diff --git a/nvm.sh b/nvm.sh
index 7d2bb1e..4ed0926 100644
--- a/nvm.sh
+++ b/nvm.sh
@@ -34,11 +34,30 @@ if [ -z "$NVM_NODEJS_ORG_MIRROR" ]; then
   export NVM_NODEJS_ORG_MIRROR="http://nodejs.org/dist"
 fi
 
+# Traverse up in directory tree to find containing folder
+nvm_find_up() {
+  local path
+  path=$PWD
+  while [ "$path" != "" ] && [ ! -f "$path/$1" ]; do
+    path=${path%/*}
+  done
+  echo "$path"
+}
+
+
+nvm_find_nvmrc() {
+  local dir="$(nvm_find_up '.nvmrc')"
+  if [ -e "$dir/.nvmrc" ]; then
+    echo "$dir/.nvmrc"
+  fi
+}
+
 # Obtain nvm version from rc file
 nvm_rc_version() {
-  if [ -e .nvmrc ]; then
-    NVM_RC_VERSION=`cat .nvmrc | head -n 1`
-    echo "Found .nvmrc files with version <$NVM_RC_VERSION>"
+  local NVMRC_PATH="$(nvm_find_nvmrc)"
+  if [ -e "$NVMRC_PATH" ]; then
+    NVM_RC_VERSION=`cat "$NVMRC_PATH" | head -n 1`
+    echo "Found '$NVMRC_PATH' with version <$NVM_RC_VERSION>"
   fi
 }
 
diff --git "a/test/slow/nvm run/Running \"nvm run\" should pick up .nvmrc version" "b/test/slow/nvm run/Running \"nvm run\" should pick up .nvmrc version"
index 181e3fc..d462488 100755
--- "a/test/slow/nvm run/Running \"nvm run\" should pick up .nvmrc version"	
+++ "b/test/slow/nvm run/Running \"nvm run\" should pick up .nvmrc version"	
@@ -6,7 +6,8 @@ die () { echo $@ ; exit 1; }
 . ../../../nvm.sh
 
 echo "0.10.7" > .nvmrc
-[ "$(nvm run --version | tail -1)" = "v0.10.7" ] || die "`nvm run` failed to run with the .nvmrc version"
 
-[ "$(nvm run --version | head -1)" = "Found .nvmrc files with version <0.10.7>" ] || die "`nvm run` failed to print out the \"found in .nvmrc\" message"
+[ "$(nvm run --version | tail -1)" = "v0.10.7" ] || die "\`nvm run\` failed to run with the .nvmrc version"
+
+[ "$(nvm run --version | head -1)" = "Found '$PWD/.nvmrc' with version <0.10.7>" ] || die "\`nvm run\` failed to print out the \"found in .nvmrc\" message"