diff --git a/lib/ace/mode/folding/lua.js b/lib/ace/mode/folding/lua.js
index 73a6a37c..369eed9e 100644
--- a/lib/ace/mode/folding/lua.js
+++ b/lib/ace/mode/folding/lua.js
@@ -3,7 +3,7 @@
  *
  * Copyright (c) 2012, Ajax.org B.V.
  * All rights reserved.
- * 
+ *
  * Redistribution and use in source and binary forms, with or without
  * modification, are permitted provided that the following conditions are met:
  *     * Redistributions of source code must retain the above copyright
@@ -14,7 +14,7 @@
  *     * Neither the name of Ajax.org B.V. nor the
  *       names of its contributors may be used to endorse or promote products
  *       derived from this software without specific prior written permission.
- * 
+ *
  * THIS SOFTWARE IS PROVIDED BY THE COPYRIGHT HOLDERS AND CONTRIBUTORS "AS IS" AND
  * ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
  * WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE
@@ -34,6 +34,8 @@ define(function(require, exports, module) {
 var oop = require("../../lib/oop");
 var BaseFoldMode = require("./fold_mode").FoldMode;
 var Range = require("../../range").Range;
+var TokenIterator = require("ace/token_iterator").TokenIterator;
+
 
 var FoldMode = exports.FoldMode = function() {};
 
@@ -52,11 +54,11 @@ oop.inherits(FoldMode, BaseFoldMode);
         if (isStart && !isEnd) {
             var match = line.match(this.foldingStartMarker);
             if (match[1]) {
-                if (session.getTokenAt(row, match.index + 1).type == "keyword")
+                if (session.getTokenAt(row, match.index + 1).type === "keyword")
                     return "start";
             } else if (match[2]) {
-                var type = session.getTokenAt(row + 1, 0).type
-                if (type == "comment" || type == "string")
+                var type = session.bgTokenizer.getState(row) || "";
+                if (type.indexOf("comment") != -1 || type.indexOf("string") != -1)
                     return "start";
             } else {
                 return "start";
@@ -66,43 +68,108 @@ oop.inherits(FoldMode, BaseFoldMode);
             return "";
 
         var match = line.match(this.foldingStopMarker);
-        if (match[0] == "end") {
-            if (session.getTokenAt(row, match.index + 1).type == "keyword")
+        if (match[0] === "end") {
+            if (session.getTokenAt(row, match.index + 1).type === "keyword")
                 return "end";
-        } else if (match[0][0] == "]") {
-            var type = session.getTokenAt(row - 1, 0).type
-            if (type == "comment" || type == "string")
+        } else if (match[0][0] === "]") {
+            var type = session.bgTokenizer.getState(row - 1) || "";
+            if (type.indexOf("comment") != -1 || type.indexOf("string") != -1)
                 return "end";
         } else
             return "end";
     };
 
     this.getFoldWidgetRange = function(session, foldStyle, row) {
-        var lines = session.doc.getAllLines(row);
-        var line = lines[row];
-        
-        var re = this.foldingStartMarker.test(line) ? this.foldingStartMarker : this.foldingStopMarker;
+        var line = session.doc.getLine(row);
+        var match = this.foldingStartMarker.exec(line);
+        if (match) {
+            if (match[1])
+                return this.luaBlock(session, row, match.index + 1);
 
-        if (this.foldingStartMarker.test(line)) {            
-            for (var i = row + 1, l = session.getLength(); i < l; i++) {
-                if (re.test(lines[i]))
-                    break;
-            }
+            if (match[2])
+                return session.getCommentFoldRange(row, match.index + 1);
 
-            return new Range(row, line.length, i, 0);
+            return this.openingBracketBlock(session, "{", row, match.index);
         }
 
-        if (this.foldingStopMarker.test(line)) {
-            for (var i = row - 1; i >= 0; i--) {
-                line = lines[i];
-                if (re.test(line))
-                    break;
+        var match = this.foldingStopMarker.exec(line);
+        if (match) {
+            if (match[0] === "end") {
+                if (session.getTokenAt(row, match.index + 1).type === "keyword")
+                    return this.luaBlock(session, row, match.index + 1);
             }
 
-            return new Range(i, line.length, row, 0);
+            if (match[0][0] === "]")
+                return session.getCommentFoldRange(row, match.index + 1);
+
+            return this.closingBracketBlock(session, "}", row, match.index + match[0].length);
         }
     };
-    
+
+    this.luaBlock = function(session, row, column) {
+        var stream = new TokenIterator(session, row, column);
+        var indentKeywords = {
+            "function": 1,
+            "do": 1,
+            "then": 1,
+            "elseif": -1,
+            "else": 0,
+            "end": -1,
+            "repeat": 1,
+            "until": -1,
+        };
+        var voidKeywords = {
+            "elseif": 1,
+            "if": 1,
+            "for": 1
+        };
+
+        var token = stream.getCurrentToken();
+        if (!token || token.type != "keyword")
+            return;
+
+        var val = token.value;
+        var stack = [val];
+        var dir;
+        if (voidKeywords[val]) {
+            stack = [];
+            dir = 1;
+        } else if (val === "else") {
+            dir = 1;
+        } else {
+            dir = indentKeywords[val];
+        }
+
+        if (!dir)
+            return;
+
+        var startColumn = dir === -1 ? stream.getCurrentTokenColumn() : session.getLine(row).length;
+        var startRow = row;
+
+        stream.step = dir === -1 ? stream.stepBackward : stream.stepForward;
+        while(token = stream.step()) {
+            if (token.type !== "keyword")
+                continue;
+            var level = dir * indentKeywords[token.value];
+
+            if (level > 0) {
+                stack.unshift(token.value);
+            } else if (level <= 0) {
+                stack.shift();
+                if (!stack.length)
+                    break;
+                if (level === 0)
+                    stack.unshift(token.value);
+            }
+        }
+
+        var row = stream.getCurrentTokenRow();
+        if (dir === -1)
+            return new Range(row, session.getLine(row).length, startRow, startColumn);
+        else
+            return new Range(startRow, startColumn, row, stream.getCurrentTokenColumn());
+    };
+
 }).call(FoldMode.prototype);
 
 });