diff --git a/tests/base.py b/tests/base.py
index b265bd0361..736d2f792e 100755
--- a/tests/base.py
+++ b/tests/base.py
@@ -974,10 +974,6 @@ class ZuulTestCase(BaseTestCase):
         old_urlopen = urllib2.urlopen
         urllib2.urlopen = URLOpenerFactory
 
-        self.merge_server = zuul.merger.server.MergeServer(self.config,
-                                                           self.connections)
-        self.merge_server.start()
-
         self.launcher = zuul.launcher.launchclient.LaunchClient(
             self.config, self.sched, self.swift)
         self.merge_client = zuul.merger.client.MergeClient(
@@ -1076,6 +1072,32 @@ class ZuulTestCase(BaseTestCase):
         self.config.read(os.path.join(FIXTURE_DIR, self.config_file))
         if hasattr(self, 'tenant_config_file'):
             self.config.set('zuul', 'tenant_config', self.tenant_config_file)
+            git_path = os.path.join(
+                os.path.dirname(
+                    os.path.join(FIXTURE_DIR, self.tenant_config_file)),
+                'git')
+            if os.path.exists(git_path):
+                for reponame in os.listdir(git_path):
+                    self.copyDirToRepo(reponame,
+                                       os.path.join(git_path, reponame))
+
+    def copyDirToRepo(self, project, source_path):
+        repo_path = os.path.join(self.upstream_root, project)
+        if not os.path.exists(repo_path):
+            self.init_repo(project)
+
+        files = {}
+        for (dirpath, dirnames, filenames) in os.walk(source_path):
+            for filename in filenames:
+                test_tree_filepath = os.path.join(dirpath, filename)
+                common_path = os.path.commonprefix([test_tree_filepath,
+                                                    source_path])
+                relative_filepath = test_tree_filepath[len(common_path) + 1:]
+                with open(test_tree_filepath, 'r') as f:
+                    content = f.read()
+                files[relative_filepath] = content
+        self.addCommitToRepo(project, 'add content from fixture',
+                             files, branch='master')
 
     def setup_repos(self):
         """Subclasses can override to manipulate repos before tests"""
@@ -1099,8 +1121,6 @@ class ZuulTestCase(BaseTestCase):
     def shutdown(self):
         self.log.debug("Shutting down after tests")
         self.launcher.stop()
-        self.merge_server.stop()
-        self.merge_server.join()
         self.merge_client.stop()
         self.sched.stop()
         self.sched.join()
@@ -1233,7 +1253,6 @@ class ZuulTestCase(BaseTestCase):
             time.sleep(0)
         self.gearman_server.functions = set()
         self.rpc.register()
-        self.merge_server.register()
 
     def haveAllBuildsReported(self):
         # See if Zuul is waiting on a meta job to complete
@@ -1331,13 +1350,13 @@ class ZuulTestCase(BaseTestCase):
         jobs = filter(lambda x: x.result == result, jobs)
         return len(jobs)
 
-    def getJobFromHistory(self, name):
+    def getJobFromHistory(self, name, project=None):
         history = self.ansible_server.job_history
         for job in history:
             params = json.loads(job.arguments)
-            if params['job'] == name:
+            if (params['job'] == name and
+                (project is None or params['ZUUL_PROJECT'] == project)):
                 result = json.loads(job.data[-1])
-                print result
                 ret = BuildHistory(job=job,
                                    name=params['job'],
                                    result=result['result'])
diff --git a/tests/fixtures/config/in-repo/common.yaml b/tests/fixtures/config/in-repo/git/common-config/zuul.yaml
similarity index 100%
rename from tests/fixtures/config/in-repo/common.yaml
rename to tests/fixtures/config/in-repo/git/common-config/zuul.yaml
diff --git a/tests/fixtures/config/in-repo/main.yaml b/tests/fixtures/config/in-repo/main.yaml
index e8b7665c35..d9868fad0f 100644
--- a/tests/fixtures/config/in-repo/main.yaml
+++ b/tests/fixtures/config/in-repo/main.yaml
@@ -1,8 +1,8 @@
 - tenant:
     name: tenant-one
-    include:
-      - common.yaml
     source:
       gerrit:
-        repos:
+        config-repos:
+          - common-config
+        project-repos:
           - org/project
diff --git a/tests/fixtures/config/multi-tenant/common.yaml b/tests/fixtures/config/multi-tenant/git/common-config/zuul.yaml
similarity index 87%
rename from tests/fixtures/config/multi-tenant/common.yaml
rename to tests/fixtures/config/multi-tenant/git/common-config/zuul.yaml
index 60142273aa..77195731bf 100644
--- a/tests/fixtures/config/multi-tenant/common.yaml
+++ b/tests/fixtures/config/multi-tenant/git/common-config/zuul.yaml
@@ -12,3 +12,7 @@
     failure:
       gerrit:
         verified: -1
+
+- job:
+    name:
+      python27
diff --git a/tests/fixtures/config/multi-tenant/tenant-one.yaml b/tests/fixtures/config/multi-tenant/git/tenant-one-config/zuul.yaml
similarity index 94%
rename from tests/fixtures/config/multi-tenant/tenant-one.yaml
rename to tests/fixtures/config/multi-tenant/git/tenant-one-config/zuul.yaml
index 86a98da641..785f8a53c4 100644
--- a/tests/fixtures/config/multi-tenant/tenant-one.yaml
+++ b/tests/fixtures/config/multi-tenant/git/tenant-one-config/zuul.yaml
@@ -29,7 +29,9 @@
     name: org/project1
     check:
       jobs:
+        - python27
         - project1-test1
     tenant-one-gate:
       jobs:
+        - python27
         - project1-test1
diff --git a/tests/fixtures/config/multi-tenant/tenant-two.yaml b/tests/fixtures/config/multi-tenant/git/tenant-two-config/zuul.yaml
similarity index 94%
rename from tests/fixtures/config/multi-tenant/tenant-two.yaml
rename to tests/fixtures/config/multi-tenant/git/tenant-two-config/zuul.yaml
index 3f80a95597..c6127ca968 100644
--- a/tests/fixtures/config/multi-tenant/tenant-two.yaml
+++ b/tests/fixtures/config/multi-tenant/git/tenant-two-config/zuul.yaml
@@ -29,7 +29,9 @@
     name: org/project2
     check:
       jobs:
+        - python27
         - project2-test1
     tenant-two-gate:
       jobs:
+        - python27
         - project2-test1
diff --git a/tests/fixtures/config/multi-tenant/main.yaml b/tests/fixtures/config/multi-tenant/main.yaml
index b9d780cee4..b1c47b1154 100644
--- a/tests/fixtures/config/multi-tenant/main.yaml
+++ b/tests/fixtures/config/multi-tenant/main.yaml
@@ -1,11 +1,15 @@
 - tenant:
     name: tenant-one
-    include:
-      - common.yaml
-      - tenant-one.yaml
+    source:
+      gerrit:
+        config-repos:
+          - common-config
+          - tenant-one-config
 
 - tenant:
     name: tenant-two
-    include:
-      - common.yaml
-      - tenant-two.yaml
+    source:
+      gerrit:
+        config-repos:
+          - common-config
+          - tenant-two-config
diff --git a/tests/fixtures/config/project-template/common.yaml b/tests/fixtures/config/project-template/git/common-config/zuul.yaml
similarity index 100%
rename from tests/fixtures/config/project-template/common.yaml
rename to tests/fixtures/config/project-template/git/common-config/zuul.yaml
diff --git a/tests/fixtures/config/project-template/main.yaml b/tests/fixtures/config/project-template/main.yaml
index 25dea572e4..a22ed5c60c 100644
--- a/tests/fixtures/config/project-template/main.yaml
+++ b/tests/fixtures/config/project-template/main.yaml
@@ -1,4 +1,6 @@
 - tenant:
     name: tenant-one
-    include:
-      - common.yaml
+    source:
+      gerrit:
+        config-repos:
+          - common-config
diff --git a/tests/test_v3.py b/tests/test_v3.py
index 8425383c15..8874015bdf 100644
--- a/tests/test_v3.py
+++ b/tests/test_v3.py
@@ -38,6 +38,8 @@ class TestMultipleTenants(ZuulTestCase):
         self.waitUntilSettled()
         self.assertEqual(self.getJobFromHistory('project1-test1').result,
                          'SUCCESS')
+        self.assertEqual(self.getJobFromHistory('python27').result,
+                         'SUCCESS')
         self.assertEqual(A.data['status'], 'MERGED')
         self.assertEqual(A.reported, 2,
                          "A should report start and success")
@@ -50,6 +52,9 @@ class TestMultipleTenants(ZuulTestCase):
         B.addApproval('CRVW', 2)
         self.fake_gerrit.addEvent(B.addApproval('APRV', 1))
         self.waitUntilSettled()
+        self.assertEqual(self.getJobFromHistory('python27',
+                                                'org/project2').result,
+                         'SUCCESS')
         self.assertEqual(self.getJobFromHistory('project2-test1').result,
                          'SUCCESS')
         self.assertEqual(B.data['status'], 'MERGED')
diff --git a/zuul/configloader.py b/zuul/configloader.py
index 26db6ed0d4..1703b0f853 100644
--- a/zuul/configloader.py
+++ b/zuul/configloader.py
@@ -67,6 +67,8 @@ class JobParser(object):
                'swift': to_list(swift),
                'irrelevant-files': to_list(str),
                'timeout': int,
+               '_project_source': str,  # used internally
+               '_project_name': str,  # used internally
                }
 
         return vs.Schema(job)
@@ -91,11 +93,17 @@ class JobParser(object):
             # accumulate onto any previously applied tags from
             # metajobs.
             job.tags = job.tags.union(set(tags))
-
+        if not job.project_source:
+            # Thes attributes may not be overidden -- the first
+            # reference definition of a job is in the repo where it is
+            # first defined.
+            job.project_source = conf.get('_project_source')
+            job.project_name = conf.get('_project_name')
         job.failure_message = conf.get('failure-message', job.failure_message)
         job.success_message = conf.get('success-message', job.success_message)
         job.failure_url = conf.get('failure-url', job.failure_url)
         job.success_url = conf.get('success-url', job.success_url)
+
         if 'branches' in conf:
             matchers = []
             for branch in as_list(conf['branches']):
@@ -413,7 +421,8 @@ class PipelineParser(object):
 class TenantParser(object):
     log = logging.getLogger("zuul.TenantParser")
 
-    tenant_source = vs.Schema({'repos': [str]})
+    tenant_source = vs.Schema({'config-repos': [str],
+                               'project-repos': [str]})
 
     @staticmethod
     def validateTenantSources(connections):
@@ -433,7 +442,6 @@ class TenantParser(object):
     @staticmethod
     def getSchema(connections=None):
         tenant = {vs.Required('name'): str,
-                  'include': to_list(str),
                   'source': TenantParser.validateTenantSources(connections)}
         return vs.Schema(tenant)
 
@@ -442,14 +450,6 @@ class TenantParser(object):
         TenantParser.getSchema(connections)(conf)
         tenant = model.Tenant(conf['name'])
         tenant_config = model.UnparsedTenantConfig()
-        for fn in conf.get('include', []):
-            if not os.path.isabs(fn):
-                fn = os.path.join(base, fn)
-            fn = os.path.expanduser(fn)
-            with open(fn) as config_file:
-                TenantParser.log.info("Loading configuration from %s" % (fn,))
-                incdata = yaml.load(config_file)
-                tenant_config.extend(incdata)
         incdata = TenantParser._loadTenantInRepoLayouts(merger, connections,
                                                         conf)
         tenant_config.extend(incdata)
@@ -463,31 +463,77 @@ class TenantParser(object):
         jobs = []
         for source_name, conf_source in conf_tenant.get('source', {}).items():
             source = connections.getSource(source_name)
-            for conf_repo in conf_source.get('repos'):
+
+            # Get main config files.  These files are permitted the
+            # full range of configuration.
+            for conf_repo in conf_source.get('config-repos', []):
+                project = source.getProject(conf_repo)
+                url = source.getGitUrl(project)
+                job = merger.getFiles(project.name, url, 'master',
+                                      files=['zuul.yaml', '.zuul.yaml'])
+                job.project = project
+                job.config_repo = True
+                jobs.append(job)
+
+            # Get in-project-repo config files which have a restricted
+            # set of options.
+            for conf_repo in conf_source.get('project-repos', []):
                 project = source.getProject(conf_repo)
                 url = source.getGitUrl(project)
                 # TODOv3(jeblair): config should be branch specific
                 job = merger.getFiles(project.name, url, 'master',
                                       files=['.zuul.yaml'])
                 job.project = project
+                job.config_repo = False
                 jobs.append(job)
+
         for job in jobs:
+            # Note: this is an ordered list -- we wait for cat jobs to
+            # complete in the order they were launched which is the
+            # same order they were defined in the main config file.
+            # This is important for correct inheritence.
             TenantParser.log.debug("Waiting for cat job %s" % (job,))
             job.wait()
-            if job.files.get('.zuul.yaml'):
-                TenantParser.log.info(
-                    "Loading configuration from %s/.zuul.yaml" %
-                    (job.project,))
-                incdata = TenantParser._parseInRepoLayout(
-                    job.files['.zuul.yaml'])
-                config.extend(incdata)
+            for fn in ['zuul.yaml', '.zuul.yaml']:
+                if job.files.get(fn):
+                    TenantParser.log.info(
+                        "Loading configuration from %s/%s" %
+                        (job.project, fn))
+                    if job.config_repo:
+                        incdata = TenantParser._parseConfigRepoLayout(
+                            job.files[fn], source_name, job.project.name)
+                    else:
+                        incdata = TenantParser._parseProjectRepoLayout(
+                            job.files[fn], source_name, job.project.name)
+                    config.extend(incdata)
         return config
 
     @staticmethod
-    def _parseInRepoLayout(data):
+    def _parseConfigRepoLayout(data, source_name, project_name):
+        # This is the top-level configuration for a tenant.
+        config = model.UnparsedTenantConfig()
+        config.extend(yaml.load(data))
+
+        # Remember where this job was defined
+        for conf_job in config.jobs:
+            conf_job['_project_source'] = source_name
+            conf_job['_project_name'] = project_name
+
+        return config
+
+    @staticmethod
+    def _parseProjectRepoLayout(data, source_name, project_name):
         # TODOv3(jeblair): this should implement some rules to protect
         # aspects of the config that should not be changed in-repo
-        return yaml.load(data)
+        config = model.UnparsedTenantConfig()
+        config.extend(yaml.load(data))
+
+        # Remember where this job was defined
+        for conf_job in config.jobs:
+            conf_job['_project_source'] = source_name
+            conf_job['_project_name'] = project_name
+
+        return config
 
     @staticmethod
     def _parseLayout(base, data, scheduler, connections):
diff --git a/zuul/merger/merger.py b/zuul/merger/merger.py
index eaa5721f72..7c9f1f9886 100644
--- a/zuul/merger/merger.py
+++ b/zuul/merger/merger.py
@@ -77,12 +77,8 @@ class Repo(object):
         return self._initialized
 
     def createRepoObject(self):
-        try:
-            self._ensure_cloned()
-            repo = git.Repo(self.local_path)
-        except:
-            self.log.exception("Unable to initialize repo for %s" %
-                               self.local_path)
+        self._ensure_cloned()
+        repo = git.Repo(self.local_path)
         return repo
 
     def reset(self):
diff --git a/zuul/model.py b/zuul/model.py
index a88c365d41..93fbb3182d 100644
--- a/zuul/model.py
+++ b/zuul/model.py
@@ -455,6 +455,8 @@ class Job(object):
         pre_run=None,
         post_run=None,
         voting=None,
+        project_source=None,
+        project_name=None,
         failure_message=None,
         success_message=None,
         failure_url=None,