diff --git a/CHANGELOG b/CHANGELOG
index 5c66a8772..e39490049 100644
--- a/CHANGELOG
+++ b/CHANGELOG
@@ -1,3 +1,8 @@
+Changes between 1.3.3 and XXX
+==================================================
+
+- fix issue116: --doctestmodules works in the presence of __init__.py files as well
+
 Changes between 1.3.2 and 1.3.3
 ==================================================
 
diff --git a/py/_path/local.py b/py/_path/local.py
index 0e051eb8d..1765b80ff 100644
--- a/py/_path/local.py
+++ b/py/_path/local.py
@@ -519,6 +519,8 @@ class LocalPath(FSBase):
                 pkg = __import__(pkgpath.basename, None, None, [])
                 names = self.new(ext='').relto(pkgpath.dirpath())
                 names = names.split(self.sep)
+                if names and names[-1] == "__init__":
+                    names.pop()
                 modname = ".".join(names)
             else:
                 # no package scope, still make it possible
@@ -532,7 +534,8 @@ class LocalPath(FSBase):
             elif modfile.endswith('$py.class'):
                 modfile = modfile[:-9] + '.py'
             if modfile.endswith("__init__.py"):
-                modfile = modfile[:-12]
+                if self.basename != "__init__.py":
+                    modfile = modfile[:-12]
             if not self.samefile(modfile):
                 raise self.ImportMismatchError(modname, modfile, self)
             return mod
diff --git a/testing/path/test_local.py b/testing/path/test_local.py
index e13a4899c..5b296288b 100644
--- a/testing/path/test_local.py
+++ b/testing/path/test_local.py
@@ -306,9 +306,11 @@ class TestImport:
 
     def test_pyimport_dir(self, tmpdir):
         p = tmpdir.join("hello_123")
-        p.ensure("__init__.py")
+        p_init = p.ensure("__init__.py")
         m = p.pyimport()
         assert m.__name__ == "hello_123"
+        m = p_init.pyimport()
+        assert m.__name__ == "hello_123"
 
     def test_pyimport_execfile_different_name(self, path1):
         obj = path1.join('execfile.py').pyimport(modname="0x.y.z")
diff --git a/testing/plugin/test_pytest_doctest.py b/testing/plugin/test_pytest_doctest.py
index 161ddf44f..ae13ef69b 100644
--- a/testing/plugin/test_pytest_doctest.py
+++ b/testing/plugin/test_pytest_doctest.py
@@ -1,4 +1,5 @@
 from py._plugin.pytest_doctest import DoctestModule, DoctestTextfile
+import py
 
 pytest_plugins = ["pytest_doctest"]
 
@@ -73,16 +74,16 @@ class TestDoctests:
         reprec = testdir.inline_run(p, "--doctest-modules")
         reprec.assertoutcome(failed=1)
 
-    def test_doctestmodule_external(self, testdir):
-        p = testdir.makepyfile("""
-            #
+    def test_doctestmodule_external_and_issue116(self, testdir):
+        p = testdir.mkpydir("hello")
+        p.join("__init__.py").write(py.code.Source("""
             def somefunc():
                 '''
                     >>> i = 0
                     >>> i + 1
                     2
                 '''
-        """)
+        """))
         result = testdir.runpytest(p, "--doctest-modules")
         result.stdout.fnmatch_lines([
             '004 *>>> i = 0',