diff --git a/Annex/Version.hs b/Annex/Version.hs
index 6149e6fb73..31c6501bef 100644
--- a/Annex/Version.hs
+++ b/Annex/Version.hs
@@ -1,6 +1,6 @@
 {- git-annex repository versioning
  -
- - Copyright 2010 Joey Hess <joey@kitenet.net>
+ - Copyright 2010,2013 Joey Hess <joey@kitenet.net>
  -
  - Licensed under the GNU GPL version 3 or higher.
  -}
@@ -16,8 +16,11 @@ type Version = String
 defaultVersion :: Version
 defaultVersion = "3"
 
+directModeVersion :: Version
+directModeVersion = "4"
+
 supportedVersions :: [Version]
-supportedVersions = [defaultVersion]
+supportedVersions = [defaultVersion, directModeVersion]
 
 upgradableVersions :: [Version]
 upgradableVersions = ["0", "1", "2"]
@@ -28,8 +31,8 @@ versionField = annexConfig "version"
 getVersion :: Annex (Maybe Version)
 getVersion = annexVersion <$> Annex.getGitConfig
 
-setVersion :: Annex ()
-setVersion = setConfig versionField defaultVersion
+setVersion :: Version -> Annex ()
+setVersion = setConfig versionField
 
 removeVersion :: Annex ()
 removeVersion = unsetConfig versionField
diff --git a/Command/Direct.hs b/Command/Direct.hs
index 0c007bb105..d847a32701 100644
--- a/Command/Direct.hs
+++ b/Command/Direct.hs
@@ -14,6 +14,7 @@ import qualified Git.Command
 import qualified Git.LsFiles
 import Config
 import Annex.Direct
+import Annex.Version
 
 def :: [Command]
 def = [notBareRepo $ 
@@ -53,4 +54,5 @@ cleanup :: CommandCleanup
 cleanup = do
 	showStart "direct" ""
 	setDirect True
+	setVersion directModeVersion
 	return True
diff --git a/Command/Indirect.hs b/Command/Indirect.hs
index ac97be753f..8bf228a801 100644
--- a/Command/Indirect.hs
+++ b/Command/Indirect.hs
@@ -17,6 +17,7 @@ import qualified Annex
 import Annex.Direct
 import Annex.Content
 import Annex.CatFile
+import Annex.Version
 import Init
 
 def :: [Command]
@@ -88,6 +89,7 @@ perform = do
 
 cleanup :: CommandCleanup
 cleanup = do
+	setVersion defaultVersion
 	showStart "indirect" ""
 	showEndOk
 	return True
diff --git a/Command/Upgrade.hs b/Command/Upgrade.hs
index b39fcd99c2..d1c1eb3b07 100644
--- a/Command/Upgrade.hs
+++ b/Command/Upgrade.hs
@@ -23,5 +23,5 @@ start :: CommandStart
 start = do
 	showStart "upgrade" "."
 	r <- upgrade
-	setVersion
+	setVersion defaultVersion
 	next $ next $ return r
diff --git a/Init.hs b/Init.hs
index 2c1bf4ef90..358a54e818 100644
--- a/Init.hs
+++ b/Init.hs
@@ -42,9 +42,9 @@ genDescription Nothing = do
 initialize :: Maybe String -> Annex ()
 initialize mdescription = do
 	prepUUID
+	setVersion defaultVersion
 	checkCrippledFileSystem
 	Annex.Branch.create
-	setVersion
 	gitPreCommitHookWrite
 	createInodeSentinalFile
 	u <- getUUID
@@ -143,3 +143,4 @@ checkCrippledFileSystem = whenM (probeCrippledFileSystem) $ do
 			maybe noop (`toDirect` f) =<< isAnnexLink f
 		void $ liftIO clean
 		setDirect True
+	setVersion directModeVersion
diff --git a/Upgrade/V1.hs b/Upgrade/V1.hs
index 966b51a44b..72e105d167 100644
--- a/Upgrade/V1.hs
+++ b/Upgrade/V1.hs
@@ -53,14 +53,14 @@ upgrade = do
 	ifM (fromRepo Git.repoIsLocalBare)
 		( do
 			moveContent
-			setVersion
+			setVersion defaultVersion
 		, do
 			moveContent
 			updateSymlinks
 			moveLocationLogs
 	
 			Annex.Queue.flush
-			setVersion
+			setVersion defaultVersion
 		)
 	
 	Upgrade.V2.upgrade
diff --git a/debian/changelog b/debian/changelog
index 4d63ef9b80..091d16d1df 100644
--- a/debian/changelog
+++ b/debian/changelog
@@ -1,5 +1,6 @@
-git-annex (3.20130217) UNRELEASED; urgency=low
+git-annex (4.20130217) UNRELEASED; urgency=low
 
+  * annex.version is now set to 4 for direct mode repositories.
   * Should now fully support git repositories with core.symlinks=false;
     always using git's pseudosymlink files in such repositories.
   * webapp: Allow creating repositories on filesystems that lack support for
diff --git a/doc/upgrades.mdwn b/doc/upgrades.mdwn
index c4aac53482..6cf54477cc 100644
--- a/doc/upgrades.mdwn
+++ b/doc/upgrades.mdwn
@@ -18,6 +18,11 @@ conflicts first before upgrading git-annex.
 
 ## Upgrade events, so far
 
+### v3 -> v4 (git-annex version 4.x)
+
+v4 is only used for [[direct_mode]], and no upgrade needs to be done from
+existing v3 repositories, they will continue to work.
+
 ### v2 -> v3 (git-annex version 3.x)
 
 Involved moving the .git-annex/ directory into a separate git-annex branch.