diff --git a/fs/ocfs2/localalloc.c b/fs/ocfs2/localalloc.c
index b05ce66..f71658a 100644
--- a/fs/ocfs2/localalloc.c
+++ b/fs/ocfs2/localalloc.c
@@ -73,16 +73,51 @@
 static int ocfs2_local_alloc_slide_window(struct ocfs2_super *osb,
 					  struct inode *local_alloc_inode);
 
+static inline int ocfs2_la_state_enabled(struct ocfs2_super *osb)
+{
+	return (osb->local_alloc_state == OCFS2_LA_THROTTLED ||
+		osb->local_alloc_state == OCFS2_LA_ENABLED);
+}
+
+void ocfs2_local_alloc_seen_free_bits(struct ocfs2_super *osb,
+				      unsigned int num_clusters)
+{
+	spin_lock(&osb->osb_lock);
+	if (osb->local_alloc_state == OCFS2_LA_DISABLED ||
+	    osb->local_alloc_state == OCFS2_LA_THROTTLED)
+		if (num_clusters >= osb->local_alloc_default_bits) {
+			cancel_delayed_work(&osb->la_enable_wq);
+			osb->local_alloc_state = OCFS2_LA_ENABLED;
+		}
+	spin_unlock(&osb->osb_lock);
+}
+
+void ocfs2_la_enable_worker(struct work_struct *work)
+{
+	struct ocfs2_super *osb =
+		container_of(work, struct ocfs2_super,
+			     la_enable_wq.work);
+	spin_lock(&osb->osb_lock);
+	osb->local_alloc_state = OCFS2_LA_ENABLED;
+	spin_unlock(&osb->osb_lock);
+}
+
 /*
  * Tell us whether a given allocation should use the local alloc
  * file. Otherwise, it has to go to the main bitmap.
+ *
+ * This function does semi-dirty reads of local alloc size and state!
+ * This is ok however, as the values are re-checked once under mutex.
  */
 int ocfs2_alloc_should_use_local(struct ocfs2_super *osb, u64 bits)
 {
-	int la_bits = osb->local_alloc_bits;
 	int ret = 0;
+	int la_bits;
 
-	if (osb->local_alloc_state != OCFS2_LA_ENABLED)
+	spin_lock(&osb->osb_lock);
+	la_bits = osb->local_alloc_bits;
+
+	if (!ocfs2_la_state_enabled(osb))
 		goto bail;
 
 	/* la_bits should be at least twice the size (in clusters) of
@@ -96,6 +131,7 @@
 bail:
 	mlog(0, "state=%d, bits=%llu, la_bits=%d, ret=%d\n",
 	     osb->local_alloc_state, (unsigned long long)bits, la_bits, ret);
+	spin_unlock(&osb->osb_lock);
 	return ret;
 }
 
@@ -208,6 +244,9 @@
 
 	mlog_entry_void();
 
+	cancel_delayed_work(&osb->la_enable_wq);
+	flush_workqueue(ocfs2_wq);
+
 	if (osb->local_alloc_state == OCFS2_LA_UNUSED)
 		goto out;
 
@@ -445,7 +484,7 @@
 }
 
 /*
- * make sure we've got at least bitswanted contiguous bits in the
+ * make sure we've got at least bits_wanted contiguous bits in the
  * local alloc. You lose them when you drop i_mutex.
  *
  * We will add ourselves to the transaction passed in, but may start
@@ -476,16 +515,18 @@
 
 	mutex_lock(&local_alloc_inode->i_mutex);
 
-	if (osb->local_alloc_state != OCFS2_LA_ENABLED) {
+	/*
+	 * We must double check state and allocator bits because
+	 * another process may have changed them while holding i_mutex.
+	 */
+	spin_lock(&osb->osb_lock);
+	if (!ocfs2_la_state_enabled(osb) ||
+	    (bits_wanted > osb->local_alloc_bits)) {
+		spin_unlock(&osb->osb_lock);
 		status = -ENOSPC;
 		goto bail;
 	}
-
-	if (bits_wanted > osb->local_alloc_bits) {
-		mlog(0, "Asking for more than my max window size!\n");
-		status = -ENOSPC;
-		goto bail;
-	}
+	spin_unlock(&osb->osb_lock);
 
 	alloc = (struct ocfs2_dinode *) osb->local_alloc_bh->b_data;
 
@@ -513,6 +554,21 @@
 				mlog_errno(status);
 			goto bail;
 		}
+
+		/*
+		 * Under certain conditions, the window slide code
+		 * might have reduced the number of bits available or
+		 * disabled the the local alloc entirely. Re-check
+		 * here and return -ENOSPC if necessary.
+		 */
+		status = -ENOSPC;
+		if (!ocfs2_la_state_enabled(osb))
+			goto bail;
+
+		free_bits = le32_to_cpu(alloc->id1.bitmap1.i_total) -
+			le32_to_cpu(alloc->id1.bitmap1.i_used);
+		if (bits_wanted > free_bits)
+			goto bail;
 	}
 
 	ac->ac_inode = local_alloc_inode;
@@ -780,6 +836,85 @@
 	return status;
 }
 
+enum ocfs2_la_event {
+	OCFS2_LA_EVENT_SLIDE,		/* Normal window slide. */
+	OCFS2_LA_EVENT_FRAGMENTED,	/* The global bitmap has
+					 * enough bits theoretically
+					 * free, but a contiguous
+					 * allocation could not be
+					 * found. */
+	OCFS2_LA_EVENT_ENOSPC,		/* Global bitmap doesn't have
+					 * enough bits free to satisfy
+					 * our request. */
+};
+#define OCFS2_LA_ENABLE_INTERVAL (30 * HZ)
+/*
+ * Given an event, calculate the size of our next local alloc window.
+ *
+ * This should always be called under i_mutex of the local alloc inode
+ * so that local alloc disabling doesn't race with processes trying to
+ * use the allocator.
+ *
+ * Returns the state which the local alloc was left in. This value can
+ * be ignored by some paths.
+ */
+static int ocfs2_recalc_la_window(struct ocfs2_super *osb,
+				  enum ocfs2_la_event event)
+{
+	unsigned int bits;
+	int state;
+
+	spin_lock(&osb->osb_lock);
+	if (osb->local_alloc_state == OCFS2_LA_DISABLED) {
+		WARN_ON_ONCE(osb->local_alloc_state == OCFS2_LA_DISABLED);
+		goto out_unlock;
+	}
+
+	/*
+	 * ENOSPC and fragmentation are treated similarly for now.
+	 */
+	if (event == OCFS2_LA_EVENT_ENOSPC ||
+	    event == OCFS2_LA_EVENT_FRAGMENTED) {
+		/*
+		 * We ran out of contiguous space in the primary
+		 * bitmap. Drastically reduce the number of bits used
+		 * by local alloc until we have to disable it.
+		 */
+		bits = osb->local_alloc_bits >> 1;
+		if (bits > ocfs2_megabytes_to_clusters(osb->sb, 1)) {
+			/*
+			 * By setting state to THROTTLED, we'll keep
+			 * the number of local alloc bits used down
+			 * until an event occurs which would give us
+			 * reason to assume the bitmap situation might
+			 * have changed.
+			 */
+			osb->local_alloc_state = OCFS2_LA_THROTTLED;
+			osb->local_alloc_bits = bits;
+		} else {
+			osb->local_alloc_state = OCFS2_LA_DISABLED;
+		}
+		queue_delayed_work(ocfs2_wq, &osb->la_enable_wq,
+				   OCFS2_LA_ENABLE_INTERVAL);
+		goto out_unlock;
+	}
+
+	/*
+	 * Don't increase the size of the local alloc window until we
+	 * know we might be able to fulfill the request. Otherwise, we
+	 * risk bouncing around the global bitmap during periods of
+	 * low space.
+	 */
+	if (osb->local_alloc_state != OCFS2_LA_THROTTLED)
+		osb->local_alloc_bits = osb->local_alloc_default_bits;
+
+out_unlock:
+	state = osb->local_alloc_state;
+	spin_unlock(&osb->osb_lock);
+
+	return state;
+}
+
 static int ocfs2_local_alloc_reserve_for_window(struct ocfs2_super *osb,
 						struct ocfs2_alloc_context **ac,
 						struct inode **bitmap_inode,
@@ -794,12 +929,21 @@
 		goto bail;
 	}
 
+retry_enospc:
 	(*ac)->ac_bits_wanted = osb->local_alloc_bits;
 
 	status = ocfs2_reserve_cluster_bitmap_bits(osb, *ac);
+	if (status == -ENOSPC) {
+		if (ocfs2_recalc_la_window(osb, OCFS2_LA_EVENT_ENOSPC) ==
+		    OCFS2_LA_DISABLED)
+			goto bail;
+
+		ocfs2_free_ac_resource(*ac);
+		memset(*ac, 0, sizeof(struct ocfs2_alloc_context));
+		goto retry_enospc;
+	}
 	if (status < 0) {
-		if (status != -ENOSPC)
-			mlog_errno(status);
+		mlog_errno(status);
 		goto bail;
 	}
 
@@ -852,6 +996,34 @@
 	 * the more specific cluster api to claim bits. */
 	status = ocfs2_claim_clusters(osb, handle, ac, osb->local_alloc_bits,
 				      &cluster_off, &cluster_count);
+	if (status == -ENOSPC) {
+retry_enospc:
+		/*
+		 * Note: We could also try syncing the journal here to
+		 * allow use of any free bits which the current
+		 * transaction can't give us access to. --Mark
+		 */
+		if (ocfs2_recalc_la_window(osb, OCFS2_LA_EVENT_FRAGMENTED) ==
+		    OCFS2_LA_DISABLED)
+			goto bail;
+
+		status = ocfs2_claim_clusters(osb, handle, ac,
+					      osb->local_alloc_bits,
+					      &cluster_off,
+					      &cluster_count);
+		if (status == -ENOSPC)
+			goto retry_enospc;
+		/*
+		 * We only shrunk the *minimum* number of in our
+		 * request - it's entirely possible that the allocator
+		 * might give us more than we asked for.
+		 */
+		if (status == 0) {
+			spin_lock(&osb->osb_lock);
+			osb->local_alloc_bits = cluster_count;
+			spin_unlock(&osb->osb_lock);
+		}
+	}
 	if (status < 0) {
 		if (status != -ENOSPC)
 			mlog_errno(status);
@@ -895,6 +1067,8 @@
 
 	mlog_entry_void();
 
+	ocfs2_recalc_la_window(osb, OCFS2_LA_EVENT_SLIDE);
+
 	/* This will lock the main bitmap for us. */
 	status = ocfs2_local_alloc_reserve_for_window(osb,
 						      &ac,
diff --git a/fs/ocfs2/localalloc.h b/fs/ocfs2/localalloc.h
index 3f76631..ac5ea9f8 100644
--- a/fs/ocfs2/localalloc.h
+++ b/fs/ocfs2/localalloc.h
@@ -52,4 +52,8 @@
 				 u32 *bit_off,
 				 u32 *num_bits);
 
+void ocfs2_local_alloc_seen_free_bits(struct ocfs2_super *osb,
+				      unsigned int num_clusters);
+void ocfs2_la_enable_worker(struct work_struct *work);
+
 #endif /* OCFS2_LOCALALLOC_H */
diff --git a/fs/ocfs2/ocfs2.h b/fs/ocfs2/ocfs2.h
index 43dd42e..4d6e200 100644
--- a/fs/ocfs2/ocfs2.h
+++ b/fs/ocfs2/ocfs2.h
@@ -171,9 +171,13 @@
 
 enum ocfs2_local_alloc_state
 {
-	OCFS2_LA_UNUSED = 0,
-	OCFS2_LA_ENABLED,
-	OCFS2_LA_DISABLED
+	OCFS2_LA_UNUSED = 0,	/* Local alloc will never be used for
+				 * this mountpoint. */
+	OCFS2_LA_ENABLED,	/* Local alloc is in use. */
+	OCFS2_LA_THROTTLED,	/* Local alloc is in use, but number
+				 * of bits has been reduced. */
+	OCFS2_LA_DISABLED	/* Local alloc has temporarily been
+				 * disabled. */
 };
 
 enum ocfs2_mount_options
@@ -252,9 +256,20 @@
 	struct ocfs2_journal *journal;
 	unsigned long osb_commit_interval;
 
+	struct delayed_work		la_enable_wq;
+
+	/*
+	 * Must hold local alloc i_mutex and osb->osb_lock to change
+	 * local_alloc_bits. Reads can be done under either lock.
+	 */
 	unsigned int local_alloc_bits;
-	enum ocfs2_local_alloc_state local_alloc_state;
+	unsigned int local_alloc_default_bits;
+
+	enum ocfs2_local_alloc_state local_alloc_state; /* protected
+							 * by osb_lock */
+
 	struct buffer_head *local_alloc_bh;
+
 	u64 la_last_gd;
 
 	/* Next two fields are for local node slot recovery during
diff --git a/fs/ocfs2/suballoc.c b/fs/ocfs2/suballoc.c
index d2d278f..de7b93d 100644
--- a/fs/ocfs2/suballoc.c
+++ b/fs/ocfs2/suballoc.c
@@ -111,7 +111,7 @@
 						u64 *bg_blkno,
 						u16 *bg_bit_off);
 
-static void ocfs2_free_ac_resource(struct ocfs2_alloc_context *ac)
+void ocfs2_free_ac_resource(struct ocfs2_alloc_context *ac)
 {
 	struct inode *inode = ac->ac_inode;
 
@@ -686,15 +686,6 @@
 		if ((status < 0) && (status != -ENOSPC)) {
 			mlog_errno(status);
 			goto bail;
-		} else if (status == -ENOSPC) {
-			/* reserve_local_bits will return enospc with
-			 * the local alloc inode still locked, so we
-			 * can change this safely here. */
-			mlog(0, "Disabling local alloc\n");
-			/* We set to OCFS2_LA_DISABLED so that umount
-			 * can clean up what's left of the local
-			 * allocation */
-			osb->local_alloc_state = OCFS2_LA_DISABLED;
 		}
 	}
 
@@ -1005,6 +996,7 @@
 	int search = -ENOSPC;
 	int ret;
 	struct ocfs2_group_desc *gd = (struct ocfs2_group_desc *) group_bh->b_data;
+	struct ocfs2_super *osb = OCFS2_SB(inode->i_sb);
 	u16 tmp_off, tmp_found;
 	unsigned int max_bits, gd_cluster_off;
 
@@ -1045,6 +1037,12 @@
 			*bit_off = tmp_off;
 			*bits_found = tmp_found;
 			search = 0; /* success */
+		} else if (tmp_found) {
+			/*
+			 * Don't show bits which we'll be returning
+			 * for allocation to the local alloc bitmap.
+			 */
+			ocfs2_local_alloc_seen_free_bits(osb, tmp_found);
 		}
 	}
 
@@ -1203,9 +1201,8 @@
 	status = -ENOSPC;
 	/* for now, the chain search is a bit simplistic. We just use
 	 * the 1st group with any empty bits. */
-	while ((status = ac->ac_group_search(alloc_inode, group_bh,
-					     bits_wanted, min_bits, bit_off,
-					     &tmp_bits)) == -ENOSPC) {
+	while ((status = ac->ac_group_search(alloc_inode, group_bh, bits_wanted,
+					     min_bits, bit_off, &tmp_bits)) == -ENOSPC) {
 		if (!bg->bg_next_group)
 			break;
 
@@ -1838,9 +1835,15 @@
 	status = ocfs2_free_suballoc_bits(handle, bitmap_inode, bitmap_bh,
 					  bg_start_bit, bg_blkno,
 					  num_clusters);
-	if (status < 0)
+	if (status < 0) {
 		mlog_errno(status);
+		goto out;
+	}
 
+	ocfs2_local_alloc_seen_free_bits(OCFS2_SB(bitmap_inode->i_sb),
+					 num_clusters);
+
+out:
 	mlog_exit(status);
 	return status;
 }
diff --git a/fs/ocfs2/suballoc.h b/fs/ocfs2/suballoc.h
index 544c600..40d51da 100644
--- a/fs/ocfs2/suballoc.h
+++ b/fs/ocfs2/suballoc.h
@@ -147,6 +147,7 @@
  * apis above. */
 int ocfs2_reserve_cluster_bitmap_bits(struct ocfs2_super *osb,
 				      struct ocfs2_alloc_context *ac);
+void ocfs2_free_ac_resource(struct ocfs2_alloc_context *ac);
 
 /* given a cluster offset, calculate which block group it belongs to
  * and return that block offset. */
diff --git a/fs/ocfs2/super.c b/fs/ocfs2/super.c
index 3dee61e..a2d3dcf 100644
--- a/fs/ocfs2/super.c
+++ b/fs/ocfs2/super.c
@@ -637,7 +637,8 @@
 	osb->s_atime_quantum = parsed_options.atime_quantum;
 	osb->preferred_slot = parsed_options.slot;
 	osb->osb_commit_interval = parsed_options.commit_interval;
-	osb->local_alloc_bits = ocfs2_megabytes_to_clusters(sb, parsed_options.localalloc_opt);
+	osb->local_alloc_default_bits = ocfs2_megabytes_to_clusters(sb, parsed_options.localalloc_opt);
+	osb->local_alloc_bits = osb->local_alloc_default_bits;
 
 	status = ocfs2_verify_userspace_stack(osb, &parsed_options);
 	if (status)
@@ -1425,6 +1426,7 @@
 
 	osb->local_alloc_state = OCFS2_LA_UNUSED;
 	osb->local_alloc_bh = NULL;
+	INIT_DELAYED_WORK(&osb->la_enable_wq, ocfs2_la_enable_worker);
 
 	init_waitqueue_head(&osb->osb_mount_event);