diff --git a/accounts/keystore/account_cache.go b/accounts/keystore/account_cache.go
index dc6ac6ccb..4b08cc202 100644
--- a/accounts/keystore/account_cache.go
+++ b/accounts/keystore/account_cache.go
@@ -31,6 +31,7 @@ import (
 	"github.com/ethereum/go-ethereum/accounts"
 	"github.com/ethereum/go-ethereum/common"
 	"github.com/ethereum/go-ethereum/log"
+	"gopkg.in/fatih/set.v0"
 )
 
 // Minimum amount of time between cache reloads. This limit applies if the platform does
@@ -71,6 +72,14 @@ type accountCache struct {
 	byAddr   map[common.Address][]accounts.Account
 	throttle *time.Timer
 	notify   chan struct{}
+	fileC    fileCache
+}
+
+// fileCache is a cache of files seen during scan of keystore
+type fileCache struct {
+	all   *set.SetNonTS // list of all files
+	mtime time.Time     // latest mtime seen
+	mu    sync.RWMutex
 }
 
 func newAccountCache(keydir string) (*accountCache, chan struct{}) {
@@ -78,6 +87,7 @@ func newAccountCache(keydir string) (*accountCache, chan struct{}) {
 		keydir: keydir,
 		byAddr: make(map[common.Address][]accounts.Account),
 		notify: make(chan struct{}, 1),
+		fileC:  fileCache{all: set.NewNonTS()},
 	}
 	ac.watcher = newWatcher(ac)
 	return ac, ac.notify
@@ -127,6 +137,23 @@ func (ac *accountCache) delete(removed accounts.Account) {
 	}
 }
 
+// deleteByFile removes an account referenced by the given path.
+func (ac *accountCache) deleteByFile(path string) {
+	ac.mu.Lock()
+	defer ac.mu.Unlock()
+	i := sort.Search(len(ac.all), func(i int) bool { return ac.all[i].URL.Path >= path })
+
+	if i < len(ac.all) && ac.all[i].URL.Path == path {
+		removed := ac.all[i]
+		ac.all = append(ac.all[:i], ac.all[i+1:]...)
+		if ba := removeAccount(ac.byAddr[removed.Address], removed); len(ba) == 0 {
+			delete(ac.byAddr, removed.Address)
+		} else {
+			ac.byAddr[removed.Address] = ba
+		}
+	}
+}
+
 func removeAccount(slice []accounts.Account, elem accounts.Account) []accounts.Account {
 	for i := range slice {
 		if slice[i] == elem {
@@ -167,15 +194,16 @@ func (ac *accountCache) find(a accounts.Account) (accounts.Account, error) {
 	default:
 		err := &AmbiguousAddrError{Addr: a.Address, Matches: make([]accounts.Account, len(matches))}
 		copy(err.Matches, matches)
+		sort.Sort(accountsByURL(err.Matches))
 		return accounts.Account{}, err
 	}
 }
 
 func (ac *accountCache) maybeReload() {
 	ac.mu.Lock()
-	defer ac.mu.Unlock()
 
 	if ac.watcher.running {
+		ac.mu.Unlock()
 		return // A watcher is running and will keep the cache up-to-date.
 	}
 	if ac.throttle == nil {
@@ -184,12 +212,15 @@ func (ac *accountCache) maybeReload() {
 		select {
 		case <-ac.throttle.C:
 		default:
+			ac.mu.Unlock()
 			return // The cache was reloaded recently.
 		}
 	}
+	// No watcher running, start it.
 	ac.watcher.start()
-	ac.reload()
 	ac.throttle.Reset(minReloadInterval)
+	ac.mu.Unlock()
+	ac.scanAccounts()
 }
 
 func (ac *accountCache) close() {
@@ -205,54 +236,76 @@ func (ac *accountCache) close() {
 	ac.mu.Unlock()
 }
 
-// reload caches addresses of existing accounts.
-// Callers must hold ac.mu.
-func (ac *accountCache) reload() {
-	accounts, err := ac.scan()
+// scanFiles performs a new scan on the given directory, compares against the already
+// cached filenames, and returns file sets: new, missing , modified
+func (fc *fileCache) scanFiles(keyDir string) (set.Interface, set.Interface, set.Interface, error) {
+	t0 := time.Now()
+	files, err := ioutil.ReadDir(keyDir)
+	t1 := time.Now()
 	if err != nil {
-		log.Debug("Failed to reload keystore contents", "err", err)
+		return nil, nil, nil, err
 	}
-	ac.all = accounts
-	sort.Sort(ac.all)
-	for k := range ac.byAddr {
-		delete(ac.byAddr, k)
-	}
-	for _, a := range accounts {
-		ac.byAddr[a.Address] = append(ac.byAddr[a.Address], a)
-	}
-	select {
-	case ac.notify <- struct{}{}:
-	default:
-	}
-	log.Debug("Reloaded keystore contents", "accounts", len(ac.all))
-}
+	fc.mu.RLock()
+	prevMtime := fc.mtime
+	fc.mu.RUnlock()
 
-func (ac *accountCache) scan() ([]accounts.Account, error) {
-	files, err := ioutil.ReadDir(ac.keydir)
-	if err != nil {
-		return nil, err
-	}
-
-	var (
-		buf     = new(bufio.Reader)
-		addrs   []accounts.Account
-		keyJSON struct {
-			Address string `json:"address"`
-		}
-	)
+	filesNow := set.NewNonTS()
+	moddedFiles := set.NewNonTS()
+	var newMtime time.Time
 	for _, fi := range files {
-		path := filepath.Join(ac.keydir, fi.Name())
+		modTime := fi.ModTime()
+		path := filepath.Join(keyDir, fi.Name())
 		if skipKeyFile(fi) {
 			log.Trace("Ignoring file on account scan", "path", path)
 			continue
 		}
-		logger := log.New("path", path)
+		filesNow.Add(path)
+		if modTime.After(prevMtime) {
+			moddedFiles.Add(path)
+		}
+		if modTime.After(newMtime) {
+			newMtime = modTime
+		}
+	}
+	t2 := time.Now()
 
+	fc.mu.Lock()
+	// Missing = previous - current
+	missing := set.Difference(fc.all, filesNow)
+	// New = current - previous
+	newFiles := set.Difference(filesNow, fc.all)
+	// Modified = modified - new
+	modified := set.Difference(moddedFiles, newFiles)
+	fc.all = filesNow
+	fc.mtime = newMtime
+	fc.mu.Unlock()
+	t3 := time.Now()
+	log.Debug("FS scan times", "list", t1.Sub(t0), "set", t2.Sub(t1), "diff", t3.Sub(t2))
+	return newFiles, missing, modified, nil
+}
+
+// scanAccounts checks if any changes have occurred on the filesystem, and
+// updates the account cache accordingly
+func (ac *accountCache) scanAccounts() error {
+	newFiles, missingFiles, modified, err := ac.fileC.scanFiles(ac.keydir)
+	t1 := time.Now()
+	if err != nil {
+		log.Debug("Failed to reload keystore contents", "err", err)
+		return err
+	}
+	var (
+		buf     = new(bufio.Reader)
+		keyJSON struct {
+			Address string `json:"address"`
+		}
+	)
+	readAccount := func(path string) *accounts.Account {
 		fd, err := os.Open(path)
 		if err != nil {
-			logger.Trace("Failed to open keystore file", "err", err)
-			continue
+			log.Trace("Failed to open keystore file", "path", path, "err", err)
+			return nil
 		}
+		defer fd.Close()
 		buf.Reset(fd)
 		// Parse the address.
 		keyJSON.Address = ""
@@ -260,15 +313,45 @@ func (ac *accountCache) scan() ([]accounts.Account, error) {
 		addr := common.HexToAddress(keyJSON.Address)
 		switch {
 		case err != nil:
-			logger.Debug("Failed to decode keystore key", "err", err)
+			log.Debug("Failed to decode keystore key", "path", path, "err", err)
 		case (addr == common.Address{}):
-			logger.Debug("Failed to decode keystore key", "err", "missing or zero address")
+			log.Debug("Failed to decode keystore key", "path", path, "err", "missing or zero address")
 		default:
-			addrs = append(addrs, accounts.Account{Address: addr, URL: accounts.URL{Scheme: KeyStoreScheme, Path: path}})
+			return &accounts.Account{Address: addr, URL: accounts.URL{Scheme: KeyStoreScheme, Path: path}}
 		}
-		fd.Close()
+		return nil
 	}
-	return addrs, err
+
+	for _, p := range newFiles.List() {
+		path, _ := p.(string)
+		a := readAccount(path)
+		if a != nil {
+			ac.add(*a)
+		}
+	}
+	for _, p := range missingFiles.List() {
+		path, _ := p.(string)
+		ac.deleteByFile(path)
+	}
+
+	for _, p := range modified.List() {
+		path, _ := p.(string)
+		a := readAccount(path)
+		ac.deleteByFile(path)
+		if a != nil {
+			ac.add(*a)
+		}
+	}
+
+	t2 := time.Now()
+
+	select {
+	case ac.notify <- struct{}{}:
+	default:
+	}
+	log.Trace("Handled keystore changes", "time", t2.Sub(t1))
+
+	return nil
 }
 
 func skipKeyFile(fi os.FileInfo) bool {
diff --git a/accounts/keystore/account_cache_test.go b/accounts/keystore/account_cache_test.go
index ab8aa9e6c..e3dc31065 100644
--- a/accounts/keystore/account_cache_test.go
+++ b/accounts/keystore/account_cache_test.go
@@ -18,6 +18,7 @@ package keystore
 
 import (
 	"fmt"
+	"io/ioutil"
 	"math/rand"
 	"os"
 	"path/filepath"
@@ -295,3 +296,101 @@ func TestCacheFind(t *testing.T) {
 		}
 	}
 }
+
+func waitForAccounts(wantAccounts []accounts.Account, ks *KeyStore) error {
+	var list []accounts.Account
+	for d := 200 * time.Millisecond; d < 8*time.Second; d *= 2 {
+		list = ks.Accounts()
+		if reflect.DeepEqual(list, wantAccounts) {
+			// ks should have also received change notifications
+			select {
+			case <-ks.changes:
+			default:
+				return fmt.Errorf("wasn't notified of new accounts")
+			}
+			return nil
+		}
+		time.Sleep(d)
+	}
+	return fmt.Errorf("\ngot  %v\nwant %v", list, wantAccounts)
+}
+
+// TestUpdatedKeyfileContents tests that updating the contents of a keystore file
+// is noticed by the watcher, and the account cache is updated accordingly
+func TestUpdatedKeyfileContents(t *testing.T) {
+	t.Parallel()
+
+	// Create a temporary kesytore to test with
+	rand.Seed(time.Now().UnixNano())
+	dir := filepath.Join(os.TempDir(), fmt.Sprintf("eth-keystore-watch-test-%d-%d", os.Getpid(), rand.Int()))
+	ks := NewKeyStore(dir, LightScryptN, LightScryptP)
+
+	list := ks.Accounts()
+	if len(list) > 0 {
+		t.Error("initial account list not empty:", list)
+	}
+	time.Sleep(100 * time.Millisecond)
+
+	// Create the directory and copy a key file into it.
+	os.MkdirAll(dir, 0700)
+	defer os.RemoveAll(dir)
+	file := filepath.Join(dir, "aaa")
+
+	// Place one of our testfiles in there
+	if err := cp.CopyFile(file, cachetestAccounts[0].URL.Path); err != nil {
+		t.Fatal(err)
+	}
+
+	// ks should see the account.
+	wantAccounts := []accounts.Account{cachetestAccounts[0]}
+	wantAccounts[0].URL = accounts.URL{Scheme: KeyStoreScheme, Path: file}
+	if err := waitForAccounts(wantAccounts, ks); err != nil {
+		t.Error(err)
+		return
+	}
+
+	// Now replace file contents
+	if err := forceCopyFile(file, cachetestAccounts[1].URL.Path); err != nil {
+		t.Fatal(err)
+		return
+	}
+	wantAccounts = []accounts.Account{cachetestAccounts[1]}
+	wantAccounts[0].URL = accounts.URL{Scheme: KeyStoreScheme, Path: file}
+	if err := waitForAccounts(wantAccounts, ks); err != nil {
+		t.Errorf("First replacement failed")
+		t.Error(err)
+		return
+	}
+
+	// Now replace file contents again
+	if err := forceCopyFile(file, cachetestAccounts[2].URL.Path); err != nil {
+		t.Fatal(err)
+		return
+	}
+	wantAccounts = []accounts.Account{cachetestAccounts[2]}
+	wantAccounts[0].URL = accounts.URL{Scheme: KeyStoreScheme, Path: file}
+	if err := waitForAccounts(wantAccounts, ks); err != nil {
+		t.Errorf("Second replacement failed")
+		t.Error(err)
+		return
+	}
+	// Now replace file contents with crap
+	if err := ioutil.WriteFile(file, []byte("foo"), 0644); err != nil {
+		t.Fatal(err)
+		return
+	}
+	if err := waitForAccounts([]accounts.Account{}, ks); err != nil {
+		t.Errorf("Emptying account file failed")
+		t.Error(err)
+		return
+	}
+}
+
+// forceCopyFile is like cp.CopyFile, but doesn't complain if the destination exists.
+func forceCopyFile(dst, src string) error {
+	data, err := ioutil.ReadFile(src)
+	if err != nil {
+		return err
+	}
+	return ioutil.WriteFile(dst, data, 0644)
+}
diff --git a/accounts/keystore/keystore_test.go b/accounts/keystore/keystore_test.go
index 132b74439..6fb0a7808 100644
--- a/accounts/keystore/keystore_test.go
+++ b/accounts/keystore/keystore_test.go
@@ -272,82 +272,104 @@ func TestWalletNotifierLifecycle(t *testing.T) {
 	t.Errorf("wallet notifier didn't terminate after unsubscribe")
 }
 
+type walletEvent struct {
+	accounts.WalletEvent
+	a accounts.Account
+}
+
 // Tests that wallet notifications and correctly fired when accounts are added
 // or deleted from the keystore.
 func TestWalletNotifications(t *testing.T) {
-	// Create a temporary kesytore to test with
 	dir, ks := tmpKeyStore(t, false)
 	defer os.RemoveAll(dir)
 
-	// Subscribe to the wallet feed
-	updates := make(chan accounts.WalletEvent, 1)
-	sub := ks.Subscribe(updates)
+	// Subscribe to the wallet feed and collect events.
+	var (
+		events  []walletEvent
+		updates = make(chan accounts.WalletEvent)
+		sub     = ks.Subscribe(updates)
+	)
 	defer sub.Unsubscribe()
+	go func() {
+		for {
+			select {
+			case ev := <-updates:
+				events = append(events, walletEvent{ev, ev.Wallet.Accounts()[0]})
+			case <-sub.Err():
+				close(updates)
+				return
+			}
+		}
+	}()
 
-	// Randomly add and remove account and make sure events and wallets are in sync
-	live := make(map[common.Address]accounts.Account)
+	// Randomly add and remove accounts.
+	var (
+		live       = make(map[common.Address]accounts.Account)
+		wantEvents []walletEvent
+	)
 	for i := 0; i < 1024; i++ {
-		// Execute a creation or deletion and ensure event arrival
 		if create := len(live) == 0 || rand.Int()%4 > 0; create {
 			// Add a new account and ensure wallet notifications arrives
 			account, err := ks.NewAccount("")
 			if err != nil {
 				t.Fatalf("failed to create test account: %v", err)
 			}
-			select {
-			case event := <-updates:
-				if event.Kind != accounts.WalletArrived {
-					t.Errorf("non-arrival event on account creation")
-				}
-				if event.Wallet.Accounts()[0] != account {
-					t.Errorf("account mismatch on created wallet: have %v, want %v", event.Wallet.Accounts()[0], account)
-				}
-			default:
-				t.Errorf("wallet arrival event not fired on account creation")
-			}
 			live[account.Address] = account
+			wantEvents = append(wantEvents, walletEvent{accounts.WalletEvent{Kind: accounts.WalletArrived}, account})
 		} else {
-			// Select a random account to delete (crude, but works)
+			// Delete a random account.
 			var account accounts.Account
 			for _, a := range live {
 				account = a
 				break
 			}
-			// Remove an account and ensure wallet notifiaction arrives
 			if err := ks.Delete(account, ""); err != nil {
 				t.Fatalf("failed to delete test account: %v", err)
 			}
-			select {
-			case event := <-updates:
-				if event.Kind != accounts.WalletDropped {
-					t.Errorf("non-drop event on account deletion")
-				}
-				if event.Wallet.Accounts()[0] != account {
-					t.Errorf("account mismatch on deleted wallet: have %v, want %v", event.Wallet.Accounts()[0], account)
-				}
-			default:
-				t.Errorf("wallet departure event not fired on account creation")
-			}
 			delete(live, account.Address)
+			wantEvents = append(wantEvents, walletEvent{accounts.WalletEvent{Kind: accounts.WalletDropped}, account})
 		}
-		// Retrieve the list of wallets and ensure it matches with our required live set
-		liveList := make([]accounts.Account, 0, len(live))
-		for _, account := range live {
-			liveList = append(liveList, account)
-		}
-		sort.Sort(accountsByURL(liveList))
+	}
 
-		wallets := ks.Wallets()
-		if len(liveList) != len(wallets) {
-			t.Errorf("wallet list doesn't match required accounts: have %v, want %v", wallets, liveList)
-		} else {
-			for j, wallet := range wallets {
-				if accs := wallet.Accounts(); len(accs) != 1 {
-					t.Errorf("wallet %d: contains invalid number of accounts: have %d, want 1", j, len(accs))
-				} else if accs[0] != liveList[j] {
-					t.Errorf("wallet %d: account mismatch: have %v, want %v", j, accs[0], liveList[j])
-				}
+	// Shut down the event collector and check events.
+	sub.Unsubscribe()
+	<-updates
+	checkAccounts(t, live, ks.Wallets())
+	checkEvents(t, wantEvents, events)
+}
+
+// checkAccounts checks that all known live accounts are present in the wallet list.
+func checkAccounts(t *testing.T, live map[common.Address]accounts.Account, wallets []accounts.Wallet) {
+	if len(live) != len(wallets) {
+		t.Errorf("wallet list doesn't match required accounts: have %d, want %d", len(wallets), len(live))
+		return
+	}
+	liveList := make([]accounts.Account, 0, len(live))
+	for _, account := range live {
+		liveList = append(liveList, account)
+	}
+	sort.Sort(accountsByURL(liveList))
+	for j, wallet := range wallets {
+		if accs := wallet.Accounts(); len(accs) != 1 {
+			t.Errorf("wallet %d: contains invalid number of accounts: have %d, want 1", j, len(accs))
+		} else if accs[0] != liveList[j] {
+			t.Errorf("wallet %d: account mismatch: have %v, want %v", j, accs[0], liveList[j])
+		}
+	}
+}
+
+// checkEvents checks that all events in 'want' are present in 'have'. Events may be present multiple times.
+func checkEvents(t *testing.T, want []walletEvent, have []walletEvent) {
+	for _, wantEv := range want {
+		nmatch := 0
+		for ; len(have) > 0; nmatch++ {
+			if have[0].Kind != wantEv.Kind || have[0].a != wantEv.a {
+				break
 			}
+			have = have[1:]
+		}
+		if nmatch == 0 {
+			t.Fatalf("can't find event with Kind=%v for %x", wantEv.Kind, wantEv.a.Address)
 		}
 	}
 }
diff --git a/accounts/keystore/watch.go b/accounts/keystore/watch.go
index f4d647791..602300b10 100644
--- a/accounts/keystore/watch.go
+++ b/accounts/keystore/watch.go
@@ -70,7 +70,6 @@ func (w *watcher) loop() {
 		return
 	}
 	defer notify.Stop(w.ev)
-
 	logger.Trace("Started watching keystore folder")
 	defer logger.Trace("Stopped watching keystore folder")
 
@@ -82,9 +81,9 @@ func (w *watcher) loop() {
 	// When an event occurs, the reload call is delayed a bit so that
 	// multiple events arriving quickly only cause a single reload.
 	var (
-		debounce          = time.NewTimer(0)
-		debounceDuration  = 500 * time.Millisecond
-		inCycle, hadEvent bool
+		debounce         = time.NewTimer(0)
+		debounceDuration = 500 * time.Millisecond
+		rescanTriggered  = false
 	)
 	defer debounce.Stop()
 	for {
@@ -92,22 +91,14 @@ func (w *watcher) loop() {
 		case <-w.quit:
 			return
 		case <-w.ev:
-			if !inCycle {
+			// Trigger the scan (with delay), if not already triggered
+			if !rescanTriggered {
 				debounce.Reset(debounceDuration)
-				inCycle = true
-			} else {
-				hadEvent = true
+				rescanTriggered = true
 			}
 		case <-debounce.C:
-			w.ac.mu.Lock()
-			w.ac.reload()
-			w.ac.mu.Unlock()
-			if hadEvent {
-				debounce.Reset(debounceDuration)
-				inCycle, hadEvent = true, false
-			} else {
-				inCycle, hadEvent = false, false
-			}
+			w.ac.scanAccounts()
+			rescanTriggered = false
 		}
 	}
 }