diff --git a/bin/uglifyjs b/bin/uglifyjs
index 0bc21e89..79583094 100755
--- a/bin/uglifyjs
+++ b/bin/uglifyjs
@@ -21,6 +21,7 @@ var options = {
         unsafe: false,
         reserved_names: null,
         defines: { },
+        lift_vars: false,
         codegen_options: {
                 ascii_only: false,
                 beautify: false,
@@ -97,6 +98,9 @@ out: while (args.length > 0) {
             case "--reserved-names":
                 options.reserved_names = args.shift().split(",");
                 break;
+            case "--lift-vars":
+                options.lift_vars = true;
+                break;
             case "-d":
             case "--define":
                  var defarg = args.shift();
@@ -269,7 +273,9 @@ function squeeze_it(code) {
         }
         try {
                 var ast = time_it("parse", function(){ return jsp.parse(code); });
-                //ast = time_it("lift", function(){ return pro.ast_lift_variables(ast); });
+                if (options.lift_vars) {
+                        ast = time_it("lift", function(){ return pro.ast_lift_variables(ast); });
+                }
                 if (options.mangle) ast = time_it("mangle", function(){
                         return pro.ast_mangle(ast, {
                                 toplevel: options.mangle_toplevel,
diff --git a/lib/process.js b/lib/process.js
index 1e2ab838..e59507bb 100644
--- a/lib/process.js
+++ b/lib/process.js
@@ -836,18 +836,96 @@ function prepare_ifs(ast) {
         });
 };
 
+function for_side_effects(ast, handler) {
+        var w = ast_walker(), walk = w.walk;
+        var $stop = {}, $restart = {};
+        function stop() { throw $stop };
+        function restart() { throw $restart };
+        function found(){ return handler.call(this, this, w, stop, restart) };
+        return w.with_walkers({
+                "try": found,
+                "throw": found,
+                "return": found,
+                "new": found,
+                "switch": found,
+                "break": found,
+                "continue": found,
+                "assign": found,
+                "call": found,
+                "if": found,
+                "for": found,
+                "for-in": found,
+                "while": found,
+                "do": found,
+                "return": found,
+                "unary-prefix": function(op) {
+                        if (op == "++" || op == "--")
+                                return found.apply(this, arguments);
+                },
+                "unary-postfix": function(op) {
+                        if (op == "++" || op == "--")
+                                return found.apply(this, arguments);
+                }
+        }, function(){
+                while (true) try {
+                        walk(ast);
+                        break;
+                } catch(ex) {
+                        if (ex === $stop) break;
+                        if (ex === $restart) continue;
+                        throw ex;
+                }
+        });
+};
+
 function ast_lift_variables(ast) {
         var w = ast_walker(), walk = w.walk, scope;
         function do_body(body, env) {
                 var _scope = scope;
                 scope = env;
                 body = MAP(body, walk);
-                var names = MAP(env.names, function(type, name){
+                var hash = {}, names = MAP(env.names, function(type, name){
                         if (type != "var") return MAP.skip;
                         if (!env.references(name)) return MAP.skip;
+                        hash[name] = true;
                         return [ name ];
                 });
                 if (names.length > 0) {
+                        // looking for assignments to any of these variables.
+                        // we can save considerable space by moving the definitions
+                        // in the var declaration.
+                        for_side_effects([ "block", body ], function(ast, walker, stop, restart) {
+                                if (ast[0] == "assign"
+                                    && ast[1] === true
+                                    && ast[2][0] == "name"
+                                    && HOP(hash, ast[2][1])) {
+                                        // insert the definition into the var declaration
+                                        for (var i = names.length; --i >= 0;) {
+                                                if (names[i][0] == ast[2][1]) {
+                                                        if (names[i][1]) // this name already defined, we must stop
+                                                                stop();
+                                                        names[i][1] = ast[3]; // definition
+                                                        names.push(names.splice(i, 1)[0]);
+                                                        break;
+                                                }
+                                        }
+                                        // remove this assignment from the AST.
+                                        var p = walker.parent();
+                                        if (p[0] == "seq") {
+                                                var a = p[2];
+                                                a.unshift(0, p.length);
+                                                p.splice.apply(p, a);
+                                        }
+                                        else if (p[0] == "stat") {
+                                                p.splice(0, p.length, "block"); // empty statement
+                                        }
+                                        else {
+                                                stop();
+                                        }
+                                        restart();
+                                }
+                                stop();
+                        });
                         body.unshift([ "var", names ]);
                 }
                 scope = _scope;
diff --git a/tmp/hoist.js b/tmp/hoist.js
index 95598001..4bf2b94d 100644
--- a/tmp/hoist.js
+++ b/tmp/hoist.js
@@ -1,13 +1,16 @@
 function foo(arg1, arg2, arg3, arg4, arg5, arg6) {
-        var a = 5, arg4 = 1;
-        var d = 10, mak = 20, buz = 30;
+        var a = 5;
+        {
+                var d = 10, mak = 20, buz = 30;
+                var q = buz * 2;
+        }
         if (moo) {
                 var a, b, c;
         }
         for (var arg1 = 0, d = 20; arg1 < 10; ++arg1)
                 console.log(arg3);
         for (var i in mak) {}
-        for (j in buz) {}
+        for (j in d) {}
         var d;
 
         function test() {