diff --git a/README.textile b/README.textile
index 2352dd88..5c5f7530 100644
--- a/README.textile
+++ b/README.textile
@@ -31,9 +31,10 @@ various data about my site. A reverse chronological list of all my blog posts
 can be found in <code>site.posts</code>. Each post, in turn, contains various
 fields such as <code>title</code> and <code>date</code>.
 
-Jekyll gets the list of blog posts by parsing the files in the
-"_posts":http://github.com/mojombo/tpw/tree/master/_posts directory. Each
-post's filename contains the publishing date and slug (what shows up in the
+Jekyll gets the list of blog posts by parsing the files in any
+"_posts":http://github.com/mojombo/tpw/tree/master/_posts directory found in
+subdirectories below the root. 
+Each post's filename contains the publishing date and slug (what shows up in the
 URL) that the final HTML file should have. Open up the file corresponding to a
 blog post:
 "2008-11-17-blogging-like-a-hacker.textile":http://github.com/mojombo/tpw/tree/master/_posts/2008-11-17-blogging-like-a-hacker.textile.
@@ -52,6 +53,13 @@ filename is used to construct the URL in the generated site. The example post,
 for instance, ends up at
 <code>http://tom.preston-werner.com/2008/11/17/blogging-like-a-hacker.html</code>.
 
+Categories for posts are derived from the directory structure the posts were 
+found within.
+A post that appears in the directory foo/bar/_posts is placed in the categories
+'foo' and 'bar'.
+By selecting posts from particular categories in your Liquid templates, you will
+be able to host multiple blogs within a site.
+
 Files that do not reside in directories prefixed with an underscore are
 mirrored into a corresponding directory structure in the generated site. If a
 file does not have a YAML preface, it is not run through the Liquid
@@ -165,6 +173,9 @@ h3. Site
     high quality but slow to compute results, run the jekyll command with the 
     --lsi (latent semantic indexing) option.
 
+  site.categories.CATEGORY
+    The list of all posts in category CATEGORY.
+
 h3. Post
 
   post.title
@@ -184,6 +195,9 @@ h3. Post
   post.content
     The content of the Post.
 
+  post.categories
+    The list of categories to which this post belongs.
+
 h2. YAML Front Matter
 
 Any files that contain a YAML front matter block will be processed by Jekyll
@@ -296,6 +310,22 @@ highlighting stylesheet. For an example stylesheet you can look at
 are the same styles as used by GitHub and you are free to use them for your
 own site.
 
+h2. Categories
+
+Posts are placed into categories based on the directory structure they are found
+within (see above for an example). The categories can be accessed from within
+a Liquid template as follows:
+
+<pre>
+{% for post in site.categories.foo %}
+	<li><span>{{ post.date | date_to_string }}</span> - {{ post.title }}</li>
+{% endfor %}
+</pre>
+
+This would list all the posts in the category 'foo' by date and title.
+
+The posts within each category are sorted in reverse chronological order.
+
 h2. Contribute
 
 If you'd like to hack on Jekyll, grab the source from GitHub. To get
diff --git a/lib/jekyll.rb b/lib/jekyll.rb
index 7233a18c..9e6b610e 100644
--- a/lib/jekyll.rb
+++ b/lib/jekyll.rb
@@ -6,6 +6,7 @@ require 'rubygems'
 # core
 require 'fileutils'
 require 'time'
+require 'yaml'
 
 # stdlib
 
diff --git a/lib/jekyll/convertible.rb b/lib/jekyll/convertible.rb
index 2ab4c7ec..7d1be0ab 100644
--- a/lib/jekyll/convertible.rb
+++ b/lib/jekyll/convertible.rb
@@ -13,7 +13,7 @@ module Jekyll
     def read_yaml(base, name)
       self.content = File.read(File.join(base, name))
       
-      if self.content =~ /^(---.*\n.*?)\n---.*\n/m
+      if self.content =~ /^(---\s*\n.*?)\n---\s*\n/m
         self.content = self.content[($1.size + 5)..-1]
         
         self.data = YAML.load($1)
@@ -52,7 +52,7 @@ module Jekyll
       # recursively render layouts
       layout = layouts[self.data["layout"]]
       while layout
-        payload = payload.merge({"content" => self.output, "page" => self.data})
+        payload = payload.merge({"content" => self.output, "page" => payload['page']})
         self.output = Liquid::Template.parse(layout.content).render(payload, [Jekyll::Filters])
         
         layout = layouts[layout.data["layout"]]
diff --git a/lib/jekyll/filters.rb b/lib/jekyll/filters.rb
index 58191ec7..6051626a 100644
--- a/lib/jekyll/filters.rb
+++ b/lib/jekyll/filters.rb
@@ -4,6 +4,10 @@ module Jekyll
     def date_to_string(date)
       date.strftime("%d %b %Y")
     end
+
+    def date_to_long_string(date)
+      date.strftime("%d %B %Y")
+    end
     
     def date_to_xmlschema(date)
       date.xmlschema
@@ -15,7 +19,6 @@ module Jekyll
     
     def number_of_words(input)
       input.split.length
-    end
-  end
-  
+    end    
+  end  
 end
\ No newline at end of file
diff --git a/lib/jekyll/post.rb b/lib/jekyll/post.rb
index caca9354..fabbaf85 100644
--- a/lib/jekyll/post.rb
+++ b/lib/jekyll/post.rb
@@ -3,7 +3,7 @@ module Jekyll
   class Post
     include Comparable
     include Convertible
-    
+        
     class << self
       attr_accessor :lsi
     end
@@ -18,17 +18,19 @@ module Jekyll
       name =~ MATCHER
     end
     
-    attr_accessor :date, :slug, :ext
+    attr_accessor :date, :slug, :ext, :categories
     attr_accessor :data, :content, :output
     
     # Initialize this Post instance.
     #   +base+ is the String path to the dir containing the post file
     #   +name+ is the String filename of the post file
+    #   +categories+ is an Array of Strings for the categories for this post
     #
     # Returns <Post>
     def initialize(base, name)
       @base = base
       @name = name
+      @categories = base.split('/').reject { |p| ['.', '_posts'].include? p }
       
       self.process(name)
       self.read_yaml(base, name)
@@ -61,9 +63,10 @@ module Jekyll
     #
     # Returns <String>
     def dir
+      path = @categories ? '/' + @categories.join('/') : ''
       permalink ?
         permalink.to_s.split("/")[0..-2].join("/") :
-        date.strftime("/%Y/%m/%d/")
+        "#{path}" + date.strftime("/%Y/%m/%d/")
     end
     
     # The full path and filename of the post.
@@ -90,7 +93,7 @@ module Jekyll
     def id
       self.dir + self.slug
     end
-    
+        
     # Calculate related posts.
     #
     # Returns [<Post>]
diff --git a/lib/jekyll/site.rb b/lib/jekyll/site.rb
index 219d5d4a..b808bc59 100644
--- a/lib/jekyll/site.rb
+++ b/lib/jekyll/site.rb
@@ -24,9 +24,8 @@ module Jekyll
     # Returns nothing
     def process
       self.read_layouts
-      self.read_posts
-      self.write_posts
       self.transform_pages
+      self.write_posts
     end
     
     # Read all the files in <source>/_layouts into memory for
@@ -46,12 +45,11 @@ module Jekyll
       # ignore missing layout dir
     end
     
-    # Read all the files in <source>/posts and create a new Post
+    # Read all the files in <base>/_posts and create a new Post
     # object with each one.
     #
     # Returns nothing
-    def read_posts
-      base = File.join(self.source, "_posts")
+    def read_posts(base)
       entries = Dir.entries(base)
       entries = entries.reject { |e| File.directory?(e) }
 
@@ -76,7 +74,7 @@ module Jekyll
     
     # Copy all regular files from <source> to <dest>/ ignoring
     # any files/directories that are hidden (start with ".") or contain
-    # site content (start with "_")
+    # site content (start with "_") unless they are "_posts" directories
     #   The +dir+ String is a relative path used to call this method
     #            recursively as it descends through directories
     #
@@ -84,10 +82,14 @@ module Jekyll
     def transform_pages(dir = '')
       base = File.join(self.source, dir)
       entries = Dir.entries(base)
-      entries = entries.reject { |e| ['.', '_'].include?(e[0..0]) }
+      entries = entries.reject { |e| 
+        (e != '_posts') and ['.', '_'].include?(e[0..0]) 
+      }
 
       entries.each do |f|
-        if File.directory?(File.join(base, f))
+        if f == '_posts'
+          read_posts(File.join(base, f))
+        elsif File.directory?(File.join(base, f))
           next if self.dest.sub(/\/$/, '') == File.join(base, f)
           transform_pages(File.join(dir, f))
         else
@@ -111,7 +113,17 @@ module Jekyll
     #
     # Returns {"site" => {"time" => <Time>, "posts" => [<Post>]}}
     def site_payload
-      {"site" => {"time" => Time.now, "posts" => self.posts.sort.reverse}}
+      # Build the category hash map of category ( names => arrays of posts )
+      # then sort each array in reverse order
+      categories = Hash.new { |hash,key| hash[key] = Array.new } 
+      self.posts.each { |p| p.categories.each { |c| categories[c] << p } }
+      categories.values.map { |cats| cats.sort! { |a,b| b <=> a} } 
+      
+      {"site" => {
+        "time" => Time.now, 
+        "posts" => self.posts.sort { |a,b| b <=> a },
+        "categories" => categories
+      }}
     end
   end
 
diff --git a/test/test_post.rb b/test/test_post.rb
index ef10d990..cbf374ed 100644
--- a/test/test_post.rb
+++ b/test/test_post.rb
@@ -81,7 +81,7 @@ class TestPost < Test::Unit::TestCase
     layouts = {"default" => Layout.new(File.join(File.dirname(__FILE__), *%w[source _layouts]), "simple.html")}
     p.add_layout(layouts, {"site" => {"posts" => []}})
     
-    assert_equal "<<< <p>url: /2008/11/21/complex.html<br />\ndate: #{Time.parse("2008-11-21")}<br />\nid: /2008/11/21/complex</p> >>>", p.output
+    assert_equal "<<< <p>url: /test/source/2008/11/21/complex.html<br />\ndate: #{Time.parse("2008-11-21")}<br />\nid: /test/source/2008/11/21/complex</p> >>>", p.output
   end
   
   def test_include
diff --git a/test/test_site.rb b/test/test_site.rb
index 08317de5..7105671f 100644
--- a/test/test_site.rb
+++ b/test/test_site.rb
@@ -15,9 +15,9 @@ class TestSite < Test::Unit::TestCase
     
     assert_equal ["default", "simple"].sort, @s.layouts.keys.sort
   end
-  
+ 
   def test_read_posts
-    @s.read_posts
+    @s.read_posts(File.join(@s.source, '_posts'))
     
     assert_equal 3, @s.posts.size
   end