diff --git a/CHANGELOG b/CHANGELOG
index ebd052a4c..76121a175 100644
--- a/CHANGELOG
+++ b/CHANGELOG
@@ -23,6 +23,8 @@ Changes between 1.3.4 and 2.0.0dev0
 - "xpass" (unexpected pass) tests don't cause exitcode!=0
 - fix issue131 / issue60 - importing doctests in __init__ files used as namespace packages
 - fix issue93 stdout/stderr is captured while importing conftest.py
+- fix bug: unittest collected functions now also can have "pytestmark"
+  applied at class/module level
 
 Changes between 1.3.3 and 1.3.4
 ----------------------------------------------
diff --git a/pytest/__init__.py b/pytest/__init__.py
index 0f4409e9e..b6e4db4df 100644
--- a/pytest/__init__.py
+++ b/pytest/__init__.py
@@ -5,7 +5,7 @@ see http://pytest.org for documentation and details
 
 (c) Holger Krekel and others, 2004-2010
 """
-__version__ = '2.0.0.dev7'
+__version__ = '2.0.0.dev8'
 
 __all__ = ['config', 'cmdline']
 
diff --git a/pytest/_core.py b/pytest/_core.py
index 2ce7ea9f6..d28ab2643 100644
--- a/pytest/_core.py
+++ b/pytest/_core.py
@@ -7,8 +7,8 @@ assert py.__version__.split(".")[:2] >= ['2', '0'], ("installation problem: "
     "%s is too old, remove or upgrade 'py'" % (py.__version__))
 
 default_plugins = (
- "config session terminal python runner pdb capture mark skipping tmpdir "
- "monkeypatch recwarn pastebin unittest helpconfig nose assertion genscript "
+ "config session terminal python runner pdb capture unittest mark skipping "
+ "tmpdir monkeypatch recwarn pastebin helpconfig nose assertion genscript "
  "junitxml doctest").split()
 
 IMPORTPREFIX = "pytest_"
@@ -282,7 +282,7 @@ class MultiCall:
                     kwargs[argname] = self
         return kwargs
 
-def varnames(func, cache={}):
+def varnames(func):
     if not inspect.isfunction(func) and not inspect.ismethod(func):
         func = getattr(func, '__call__', func)
     ismethod = inspect.ismethod(func)
diff --git a/pytest/plugin/mark.py b/pytest/plugin/mark.py
index 07172c465..17317671e 100644
--- a/pytest/plugin/mark.py
+++ b/pytest/plugin/mark.py
@@ -7,11 +7,12 @@ def pytest_namespace():
 def pytest_addoption(parser):
     group = parser.getgroup("general")
     group._addoption('-k',
-        action="store", dest="keyword", default='',
-        help="only run test items matching the given "
-             "space separated keywords.  precede a keyword with '-' to negate. "
-             "Terminate the expression with ':' to treat a match as a signal "
-             "to run all subsequent tests. ")
+        action="store", dest="keyword", default='', metavar="KEYWORDEXPR",
+        help="only run tests which match given keyword expression.  "
+             "An expression consists of space-separated terms. "
+             "Each term must match. Precede a term with '-' to negate. "
+             "Terminate expression with ':' to make the first match match "
+             "all subsequent tests (usually file-order). ")
 
 def pytest_collection_modifyitems(items, config):
     keywordexpr = config.option.keyword
@@ -42,32 +43,31 @@ def skipbykeyword(colitem, keywordexpr):
     """
     if not keywordexpr:
         return
-    chain = colitem.listchain()
+    
+    itemkeywords = getkeywords(colitem)
     for key in filter(None, keywordexpr.split()):
         eor = key[:1] == '-'
         if eor:
             key = key[1:]
-        if not (eor ^ matchonekeyword(key, chain)):
+        if not (eor ^ matchonekeyword(key, itemkeywords)):
             return True
 
-def matchonekeyword(key, chain):
-    elems = key.split(".")
-    # XXX O(n^2), anyone cares?
-    chain = [item.keywords for item in chain if item.keywords]
-    for start, _ in enumerate(chain):
-        if start + len(elems) > len(chain):
-            return False
-        for num, elem in enumerate(elems):
-            for keyword in chain[num + start]:
-                ok = False
-                if elem in keyword:
-                    ok = True
-                    break
-            if not ok:
+def getkeywords(node):
+    keywords = {}
+    while node is not None:
+        keywords.update(node.keywords)
+        node = node.parent
+    return keywords
+
+
+def matchonekeyword(key, itemkeywords):
+    for elem in key.split("."):
+        for kw in itemkeywords:
+            if elem in kw:
                 break
-        if num == len(elems) - 1 and ok:
-            return True
-    return False
+        else:
+            return False
+    return True
 
 class MarkGenerator:
     """ Factory for :class:`MarkDecorator` objects - exposed as 
@@ -155,21 +155,22 @@ class MarkInfo:
         return "<MarkInfo %r args=%r kwargs=%r>" % (
                 self._name, self.args, self.kwargs)
 
-def pytest_pycollect_makeitem(__multicall__, collector, name, obj):
-    item = __multicall__.execute()
-    if isinstance(item, py.test.collect.Function):
-        cls = collector.getparent(py.test.collect.Class)
-        mod = collector.getparent(py.test.collect.Module)
-        func = item.obj
-        func = getattr(func, '__func__', func) # py3
-        func = getattr(func, 'im_func', func)  # py2
-        for parent in [x for x in (mod, cls) if x]:
-            marker = getattr(parent.obj, 'pytestmark', None)
+def pytest_log_itemcollect(item):
+    if not isinstance(item, py.test.collect.Function):
+        return
+    try:
+        func = item.obj.__func__
+    except AttributeError:
+        func = getattr(item.obj, 'im_func', item.obj)
+    pyclasses = (py.test.collect.Class, py.test.collect.Module)
+    for node in item.listchain():
+        if isinstance(node, pyclasses):
+            marker = getattr(node.obj, 'pytestmark', None)
             if marker is not None:
-                if not isinstance(marker, list):
-                    marker = [marker]
-                for mark in marker:
-                    if isinstance(mark, MarkDecorator):
+                if isinstance(marker, list):
+                    for mark in marker:
                         mark(func)
-                item.keywords.update(py.builtin._getfuncdict(func) or {})
-    return item
+                else:
+                    marker(func)
+        node = node.parent
+    item.keywords.update(py.builtin._getfuncdict(func))
diff --git a/pytest/plugin/pytester.py b/pytest/plugin/pytester.py
index 5ab568152..b5ed3d739 100644
--- a/pytest/plugin/pytester.py
+++ b/pytest/plugin/pytester.py
@@ -354,13 +354,10 @@ class TmpTestdir:
         return config
 
     def getitem(self,  source, funcname="test_func"):
-        modcol = self.getmodulecol(source)
-        moditems = modcol.collect()
-        for item in modcol.collect():
+        for item in self.getitems(source):
             if item.name == funcname:
                 return item
-        else:
-            assert 0, "%r item not found in module:\n%s" %(funcname, source)
+        assert 0, "%r item not found in module:\n%s" %(funcname, source)
 
     def getitems(self,  source):
         modcol = self.getmodulecol(source)
diff --git a/pytest/plugin/python.py b/pytest/plugin/python.py
index 8a53cf5a9..d2ff143de 100644
--- a/pytest/plugin/python.py
+++ b/pytest/plugin/python.py
@@ -136,6 +136,7 @@ class PyCollectorMixin(PyobjMixin, pytest.collect.Collector):
 
     def collect(self):
         # NB. we avoid random getattrs and peek in the __dict__ instead
+        # (XXX originally introduced from a PyPy need, still true?)
         dicts = [getattr(self.obj, '__dict__', {})]
         for basecls in inspect.getmro(self.obj.__class__):
             dicts.append(basecls.__dict__)
@@ -254,9 +255,6 @@ class Instance(PyCollectorMixin, pytest.collect.Collector):
     def _getobj(self):
         return self.parent.obj()
 
-    def _keywords(self):
-        return []
-
     def newinstance(self):
         self.obj = self._getobj()
         return self.obj
@@ -449,6 +447,7 @@ def hasinit(obj):
 
 
 def getfuncargnames(function):
+    # XXX merge with _core.py's varnames
     argnames = py.std.inspect.getargs(py.code.getrawcode(function))[0]
     startindex = py.std.inspect.ismethod(function) and 1 or 0
     defaults = getattr(function, 'func_defaults',
diff --git a/pytest/plugin/runner.py b/pytest/plugin/runner.py
index ca7b145a9..cc3b9a9f2 100644
--- a/pytest/plugin/runner.py
+++ b/pytest/plugin/runner.py
@@ -249,7 +249,7 @@ class CollectReport(BaseReport):
         self.fspath = fspath
         self.outcome = outcome
         self.longrepr = longrepr
-        self.result = result
+        self.result = result or []
         self.reason = reason
 
     @property
diff --git a/pytest/plugin/session.py b/pytest/plugin/session.py
index cacdf5533..388220215 100644
--- a/pytest/plugin/session.py
+++ b/pytest/plugin/session.py
@@ -266,7 +266,7 @@ class Collection:
             node.ihook.pytest_collectstart(collector=node)
             rep = node.ihook.pytest_make_collect_report(collector=node)
             if rep.passed:
-                for subnode in rep.result or []:
+                for subnode in rep.result:
                     for x in self.genitems(subnode):
                         yield x
             node.ihook.pytest_collectreport(report=rep)
@@ -328,7 +328,7 @@ class Node(object):
         #: the file where this item is contained/collected from.
         self.fspath = getattr(parent, 'fspath', None)
         self.ihook = HookProxy(self)
-        self.keywords = self.readkeywords()
+        self.keywords = {self.name: True}
 
     def __repr__(self):
         if getattr(self.config.option, 'debug', False):
@@ -344,7 +344,7 @@ class Node(object):
         if not isinstance(other, Node):
             return False
         return self.__class__ == other.__class__ and \
-               self.name == other.name and self.parent == other.parent 
+               self.name == other.name and self.parent == other.parent
 
     def __ne__(self, other):
         return not self == other
@@ -396,12 +396,6 @@ class Node(object):
             current = current.parent
         return current
 
-    def readkeywords(self):
-        return dict([(x, True) for x in self._keywords()])
-
-    def _keywords(self):
-        return [self.name]
-
     def _prunetraceback(self, traceback):
         return traceback
 
diff --git a/setup.py b/setup.py
index f3eb399f0..f24fa28c1 100644
--- a/setup.py
+++ b/setup.py
@@ -22,7 +22,7 @@ def main():
         name='pytest',
         description='py.test: simple powerful testing with Python',
         long_description = long_description,
-        version='2.0.0.dev7',
+        version='2.0.0.dev8',
         url='http://pytest.org',
         license='MIT license',
         platforms=['unix', 'linux', 'osx', 'cygwin', 'win32'],
diff --git a/testing/plugin/test_mark.py b/testing/plugin/test_mark.py
index f3a26c8b5..96f5536c5 100644
--- a/testing/plugin/test_mark.py
+++ b/testing/plugin/test_mark.py
@@ -8,13 +8,15 @@ class TestMark:
 
     def test_pytest_mark_bare(self):
         mark = Mark()
-        def f(): pass
+        def f():
+            pass
         mark.hello(f)
         assert f.hello
 
     def test_pytest_mark_keywords(self):
         mark = Mark()
-        def f(): pass
+        def f():
+            pass
         mark.world(x=3, y=4)(f)
         assert f.world
         assert f.world.kwargs['x'] == 3
@@ -22,7 +24,8 @@ class TestMark:
 
     def test_apply_multiple_and_merge(self):
         mark = Mark()
-        def f(): pass
+        def f():
+            pass
         marker = mark.world
         mark.world(x=3)(f)
         assert f.world.kwargs['x'] == 3
@@ -35,7 +38,8 @@ class TestMark:
 
     def test_pytest_mark_positional(self):
         mark = Mark()
-        def f(): pass
+        def f():
+            pass
         mark.world("hello")(f)
         assert f.world.args[0] == "hello"
         mark.world("world")(f)
@@ -62,7 +66,7 @@ class TestFunctional:
         assert 'hello' in keywords
 
     def test_marklist_per_class(self, testdir):
-        modcol = testdir.getmodulecol("""
+        item = testdir.getitem("""
             import py
             class TestClass:
                 pytestmark = [py.test.mark.hello, py.test.mark.world]
@@ -70,13 +74,11 @@ class TestFunctional:
                     assert TestClass.test_func.hello
                     assert TestClass.test_func.world
         """)
-        clscol = modcol.collect()[0]
-        item = clscol.collect()[0].collect()[0]
         keywords = item.keywords
         assert 'hello' in keywords
 
     def test_marklist_per_module(self, testdir):
-        modcol = testdir.getmodulecol("""
+        item = testdir.getitem("""
             import py
             pytestmark = [py.test.mark.hello, py.test.mark.world]
             class TestClass:
@@ -84,29 +86,25 @@ class TestFunctional:
                     assert TestClass.test_func.hello
                     assert TestClass.test_func.world
         """)
-        clscol = modcol.collect()[0]
-        item = clscol.collect()[0].collect()[0]
         keywords = item.keywords
         assert 'hello' in keywords
         assert 'world' in keywords
 
     @py.test.mark.skipif("sys.version_info < (2,6)")
     def test_mark_per_class_decorator(self, testdir):
-        modcol = testdir.getmodulecol("""
+        item = testdir.getitem("""
             import py
             @py.test.mark.hello
             class TestClass:
                 def test_func(self):
                     assert TestClass.test_func.hello
         """)
-        clscol = modcol.collect()[0]
-        item = clscol.collect()[0].collect()[0]
         keywords = item.keywords
         assert 'hello' in keywords
 
     @py.test.mark.skipif("sys.version_info < (2,6)")
     def test_mark_per_class_decorator_plus_existing_dec(self, testdir):
-        modcol = testdir.getmodulecol("""
+        item = testdir.getitem("""
             import py
             @py.test.mark.hello
             class TestClass:
@@ -115,8 +113,6 @@ class TestFunctional:
                     assert TestClass.test_func.hello
                     assert TestClass.test_func.world
         """)
-        clscol = modcol.collect()[0]
-        item = clscol.collect()[0].collect()[0]
         keywords = item.keywords
         assert 'hello' in keywords
         assert 'world' in keywords
@@ -140,14 +136,15 @@ class TestFunctional:
         assert marker.kwargs == {'x': 3, 'y': 2, 'z': 4}
 
     def test_mark_other(self, testdir):
-        item = testdir.getitem("""
-            import py
-            class pytestmark:
-                pass
-            def test_func():
-                pass
-        """)
-        keywords = item.keywords
+        py.test.raises(TypeError, '''
+            testdir.getitem("""
+                import py
+                class pytestmark:
+                    pass
+                def test_func():
+                    pass
+            """)
+        ''')
 
     def test_mark_dynamically_in_funcarg(self, testdir):
         testdir.makeconftest("""
@@ -223,7 +220,8 @@ class Test_genitems:
 class TestKeywordSelection:
     def test_select_simple(self, testdir):
         file_test = testdir.makepyfile("""
-            def test_one(): assert 0
+            def test_one():
+                assert 0
             class TestClass(object):
                 def test_method_one(self):
                     assert 42 == 43
diff --git a/testing/plugin/test_unittest.py b/testing/plugin/test_unittest.py
index 4c3c13ec0..40ae56556 100644
--- a/testing/plugin/test_unittest.py
+++ b/testing/plugin/test_unittest.py
@@ -70,3 +70,14 @@ def test_teardown(testdir):
     assert passed == 2
     assert passed + skipped + failed == 2
 
+def test_module_level_pytestmark(testdir):
+    testpath = testdir.makepyfile("""
+        import unittest
+        import py
+        pytestmark = py.test.mark.xfail
+        class MyTestCase(unittest.TestCase):
+            def test_func1(self):
+                assert 0
+    """)
+    reprec = testdir.inline_run(testpath, "-s")
+    reprec.assertoutcome(skipped=1)