diff --git a/src/ChangeLog b/src/ChangeLog
index 08f33eb7d02..af2d38d2e87 100644
--- a/src/ChangeLog
+++ b/src/ChangeLog
@@ -1,3 +1,13 @@
+2013-04-13  Eli Zaretskii  <eliz@gnu.org>
+
+	* indent.c (Fvertical_motion): Don't consider display strings on
+	overlay strings as display strings on the buffer position we
+	started from.  This prevents vertical cursor motion from jumping
+	more than one line when there's an overlay string with a display
+	property at end of line.
+	Reported by Karl Chen <Karl.Chen@quarl.org> in
+	http://lists.gnu.org/archive/html/emacs-devel/2013-04/msg00362.html.
+
 2013-04-12  Stefan Monnier  <monnier@iro.umontreal.ca>
 
 	* window.c (select_window): `record_buffer' even if window is
diff --git a/src/indent.c b/src/indent.c
index 67796ab8a8f..47358e17db8 100644
--- a/src/indent.c
+++ b/src/indent.c
@@ -2006,11 +2006,15 @@ whether or not it is currently displayed in some window.  */)
 	  const char *s = SSDATA (it.string);
 	  const char *e = s + SBYTES (it.string);
 
+	  disp_string_at_start_p =
 	  /* If it.area is anything but TEXT_AREA, we need not bother
 	     about the display string, as it doesn't affect cursor
 	     positioning.  */
-	  disp_string_at_start_p =
-	    it.string_from_display_prop_p && it.area == TEXT_AREA;
+	    it.area == TEXT_AREA
+	    && it.string_from_display_prop_p
+	    /* A display string on anything but buffer text (e.g., on
+	       an overlay string) doesn't affect cursor positioning.  */
+	    && (it.sp > 0 && it.stack[it.sp - 1].method == GET_FROM_BUFFER);
 	  while (s < e)
 	    {
 	      if (*s++ == '\n')