diff --git a/mysql-test/r/ctype_create.result b/mysql-test/r/ctype_create.result
index e2dc8c1be66..0da76c556e2 100644
--- a/mysql-test/r/ctype_create.result
+++ b/mysql-test/r/ctype_create.result
@@ -1,15 +1,37 @@
 SET @@character_set_server=latin5;
-CREATE DATABASE db1 DEFAULT CHARACTER SET cp1251;
-USE db1;
-CREATE DATABASE db2;
-SHOW CREATE DATABASE db1;
+CREATE DATABASE mysqltest1 DEFAULT CHARACTER SET cp1251;
+USE mysqltest1;
+CREATE DATABASE mysqltest2;
+SHOW CREATE DATABASE mysqltest1;
 Database	Create Database
-db1	CREATE DATABASE `db1` /*!40100 DEFAULT CHARACTER SET cp1251 */
-SHOW CREATE DATABASE db2;
+mysqltest1	CREATE DATABASE `mysqltest1` /*!40100 DEFAULT CHARACTER SET cp1251 */
+SHOW CREATE DATABASE mysqltest2;
 Database	Create Database
-db2	CREATE DATABASE `db2` /*!40100 DEFAULT CHARACTER SET latin5 */
-DROP DATABASE db2;
-USE db1;
+mysqltest2	CREATE DATABASE `mysqltest2` /*!40100 DEFAULT CHARACTER SET latin5 */
+CREATE TABLE mysqltest2.t1 (a char(10));
+SHOW CREATE TABLE mysqltest2.t1;
+Table	Create Table
+t1	CREATE TABLE `t1` (
+  `a` char(10) default NULL
+) ENGINE=MyISAM DEFAULT CHARSET=latin5
+DROP TABLE mysqltest2.t1;
+ALTER DATABASE mysqltest2 DEFAULT CHARACTER SET latin7;
+CREATE TABLE mysqltest2.t1 (a char(10));
+SHOW CREATE TABLE mysqltest2.t1;
+Table	Create Table
+t1	CREATE TABLE `t1` (
+  `a` char(10) default NULL
+) ENGINE=MyISAM DEFAULT CHARSET=latin7
+DROP DATABASE mysqltest2;
+CREATE DATABASE mysqltest2 CHARACTER SET latin2;
+CREATE TABLE mysqltest2.t1 (a char(10));
+SHOW CREATE TABLE mysqltest2.t1;
+Table	Create Table
+t1	CREATE TABLE `t1` (
+  `a` char(10) default NULL
+) ENGINE=MyISAM DEFAULT CHARSET=latin2
+DROP DATABASE mysqltest2;
+USE mysqltest1;
 CREATE TABLE t1 (a char(10));
 SHOW CREATE TABLE t1;
 Table	Create Table
@@ -32,4 +54,4 @@ t1	CREATE TABLE `t1` (
   `a` char(10) collate latin1_german1_ci default NULL
 ) ENGINE=MyISAM DEFAULT CHARSET=latin1 COLLATE=latin1_german1_ci
 DROP TABLE t1;
-DROP DATABASE db1;
+DROP DATABASE mysqltest1;
diff --git a/mysql-test/t/ctype_create.test b/mysql-test/t/ctype_create.test
index bd8c22bb4f6..6d7ed6fc205 100644
--- a/mysql-test/t/ctype_create.test
+++ b/mysql-test/t/ctype_create.test
@@ -13,25 +13,48 @@
 
 
 SET @@character_set_server=latin5;
-CREATE DATABASE db1 DEFAULT CHARACTER SET cp1251;
-USE db1;
-CREATE DATABASE db2;
+CREATE DATABASE mysqltest1 DEFAULT CHARACTER SET cp1251;
+USE mysqltest1;
+CREATE DATABASE mysqltest2;
 
 #
 # This should be cp1251
 #
-SHOW CREATE DATABASE db1;
+SHOW CREATE DATABASE mysqltest1;
 
 #
-# This should take the default latin5 value from server level.
+# Database "mysqltest2" should take the default latin5 value from
+# the server level.
+# Afterwards, table "d2.t1" should inherit the default latin5 value from
+# the database "mysqltest2", using database option hash.
 #
-SHOW CREATE DATABASE db2;
-DROP DATABASE db2;
+SHOW CREATE DATABASE mysqltest2;
+CREATE TABLE mysqltest2.t1 (a char(10));
+SHOW CREATE TABLE mysqltest2.t1;
+DROP TABLE mysqltest2.t1;
+
+#
+# Now we check if the database charset is updated in
+# the database options hash when we ALTER DATABASE.
+#
+ALTER DATABASE mysqltest2 DEFAULT CHARACTER SET latin7;
+CREATE TABLE mysqltest2.t1 (a char(10));
+SHOW CREATE TABLE mysqltest2.t1;
+DROP DATABASE mysqltest2;
+
+#
+# Now we check if the database charset is removed from
+# the database option hash when we DROP DATABASE.
+#
+CREATE DATABASE mysqltest2 CHARACTER SET latin2;
+CREATE TABLE mysqltest2.t1 (a char(10));
+SHOW CREATE TABLE mysqltest2.t1;
+DROP DATABASE mysqltest2;
 
 #
 # Check that table value uses database level by default
 #
-USE db1;
+USE mysqltest1;
 CREATE TABLE t1 (a char(10));
 SHOW CREATE TABLE t1;
 DROP TABLE t1;
@@ -50,4 +73,4 @@ DROP TABLE t1;
 #
 #
 #
-DROP DATABASE db1;
+DROP DATABASE mysqltest1;
diff --git a/sql/mysql_priv.h b/sql/mysql_priv.h
index 72ac3af70ff..9553af13431 100644
--- a/sql/mysql_priv.h
+++ b/sql/mysql_priv.h
@@ -801,6 +801,7 @@ bool is_keyword(const char *name, uint len);
 
 #define MY_DB_OPT_FILE "db.opt"
 bool load_db_opt(THD *thd, const char *path, HA_CREATE_INFO *create);
+void my_dbopt_free(void);
 
 /*
   External variables
@@ -894,7 +895,8 @@ extern pthread_mutex_t LOCK_mysql_create_db,LOCK_Acl,LOCK_open,
        LOCK_delayed_status, LOCK_delayed_create, LOCK_crypt, LOCK_timezone,
        LOCK_slave_list, LOCK_active_mi, LOCK_manager,
        LOCK_global_system_variables, LOCK_user_conn;
-extern rw_lock_t LOCK_grant, LOCK_sys_init_connect, LOCK_sys_init_slave;
+extern rw_lock_t LOCK_grant, LOCK_sys_init_connect, LOCK_sys_init_slave,
+       LOCK_dboptions;
 extern pthread_cond_t COND_refresh, COND_thread_count, COND_manager;
 extern pthread_attr_t connection_attrib;
 extern I_List<THD> threads;
diff --git a/sql/mysqld.cc b/sql/mysqld.cc
index 436f693d734..75f1aaeb775 100644
--- a/sql/mysqld.cc
+++ b/sql/mysqld.cc
@@ -382,7 +382,8 @@ pthread_mutex_t LOCK_mysql_create_db, LOCK_Acl, LOCK_open, LOCK_thread_count,
 		LOCK_crypt, LOCK_bytes_sent, LOCK_bytes_received,
 	        LOCK_global_system_variables,
 		LOCK_user_conn, LOCK_slave_list, LOCK_active_mi;
-rw_lock_t	LOCK_grant, LOCK_sys_init_connect, LOCK_sys_init_slave;
+rw_lock_t	LOCK_grant, LOCK_sys_init_connect, LOCK_sys_init_slave,
+                LOCK_dboptions;
 pthread_cond_t COND_refresh,COND_thread_count, COND_slave_stopped,
 	       COND_slave_start;
 pthread_cond_t COND_thread_cache,COND_flush_thread_cache;
@@ -901,6 +902,7 @@ void clean_up(bool print_message)
     bitmap_free(&slave_error_mask);
 #endif
   my_tz_free();
+  my_dbopt_free();
 #ifndef NO_EMBEDDED_ACCESS_CHECKS
   acl_free(1);
   grant_free();
@@ -986,6 +988,7 @@ static void clean_up_mutexes()
   (void) pthread_mutex_destroy(&LOCK_mysql_create_db);
   (void) pthread_mutex_destroy(&LOCK_Acl);
   (void) rwlock_destroy(&LOCK_grant);
+  (void) rwlock_destroy(&LOCK_dboptions);
   (void) pthread_mutex_destroy(&LOCK_open);
   (void) pthread_mutex_destroy(&LOCK_thread_count);
   (void) pthread_mutex_destroy(&LOCK_mapped_file);
@@ -2408,6 +2411,7 @@ static int init_thread_environment()
   (void) my_rwlock_init(&LOCK_sys_init_connect, NULL);
   (void) my_rwlock_init(&LOCK_sys_init_slave, NULL);
   (void) my_rwlock_init(&LOCK_grant, NULL);
+  (void) my_rwlock_init(&LOCK_dboptions, NULL);
   (void) pthread_cond_init(&COND_thread_count,NULL);
   (void) pthread_cond_init(&COND_refresh,NULL);
   (void) pthread_cond_init(&COND_thread_cache,NULL);
diff --git a/sql/sql_db.cc b/sql/sql_db.cc
index 9db2198268a..47c50be33fa 100644
--- a/sql/sql_db.cc
+++ b/sql/sql_db.cc
@@ -39,6 +39,184 @@ static long mysql_rm_known_files(THD *thd, MY_DIR *dirp,
 				 const char *db, const char *path,
 				 uint level);
 
+/* Database options hash */
+static HASH dboptions;
+static my_bool dboptions_init= 0;
+
+/* Structure for database options */
+typedef struct my_dbopt_st
+{
+  char *name;			/* Database name                  */
+  uint name_length;		/* Database length name           */
+  CHARSET_INFO *charset;	/* Database default character set */
+} my_dbopt_t;
+
+/*
+  Function we use in the creation of our hash to get key.
+*/
+static byte* dboptions_get_key(my_dbopt_t *opt, uint *length,
+                               my_bool not_used __attribute__((unused)))
+{
+  *length= opt->name_length;
+  return (byte*) opt->name;
+}
+
+
+/*
+  Function to free dboptions hash element
+*/
+
+static void free_dbopt(void *dbopt)
+{
+  my_free((gptr) dbopt, MYF(0));
+}
+
+
+/* 
+  Initialize database option hash.
+*/
+
+static my_bool my_dbopt_init(void)
+{
+  my_bool rc;
+  rw_wrlock(&LOCK_dboptions);
+  if (!dboptions_init)
+  {
+    dboptions_init= 1;
+    rc= hash_init(&dboptions, lower_case_table_names ? 
+                  &my_charset_bin : system_charset_info,
+                  32, 0, 0, (hash_get_key) dboptions_get_key,
+                  free_dbopt,0);
+  }
+  else
+    rc= 0;
+  rw_unlock(&LOCK_dboptions);
+  return rc;
+}
+
+
+/* 
+  Free database option hash.
+*/
+void my_dbopt_free(void)
+{
+  rw_wrlock(&LOCK_dboptions);
+  if (dboptions_init)
+  {
+    hash_free(&dboptions);
+    dboptions_init= 0;
+  }
+  rw_unlock(&LOCK_dboptions);
+}
+
+
+/*
+  Find database options in the hash.
+  
+  DESCRIPTION
+    Search a database options in the hash, usings its path.
+    Fills "create" on success.
+  
+  RETURN VALUES
+    0 on success.
+    1 on error.
+*/
+
+static my_bool get_dbopt(const char *dbname, HA_CREATE_INFO *create)
+{
+  my_dbopt_t *opt;
+  uint length;
+  my_bool rc;
+  
+  if (my_dbopt_init())
+    return 1;
+  
+  length= (uint) strlen(dbname);
+  
+  rw_rdlock(&LOCK_dboptions);
+  if ((opt= (my_dbopt_t*) hash_search(&dboptions, (byte*) dbname, length)))
+  {
+    create->default_table_charset= opt->charset;
+    rc= 0;
+  }
+  else
+    rc= 1;
+  rw_unlock(&LOCK_dboptions);
+  
+  return rc;
+}
+
+
+/*
+  Writes database options into the hash.
+  
+  DESCRIPTION
+    Inserts database options into the hash, or updates
+    options if they are already in the hash.
+  
+  RETURN VALUES
+    0 on success.
+    1 on error.
+*/
+
+static my_bool put_dbopt(const char *dbname, HA_CREATE_INFO *create)
+{
+  my_dbopt_t *opt;
+  uint length;
+  my_bool rc;
+  
+  if (my_dbopt_init())
+    return 1;
+  
+  length= (uint) strlen(dbname);
+  
+  rw_wrlock(&LOCK_dboptions);
+  if ((opt= (my_dbopt_t*) hash_search(&dboptions, (byte*) dbname, length)))
+  { 
+    /* Options are already in hash, update them */
+    opt->charset= create->default_table_charset;
+    rc= 0;
+  }
+  else
+  {
+    /* Options are not in the hash, insert them */
+    char *tmp_name;
+    if (!my_multi_malloc(MYF(MY_WME | MY_ZEROFILL),
+                         &opt, sizeof(*opt), &tmp_name, length+1, NullS))
+    {
+      rc= 1;
+      goto ret;
+    }
+    
+    opt->name= tmp_name;
+    opt->name_length= length;
+    opt->charset= create->default_table_charset;
+    strmov(opt->name, dbname);
+    
+    if ((rc= my_hash_insert(&dboptions, (byte*) opt)))
+      my_free((gptr) opt, MYF(0));
+  }
+
+ret:
+  rw_unlock(&LOCK_dboptions);  
+  return rc;
+}
+
+
+/*
+  Deletes database options from the hash.
+*/
+
+void del_dbopt(const char *path)
+{
+  my_dbopt_t *opt;
+  rw_wrlock(&LOCK_dboptions);
+  if ((opt= (my_dbopt_t *)hash_search(&dboptions, path, strlen(path))))
+    hash_delete(&dboptions, (byte*) opt);
+  rw_unlock(&LOCK_dboptions);
+}
+
+
 /* 
   Create database options file:
 
@@ -56,15 +234,19 @@ static bool write_db_opt(THD *thd, const char *path, HA_CREATE_INFO *create)
   char buf[256]; // Should be enough for one option
   bool error=1;
 
+  if (!create->default_table_charset)
+    create->default_table_charset= thd->variables.collation_server;
+  
+  if (put_dbopt(path, create))
+    return 1;
+  
   if ((file=my_create(path, CREATE_MODE,O_RDWR | O_TRUNC,MYF(MY_WME))) >= 0)
   {
     ulong length;
-    CHARSET_INFO *cs= ((create && create->default_table_charset) ? 
-		       create->default_table_charset :
-		       thd->variables.collation_server);
     length= my_sprintf(buf,(buf,
 			    "default-character-set=%s\ndefault-collation=%s\n",
-			    cs->csname,cs->name));
+			    create->default_table_charset->csname,
+                            create->default_table_charset->name));
 
     /* Error is written by my_write */
     if (!my_write(file,(byte*) buf, length, MYF(MY_NABP+MY_WME)))
@@ -101,6 +283,12 @@ bool load_db_opt(THD *thd, const char *path, HA_CREATE_INFO *create)
 
   bzero((char*) create,sizeof(*create));
   create->default_table_charset= thd->variables.collation_server;
+  
+  /* Check if options for this database are already in the hash */
+  if (!get_dbopt(path, create))
+    DBUG_RETURN(0);	   
+  
+  /* Otherwise, load options from the .opt file */
   if ((file=my_open(path, O_RDONLY | O_SHARE, MYF(0))) >= 0)
   {
     IO_CACHE cache;
@@ -137,9 +325,16 @@ bool load_db_opt(THD *thd, const char *path, HA_CREATE_INFO *create)
 	}
       }
     }
-    error=0;
     end_io_cache(&cache);
     my_close(file,MYF(0));
+    /*
+      Put the loaded value into the hash.
+      Note that another thread could've added the same
+      entry to the hash after we called get_dbopt(),
+      but it's not an error, as put_dbopt() takes this
+      possibility into account.
+    */
+    error= put_dbopt(path, create);
   }
   DBUG_RETURN(error);
 }
@@ -338,6 +533,8 @@ int mysql_rm_db(THD *thd,char *db,bool if_exists, bool silent)
   int error = 0;
   char	path[FN_REFLEN+16], tmp_db[NAME_LEN+1];
   MY_DIR *dirp;
+  uint length;
+  my_dbopt_t *dbopt;
   DBUG_ENTER("mysql_rm_db");
 
   VOID(pthread_mutex_lock(&LOCK_mysql_create_db));
@@ -350,7 +547,11 @@ int mysql_rm_db(THD *thd,char *db,bool if_exists, bool silent)
   }
 
   (void) sprintf(path,"%s/%s",mysql_data_home,db);
-  unpack_dirname(path,path);			// Convert if not unix
+  length= unpack_dirname(path,path);		// Convert if not unix
+  strmov(path+length, MY_DB_OPT_FILE);		// Append db option file name
+  del_dbopt(path);				// Remove dboption hash entry
+  path[length]= '\0';				// Remove file name
+
   /* See if the directory exists */
   if (!(dirp = my_dir(path,MYF(MY_DONT_SORT))))
   {
diff --git a/sql/sql_parse.cc b/sql/sql_parse.cc
index 0cc25c4fe6e..3ce1c334f96 100644
--- a/sql/sql_parse.cc
+++ b/sql/sql_parse.cc
@@ -4805,6 +4805,7 @@ bool reload_acl_and_cache(THD *thd, ulong options, TABLE_LIST *tables,
       if (lock_global_read_lock(thd))
 	return 1;
     }
+    my_dbopt_free();
     result=close_cached_tables(thd,(options & REFRESH_FAST) ? 0 : 1, tables);
   }
   if (options & REFRESH_HOSTS)
diff --git a/sql/sql_table.cc b/sql/sql_table.cc
index a560bd40028..c0be95c0453 100644
--- a/sql/sql_table.cc
+++ b/sql/sql_table.cc
@@ -1158,6 +1158,23 @@ int mysql_create_table(THD *thd,const char *db, const char *table_name,
   }
 #endif
 
+  /*
+    If the table character set was not given explicitely,
+    let's fetch the database default character set and
+    apply it to the table.
+  */
+  if (!create_info->default_table_charset)
+  {
+    HA_CREATE_INFO db_info;
+    uint length;
+    char  path[FN_REFLEN];
+    (void) sprintf(path,"%s/%s", mysql_data_home, db);
+    length= unpack_dirname(path,path);             // Convert if not unix
+    strmov(path+length, MY_DB_OPT_FILE);
+    load_db_opt(thd, path, &db_info);
+    create_info->default_table_charset= db_info.default_table_charset;
+  }
+
   if (mysql_prepare_table(thd, create_info, fields,
 			  keys, tmp_table, db_options, file,
 			  key_info_buffer, &key_count,
diff --git a/sql/sql_yacc.yy b/sql/sql_yacc.yy
index 2860077b6a0..ccbaf7c0112 100644
--- a/sql/sql_yacc.yy
+++ b/sql/sql_yacc.yy
@@ -1023,7 +1023,7 @@ create:
 	  bzero((char*) &lex->create_info,sizeof(lex->create_info));
 	  lex->create_info.options=$2 | $4;
 	  lex->create_info.db_type= (enum db_type) lex->thd->variables.table_type;
-	  lex->create_info.default_table_charset= thd->variables.collation_database;
+	  lex->create_info.default_table_charset= NULL;
 	  lex->name=0;
 	}
 	create2
@@ -1815,7 +1815,7 @@ alter:
 	  lex->select_lex.db=lex->name=0;
 	  bzero((char*) &lex->create_info,sizeof(lex->create_info));
 	  lex->create_info.db_type= DB_TYPE_DEFAULT;
-	  lex->create_info.default_table_charset= thd->variables.collation_database;
+	  lex->create_info.default_table_charset= NULL;
 	  lex->create_info.row_type= ROW_TYPE_NOT_USED;
 	  lex->alter_info.reset();          
 	  lex->alter_info.is_simple= 1;