diff --git a/tests/t1360-ls-project-context-highlighting.sh b/tests/t1360-ls-project-context-highlighting.sh
new file mode 100755
index 00000000..560d01a3
--- /dev/null
+++ b/tests/t1360-ls-project-context-highlighting.sh
@@ -0,0 +1,91 @@
+#!/bin/bash
+#
+
+test_description='highlighting projects and contexts
+
+This test checks the highlighting (with colors) of projects and contexts.
+'
+. ./test-lib.sh
+
+# Prioritized tasks with projects and contexts
+cat > todo.txt <<EOF
+(A) prioritized @con01 context
+(B) prioritized +prj02 project
+(C) prioritized context at EOL @con03
+(D) prioritized project at EOL +prj04
++prj05 non-prioritized project at BOL
+@con06 non-prioritized context at BOL
+multiple @con_ @texts and +pro_ +jects
+non-contexts: seti@home @ @* @(foo)
+non-projects: lost+found + +! +(bar)
+EOF
+
+# config file specifying COLOR_PROJECT and COLOR_CONTEXT
+#
+TEST_TODO_LABEL_COLORS=todo-colors.cfg
+cat todo.cfg > "$TEST_TODO_LABEL_COLORS"
+
+echo "export COLOR_CONTEXT='\\\\033[1m'" >>"$TEST_TODO_LABEL_COLORS"
+echo "export COLOR_PROJECT='\\\\033[2m'" >>"$TEST_TODO_LABEL_COLORS"
+
+test_todo_session 'highlighting for contexts and projects' <<'EOF'
+>>> todo.sh -d "$TEST_TODO_LABEL_COLORS" ls
+1 (A) prioritized @con01 context
+2 (B) prioritized +prj02 project
+3 (C) prioritized context at EOL @con03
+4 (D) prioritized project at EOL +prj04
+5 +prj05 non-prioritized project at BOL
+6 @con06 non-prioritized context at BOL
+7 multiple @con_ @texts and +pro_ +jects
+8 non-contexts: seti@home @ @* @(foo)
+9 non-projects: lost+found + +! +(bar)
+--
+TODO: 9 of 9 tasks shown
+EOF
+
+test_todo_session 'suppressing highlighting for contexts and projects' <<'EOF'
+>>> todo.sh -p -d "$TEST_TODO_LABEL_COLORS" ls
+1 (A) prioritized @con01 context
+2 (B) prioritized +prj02 project
+3 (C) prioritized context at EOL @con03
+4 (D) prioritized project at EOL +prj04
+5 +prj05 non-prioritized project at BOL
+6 @con06 non-prioritized context at BOL
+7 multiple @con_ @texts and +pro_ +jects
+8 non-contexts: seti@home @ @* @(foo)
+9 non-projects: lost+found + +! +(bar)
+--
+TODO: 9 of 9 tasks shown
+EOF
+
+test_todo_session 'suppressing display of contexts' <<'EOF'
+>>> todo.sh -@ -d "$TEST_TODO_LABEL_COLORS" ls
+1 (A) prioritized context
+2 (B) prioritized +prj02 project
+3 (C) prioritized context at EOL
+4 (D) prioritized project at EOL +prj04
+5 +prj05 non-prioritized project at BOL
+6 non-prioritized context at BOL
+7 multiple and +pro_ +jects
+8 non-contexts: seti@home @
+9 non-projects: lost+found + +! +(bar)
+--
+TODO: 9 of 9 tasks shown
+EOF
+
+test_todo_session 'suppressing display of projects' <<'EOF'
+>>> todo.sh -+ -d "$TEST_TODO_LABEL_COLORS" ls
+1 (A) prioritized @con01 context
+2 (B) prioritized project
+3 (C) prioritized context at EOL @con03
+4 (D) prioritized project at EOL
+5 non-prioritized project at BOL
+6 @con06 non-prioritized context at BOL
+7 multiple @con_ @texts and
+8 non-contexts: seti@home @ @* @(foo)
+9 non-projects: lost+found +
+--
+TODO: 9 of 9 tasks shown
+EOF
+
+test_done
diff --git a/todo.sh b/todo.sh
index b2a2b42c..6d7d549f 100755
--- a/todo.sh
+++ b/todo.sh
@@ -615,6 +615,10 @@ export PRI_B=$GREEN         # color for B priority
 export PRI_C=$LIGHT_BLUE    # color for C priority
 export PRI_X=$WHITE         # color unless explicitly defined
 
+# Default project and context colors.
+export COLOR_PROJECT=$NONE
+export COLOR_CONTEXT=$NONE
+
 # Default highlight colors.
 export COLOR_DONE=$LIGHT_GREY   # color for done (but not yet archived) tasks
 
@@ -730,8 +734,13 @@ if [ $TODOTXT_PLAIN = 1 ]; then
     PRI_X=$NONE
     DEFAULT=$NONE
     COLOR_DONE=$NONE
+    COLOR_PROJECT=$NONE
+    COLOR_CONTEXT=$NONE
 fi
 
+[[ "$HIDE_PROJECTS_SUBSTITUTION" ]] && COLOR_PROJECT="$NONE"
+[[ "$HIDE_CONTEXTS_SUBSTITUTION" ]] && COLOR_CONTEXT="$NONE"
+
 _addto() {
     file="$1"
     input="$2"
@@ -878,15 +887,38 @@ _format()
                 return color
             }
             {
+                clr = ""
                 if (match($0, /^[0-9]+ x /)) {
-                    print highlight("COLOR_DONE") $0 highlight("DEFAULT")
+                    clr = highlight("COLOR_DONE")
                 } else if (match($0, /^[0-9]+ \([A-Z]\) /)) {
                     clr = highlight("PRI_" substr($0, RSTART + RLENGTH - 3, 1))
-                    print \
-                        (clr ? clr : highlight("PRI_X")) \
-                        (ENVIRON["HIDE_PRIORITY_SUBSTITUTION"] == "" ? $0 : substr($0, 1, RLENGTH - 4) substr($0, RSTART + RLENGTH)) \
-                        highlight("DEFAULT")
-                } else { print }
+                    clr = (clr ? clr : highlight("PRI_X"))
+                    if (ENVIRON["HIDE_PRIORITY_SUBSTITUTION"] != "") {
+                        $0 = substr($0, 1, RLENGTH - 4) substr($0, RSTART + RLENGTH)
+                    }
+                }
+                end_clr = (clr ? highlight("DEFAULT") : "")
+
+                prj_beg = highlight("COLOR_PROJECT")
+                prj_end = (prj_beg ? (highlight("DEFAULT") clr) : "")
+
+                ctx_beg = highlight("COLOR_CONTEXT")
+                ctx_end = (ctx_beg ? (highlight("DEFAULT") clr) : "")
+
+                gsub(/[ \t][ \t]*/, "\n&\n")
+                len = split($0, words, /\n/)
+
+                printf "%s", clr
+                for (i = 1; i <= len; ++i) {
+                    if (words[i] ~ /^[+].*[A-Za-z0-9_]$/) {
+                        printf "%s", prj_beg words[i] prj_end
+                    } else if (words[i] ~ /^[@].*[A-Za-z0-9_]$/) {
+                        printf "%s", ctx_beg words[i] ctx_end
+                    } else {
+                        printf "%s", words[i]
+                    }
+                }
+                printf "%s\n", end_clr
             }
           '''  \
         | sed '''