diff --git a/src/cargo/ops/cargo_package.rs b/src/cargo/ops/cargo_package.rs
index f24332db887..16667fcdf0b 100644
--- a/src/cargo/ops/cargo_package.rs
+++ b/src/cargo/ops/cargo_package.rs
@@ -267,6 +267,24 @@ fn check_repo_state(
         allow_dirty: bool,
     ) -> CargoResult<Option<String>> {
         let workdir = repo.workdir().unwrap();
+
+        let mut sub_repos = Vec::new();
+        open_submodules(repo, &mut sub_repos)?;
+        // Sort so that longest paths are first, to check nested submodules first.
+        sub_repos.sort_unstable_by(|a, b| b.0.as_os_str().len().cmp(&a.0.as_os_str().len()));
+        let submodule_dirty = |path: &Path| -> bool {
+            sub_repos
+                .iter()
+                .filter(|(sub_path, _sub_repo)| path.starts_with(sub_path))
+                .any(|(sub_path, sub_repo)| {
+                    let relative = path.strip_prefix(sub_path).unwrap();
+                    sub_repo
+                        .status_file(relative)
+                        .map(|status| status != git2::Status::CURRENT)
+                        .unwrap_or(false)
+                })
+        };
+
         let dirty = src_files
             .iter()
             .filter(|file| {
@@ -274,7 +292,7 @@ fn check_repo_state(
                 if let Ok(status) = repo.status_file(relative) {
                     status != git2::Status::CURRENT
                 } else {
-                    false
+                    submodule_dirty(file)
                 }
             })
             .map(|path| {
@@ -300,6 +318,22 @@ fn check_repo_state(
             Ok(None)
         }
     }
+
+    /// Helper to recursively open all submodules.
+    fn open_submodules(
+        repo: &git2::Repository,
+        sub_repos: &mut Vec<(PathBuf, git2::Repository)>,
+    ) -> CargoResult<()> {
+        for submodule in repo.submodules()? {
+            // Ignore submodules that don't open, they are probably not initialized.
+            // If its files are required, then the verification step should fail.
+            if let Ok(sub_repo) = submodule.open() {
+                open_submodules(&sub_repo, sub_repos)?;
+                sub_repos.push((sub_repo.workdir().unwrap().to_owned(), sub_repo));
+            }
+        }
+        Ok(())
+    }
 }
 
 // Checks for and `bail!` if a source file matches `ROOT/VCS_INFO_FILE`, since
diff --git a/tests/testsuite/git.rs b/tests/testsuite/git.rs
index db2f4687a4b..1bd2a9d23ad 100644
--- a/tests/testsuite/git.rs
+++ b/tests/testsuite/git.rs
@@ -2691,3 +2691,120 @@ fn git_fetch_cli_env_clean() {
         .env("GIT_DIR", git_proj.root().join(".git"))
         .run();
 }
+
+#[cargo_test]
+fn dirty_submodule() {
+    // `cargo package` warns for dirty file in submodule.
+    let git_project = git::new("foo", |project| {
+        project
+            .file("Cargo.toml", &basic_manifest("foo", "0.5.0"))
+            // This is necessary because `git::add` is too eager.
+            .file(".gitignore", "/target")
+    })
+    .unwrap();
+    let git_project2 = git::new("src", |project| {
+        project.no_manifest().file("lib.rs", "pub fn f() {}")
+    })
+    .unwrap();
+
+    let repo = git2::Repository::open(&git_project.root()).unwrap();
+    let url = path2url(git_project2.root()).to_string();
+    git::add_submodule(&repo, &url, Path::new("src"));
+
+    // Submodule added, but not committed.
+    git_project
+        .cargo("package --no-verify")
+        .with_status(101)
+        .with_stderr(
+            "\
+[WARNING] manifest has no [..]
+See [..]
+[ERROR] 1 files in the working directory contain changes that were not yet committed into git:
+
+.gitmodules
+
+to proceed despite [..]
+",
+        )
+        .run();
+
+    git::commit(&repo);
+    git_project.cargo("package --no-verify").run();
+
+    // Modify file, check for warning.
+    git_project.change_file("src/lib.rs", "");
+    git_project
+        .cargo("package --no-verify")
+        .with_status(101)
+        .with_stderr(
+            "\
+[WARNING] manifest has no [..]
+See [..]
+[ERROR] 1 files in the working directory contain changes that were not yet committed into git:
+
+src/lib.rs
+
+to proceed despite [..]
+",
+        )
+        .run();
+    // Commit the change.
+    let sub_repo = git2::Repository::open(git_project.root().join("src")).unwrap();
+    git::add(&sub_repo);
+    git::commit(&sub_repo);
+    git::add(&repo);
+    git::commit(&repo);
+    git_project.cargo("package --no-verify").run();
+
+    // Try with a nested submodule.
+    let git_project3 = git::new("bar", |project| project.no_manifest().file("mod.rs", "")).unwrap();
+    let url = path2url(git_project3.root()).to_string();
+    git::add_submodule(&sub_repo, &url, Path::new("bar"));
+    git_project
+        .cargo("package --no-verify")
+        .with_status(101)
+        .with_stderr(
+            "\
+[WARNING] manifest has no [..]
+See [..]
+[ERROR] 1 files in the working directory contain changes that were not yet committed into git:
+
+src/.gitmodules
+
+to proceed despite [..]
+",
+        )
+        .run();
+
+    // Commit the submodule addition.
+    git::commit(&sub_repo);
+    git::add(&repo);
+    git::commit(&repo);
+    git_project.cargo("package --no-verify").run();
+    // Modify within nested submodule.
+    git_project.change_file("src/bar/mod.rs", "//test");
+    git_project
+        .cargo("package --no-verify")
+        .with_status(101)
+        .with_stderr(
+            "\
+[WARNING] manifest has no [..]
+See [..]
+[ERROR] 1 files in the working directory contain changes that were not yet committed into git:
+
+src/bar/mod.rs
+
+to proceed despite [..]
+",
+        )
+        .run();
+    // And commit the change.
+    let sub_sub_repo = git2::Repository::open(git_project.root().join("src/bar")).unwrap();
+    git::add(&sub_sub_repo);
+    git::commit(&sub_sub_repo);
+    git::add(&sub_repo);
+    git::commit(&sub_repo);
+    git::add(&repo);
+    git::commit(&repo);
+    git_project.cargo("package --no-verify").run();
+}