--- a/hgext/overlay/__init__.py
+++ b/hgext/overlay/__init__.py
@@ -230,31 +230,42 @@ def _dooverlay(sourcerepo, sourceurl, so
     # We don't (yet) support overlaying merge commits.
     for rev in sourcerevs:
         ctx = sourcerepo[rev]
         if len(ctx.parents()) > 1:
             raise error.Abort(_('do not support overlaying merges: %s') %
                               short(ctx.node()))
 
     # If we previously performed an overlay, verify that changeset
-    # continuity is uninterrupted. We ensure the parent of the first source
-    # changeset matches the last imported changeset and that the state of
-    # files in the last imported changeset matches exactly the state of files
-    # in the destination changeset. If these conditions don't hold, the repos
-    # got out of sync. If we continued, the first overlayed changeset would
-    # have a diff that didn't match the source repository. In other words,
-    # the history wouldn't be accurate. So prevent that from happening.
+    # continuity is uninterrupted.
+    #
+    # For the default mode of contiguous importing, we verify the last overlayed
+    # changeset is the first parent of the first changeset to be overlayed. We
+    # also verify that files in the destination match the last overlayed
+    # changeset.
+    #
+    # For non-contiguous operation, we skip the parent check because it doesn't
+    # make sense. For file comparisons, we check against the parent of the first
+    # incoming changeset rather than the last overlayed changeset.
+    #
+    # The file content check ensures that repos don't get out of sync. They
+    # ensure that diffs from the source repository match diffs in the
+    # destination repository.
     if lastsourcectx:
-        if (not noncontiguous and
-                sourcerepo[sourcerevs[0]].p1() != lastsourcectx):
-            raise error.Abort(_('parent of initial source changeset does not '
-                                'match last overlayed changeset (%s)') %
-                              short(lastsourcectx.node()))
+        if not noncontiguous:
+            if sourcerepo[sourcerevs[0]].p1() != lastsourcectx:
+                raise error.Abort(_('parent of initial source changeset does '
+                                    'not match last overlayed changeset (%s)') %
+                                  short(lastsourcectx.node()))
 
-        _verifymanifestsequal(sourcerepo, lastsourcectx, destrepo, destctx,
+            comparectx = lastsourcectx
+        else:
+            comparectx = sourcerepo[sourcerevs[0]].p1()
+
+        _verifymanifestsequal(sourcerepo, comparectx, destrepo, destctx,
                               prefix)
 
     # All the validation is done. Proceed with the data conversion.
     with destrepo.lock():
         with destrepo.transaction('overlay'):
             for i, rev in enumerate(sourcerevs):
                 ui.progress(_('revisions'), i + 1, total=len(sourcerevs))
                 sourcectx = sourcerepo[rev]

--- a/hgext/overlay/tests/test-overlay-filtered-dag.t
+++ b/hgext/overlay/tests/test-overlay-filtered-dag.t
@@ -48,8 +48,38 @@ A non-contiguous dag range will fail to 
 
 Passing --noncontiguous should allow a non-contiguous dag range where some of
 the commits have been filtered.
   $ hg overlay http://localhost:$HGPORT1 'not keyword("FILTERED")' --into prefix --noncontiguous
   af1e0a150cd4 -> 8e52bf8e668a: initial
   eb87a779cc67 -> 452dcbcc9fb9: head 1 commit 1
   38627e51950d -> ccc09fef5c59: head 1 commit 2
   eebf284459b0 -> ed781cf9ab85: head 1 commit 4
+
+Incremental conversion with --noncontiguous works
+
+  $ cd ../repo0
+  $ echo 5 > foo
+  $ hg commit -m 'head 1 commit 5 FILTERED'
+  $ echo 6 > foo
+  $ hg commit -m 'head 1 commit 6'
+
+  $ cd ../dest
+
+  $ hg -q up tip
+
+  $ echo 5 > prefix/foo
+  $ hg commit -m 'out of band change simulating commit 5'
+
+  $ hg overlay http://localhost:$HGPORT1 'not desc("FILTERED")' --into prefix
+  pulling http://localhost:$HGPORT1 into $TESTTMP/dest/.hg/localhost~3a20123
+  searching for changes
+  adding changesets
+  adding manifests
+  adding file changes
+  added 2 changesets with 2 changes to 1 files
+  abort: source revisions must be part of contiguous DAG range
+  [255]
+
+  $ hg overlay http://localhost:$HGPORT1 'not desc("FILTERED")' --into prefix --noncontiguous
+  eebf284459b0 already processed as ed781cf9ab85; skipping 4/5 revisions
+  8c4d7f24662e -> ee4ce23b43ca: head 1 commit 6
+