diff --git a/src/cargo/util/vcs.rs b/src/cargo/util/vcs.rs
index 095164e23df..22c14a59082 100644
--- a/src/cargo/util/vcs.rs
+++ b/src/cargo/util/vcs.rs
@@ -10,7 +10,17 @@ use std::path::Path;
 // 2. We are in an HG repo.
 pub fn existing_vcs_repo(path: &Path, cwd: &Path) -> bool {
     fn in_git_repo(path: &Path, cwd: &Path) -> bool {
-        if let Ok(repo) = GitRepo::discover(path, cwd) {
+        // Try to find the first existing parent of the path.
+        // Otherwise, we can't find the git repo when the path has non-existing parent directories.
+        let mut first_exist_base_path = Some(path);
+        while let Some(p) = first_exist_base_path {
+            if p.exists() {
+                break;
+            }
+            first_exist_base_path = p.parent();
+        }
+
+        if let Ok(repo) = GitRepo::discover(first_exist_base_path.unwrap_or(path), cwd) {
             // Don't check if the working directory itself is ignored.
             if repo.workdir().map_or(false, |workdir| workdir == path) {
                 true
diff --git a/tests/testsuite/new.rs b/tests/testsuite/new.rs
index 92a5ed46555..277154f5776 100644
--- a/tests/testsuite/new.rs
+++ b/tests/testsuite/new.rs
@@ -301,6 +301,43 @@ fn subpackage_git_with_gitignore() {
         .is_file());
 }
 
+#[cargo_test]
+fn subpackage_no_git_with_git_in_ancestor() {
+    cargo_process("new foo").run();
+
+    assert!(paths::root().join("foo/.git").is_dir());
+    assert!(paths::root().join("foo/.gitignore").is_file());
+
+    cargo_process("new foo/non-existent/subcomponent").run();
+
+    assert!(!paths::root()
+        .join("foo/non-existent/subcomponent/.git")
+        .is_dir());
+    assert!(!paths::root()
+        .join("foo/non-existent/subcomponent/.gitignore")
+        .is_file());
+}
+
+#[cargo_test]
+fn subpackage_git_with_gitignore_in_ancestor() {
+    cargo_process("new foo").run();
+
+    assert!(paths::root().join("foo/.git").is_dir());
+    assert!(paths::root().join("foo/.gitignore").is_file());
+
+    let gitignore = paths::root().join("foo/.gitignore");
+    fs::write(gitignore, b"non-existent").unwrap();
+
+    cargo_process("new foo/non-existent/subcomponent").run();
+
+    assert!(paths::root()
+        .join("foo/non-existent/subcomponent/.git")
+        .is_dir());
+    assert!(paths::root()
+        .join("foo/non-existent/subcomponent/.gitignore")
+        .is_file());
+}
+
 #[cargo_test]
 fn subpackage_git_with_vcs_arg() {
     cargo_process("new foo").run();