diff --git a/example/app.js b/example/app.js
index 0b5d8cc..eaab3c3 100644
--- a/example/app.js
+++ b/example/app.js
@@ -7,7 +7,11 @@ var hbs = require('..'); // should be `require('express-hbs')` outside of this e
 app.use(express.static(__dirname + '/public'));
 
 // Hook in express-hbs and tell it where partials are found
-app.engine('hbs', hbs.express3({partialsDir: __dirname + '/views/partials', defaultLayout: __dirname + '/views/layout/default.hbs'}));
+app.engine('hbs', hbs.express3({
+    partialsDir: __dirname + '/views/partials',
+    layoutsDir: __dirname + '/views/layout',
+    defaultLayout: __dirname + '/views/layout/default.hbs'
+}));
 app.set('view engine', 'hbs');
 app.set('views', __dirname + '/views');
 
diff --git a/example/views/fruits/index.hbs b/example/views/fruits/index.hbs
index b1bed83..7d27f0d 100644
--- a/example/views/fruits/index.hbs
+++ b/example/views/fruits/index.hbs
@@ -1,5 +1,5 @@
-<!-- relative path to layout -->
-{{!< ../layout/fruits}}
+<!-- name of layout -->
+{{!< fruits}}
 
 {{#contentFor "pageStyles"}}
 <style>
diff --git a/lib/hbs.js b/lib/hbs.js
index 1fb9eb3..8e2e4cd 100644
--- a/lib/hbs.js
+++ b/lib/hbs.js
@@ -24,6 +24,11 @@ var blocks = {};
  */
 var partialsDir;
 
+/**
+ * Absolute path to the layouts directory
+ */
+var layoutsDir;
+
 /**
  * Keep copy of options configuration.
  */
@@ -128,6 +133,7 @@ function cachePartials() {
  *   handlebars: "override handlebars",
  *   defaultLayout: "path to default layout",
  *   partialsDir: "absolute path to partials",
+ *   layoutsDir: "absolute path to the layouts",
  *   extname: "extension to use"
  * }
  *
@@ -144,6 +150,8 @@ exports.express3 = function(options) {
   partialsDir = _options.partialsDir;
   if (partialsDir) cachePartials();
 
+  layoutsDir = _options.layoutsDir;
+
   return _express3;
 };
 
@@ -196,7 +204,7 @@ var _express3 = function(filename, options, cb) {
       var layout = matches[1];
 
       // cacheLayout expects absolute path
-      layout = path.resolve(path.join(path.dirname(filename), layout));
+      layout = path.resolve(path.join(layoutsDir?layoutsDir:path.dirname(filename), layout));
       cacheLayout(layout, options.cache, cb);
     }
     else {