $this->assertEqual(
+      $this->loadResource('merge-hunks.diff'),
+      $this->loadOneChangeBundle(
+        'merge-hunks.old',
+        'merge-hunks.new')->toUnifiedDiff());
+
+    // Hunks should not merge if they are separated by too many unchanged
+    // lines.
+    $this->assertEqual(
+      $this->loadResource('no-merge-hunks.diff'),
+      $this->loadOneChangeBundle(
+        'no-merge-hunks.old',
+        'no-merge-hunks.new')->toUnifiedDiff());
+  }
+
   public function testNonlocalTrailingNewline() {
     // Diffs without changes near the end of the file should not generate a
     // bogus, change-free hunk if the file has no trailing newline.
diff --git a/src/parser/__tests__/bundle/merge-hunks.diff b/src/parser/__tests__/bundle/merge-hunks.diff
new file mode 100644
--- /dev/null
+++ b/src/parser/__tests__/bundle/merge-hunks.diff
@@ -0,0 +1,19 @@
+Index: file
+===================================================================
+--- file
++++ file
+@@ -2,12 +2,14 @@
+ B
+ C
+ D
++Chocolate
+ E
+ F
+ G
+ H
+ I
+ J
++Caramel
+ K
+ L
+ M
diff --git a/src/parser/__tests__/bundle/merge-hunks.new b/src/parser/__tests__/bundle/merge-hunks.new
new file mode 100644
--- /dev/null
+++ b/src/parser/__tests__/bundle/merge-hunks.new
@@ -0,0 +1,17 @@
+A
+B
+C
+D
+Chocolate
+E
+F
+G
+H
+I
+J
+Caramel
+K
+L
+M
+N
+O
diff --git a/src/parser/__tests__/bundle/merge-hunks.old b/src/parser/__tests__/bundle/merge-hunks.old
new file mode 100644
--- /dev/null
+++ b/src/parser/__tests__/bundle/merge-hunks.old
@@ -0,0 +1,15 @@
+A
+B
+C
+D
+E
+F
+G
+H
+I
+J
+K
+L
+M
+N
+O
diff --git a/src/parser/__tests__/bundle/no-merge-hunks.diff b/src/parser/__tests__/bundle/no-merge-hunks.diff
new file mode 100644
--- /dev/null
+++ b/src/parser/__tests__/bundle/no-merge-hunks.diff
@@ -0,0 +1,20 @@
+Index: file
+===================================================================
+--- file
++++ file
+@@ -2,6 +2,7 @@
+ B
+ C
+ D
++Chocolate
+ E
+ F
+ G
+@@ -9,6 +10,7 @@
+ I
+ J
+ K
++Caramel
+ L
+ M
+ N
diff --git a/src/parser/__tests__/bundle/no-merge-hunks.new b/src/parser/__tests__/bundle/no-merge-hunks.new
new file mode 100644
--- /dev/null
+++ b/src/parser/__tests__/bundle/no-merge-hunks.new
@@ -0,0 +1,17 @@
+A
+B
+C
+D
+Chocolate
+E
+F
+G
+H
+I
+J
+K
+Caramel
+L
+M
+N
+O
diff --git a/src/parser/__tests__/bundle/no-merge-hunks.old b/src/parser/__tests__/bundle/no-merge-hunks.old
new file mode 100644
--- /dev/null
+++ b/src/parser/__tests__/bundle/no-merge-hunks.old
@@ -0,0 +1,15 @@
+A
+B
+C
+D
+E
+F
+G
+H
+I
+J
+K
+L
+M
+N
+O