diff --git a/builtin/checkout-index.c b/builtin/checkout-index.c
index 4ac566b5e22cb2..63500438468b44 100644
--- a/builtin/checkout-index.c
+++ b/builtin/checkout-index.c
@@ -128,11 +128,18 @@ static int checkout_all(const char *prefix, int prefix_length, int include_spars
 	int i, errs = 0;
 	struct cache_entry *last_ce = NULL;
 
-	if (include_sparse)
-		ensure_full_index(&the_index);
-
 	for (i = 0; i < active_nr ; i++) {
 		struct cache_entry *ce = active_cache[i];
+		if (include_sparse && S_ISSPARSEDIR(ce->ce_mode)) {
+			/*
+			 * If the current entry is a sparse directory (and entries outside the
+			 * sparse checkout definition are included), expand the index and
+			 * continue the loop on the current index position (now pointing to the
+			 * first entry inside the expanded sparse directory).
+			 */
+			ensure_full_index(&the_index);
+			ce = active_cache[i];
+		}
 		if (!include_sparse && !path_in_sparse_checkout(ce->name, &the_index))
 			continue;
 		if (ce_stage(ce) != checkout_stage
diff --git a/t/t1092-sparse-checkout-compatibility.sh b/t/t1092-sparse-checkout-compatibility.sh
index 9b450c070a51ac..e623795b0fb979 100755
--- a/t/t1092-sparse-checkout-compatibility.sh
+++ b/t/t1092-sparse-checkout-compatibility.sh
@@ -1234,6 +1234,9 @@ test_expect_success 'sparse-index is not expanded' '
 	ensure_not_expanded stash apply stash@{0} &&
 	ensure_not_expanded stash drop stash@{0} &&
 
+	ensure_not_expanded stash -u &&
+	ensure_not_expanded stash pop &&
+
 	ensure_not_expanded stash create &&
 	oid=$(git -C sparse-index stash create) &&
 	ensure_not_expanded stash store -m "test" $oid &&
@@ -1383,28 +1386,6 @@ test_expect_success 'sparse index is not expanded: read-tree' '
 	ensure_not_expanded read-tree --prefix=deep/deeper2 -u deepest
 '
 
-# NEEDSWORK: although the full repository's index is _not_ expanded as part of
-# stash, a temporary index, which is _not_ sparse, is created when stashing and
-# applying a stash of untracked files. As a result, the test reports that it
-# finds an instance of `ensure_full_index`, but it does not carry with it the
-# performance implications of expanding the full repository index.
-test_expect_success 'sparse index is not expanded: stash -u' '
-	init_repos &&
-
-	mkdir -p sparse-index/folder1 &&
-	echo >>sparse-index/README.md &&
-	echo >>sparse-index/a &&
-	echo >>sparse-index/folder1/new &&
-
-	GIT_TRACE2_EVENT="$(pwd)/trace2.txt" GIT_TRACE2_EVENT_NESTING=10 \
-		git -C sparse-index stash -u &&
-	test_region index ensure_full_index trace2.txt &&
-
-	GIT_TRACE2_EVENT="$(pwd)/trace2.txt" GIT_TRACE2_EVENT_NESTING=10 \
-		git -C sparse-index stash pop &&
-	test_region index ensure_full_index trace2.txt
-'
-
 # NEEDSWORK: similar to `git add`, untracked files outside of the sparse
 # checkout definition are successfully stashed and unstashed.
 test_expect_success 'stash -u outside sparse checkout definition' '
diff --git a/unpack-trees.c b/unpack-trees.c
index 614e7ee38660f8..7229a4a820de5c 100644
--- a/unpack-trees.c
+++ b/unpack-trees.c
@@ -1961,6 +1961,30 @@ int unpack_trees(unsigned len, struct tree_desc *t, struct unpack_trees_options
 		}
 	}
 
+	/*
+	 * After unpacking trees, the index will be marked "sparse" if any sparse
+	 * directories have been encountered. However, the index may still be
+	 * sparse if there are no sparse directories. To make sure the index is
+	 * marked "sparse" as often as possible, the index is marked sparse if
+	 * all of the following are true:
+	 * - the command in progress allows use of a sparse index
+	 * - the index is not already sparse
+	 * - cone-mode sparse checkout with sparse index is enabled for the repo
+	 * - all index entries are inside of the sparse checkout cone
+	 */
+	if (!repo->settings.command_requires_full_index && !o->result.sparse_index &&
+	    core_apply_sparse_checkout && core_sparse_checkout_cone && repo->settings.sparse_index) {
+		o->result.sparse_index = COLLAPSED;
+		for (i = 0; i < o->result.cache_nr; i++) {
+			struct cache_entry *ce = o->result.cache[i];
+
+			if (!path_in_cone_mode_sparse_checkout(ce->name, &o->result)) {
+				o->result.sparse_index = COMPLETELY_FULL;
+				break;
+			}
+		}
+	}
+
 	ret = check_updates(o, &o->result) ? (-2) : 0;
 	if (o->dst_index) {
 		move_index_extensions(&o->result, o->src_index);