diff --git a/pip/commands/install.py b/pip/commands/install.py
index c95594ff846..d126e64a2a5 100644
--- a/pip/commands/install.py
+++ b/pip/commands/install.py
@@ -51,7 +51,11 @@ def __init__(self, *args, **kw):
             dest='target_dir',
             metavar='dir',
             default=None,
-            help='Install packages into <dir>.')
+            help='Install packages into <dir>. '
+                 'By default this will not replace existing files/folders in '
+                 '<dir>. Use --upgrade to replace existing packages in <dir> '
+                 'with new versions.'
+        )
 
         cmd_opts.add_option(
             '-d', '--download', '--download-dir', '--download-directory',
@@ -344,9 +348,32 @@ def run(self, options, args):
                     os.makedirs(options.target_dir)
                 lib_dir = distutils_scheme('', home=temp_target_dir)['purelib']
                 for item in os.listdir(lib_dir):
+                    target_item_dir = os.path.join(options.target_dir, item)
+                    if os.path.exists(target_item_dir):
+                        if not options.upgrade:
+                            logger.warn(
+                                'Target directory %s already exists. Specify '
+                                '--upgrade to force replacement.'
+                                % target_item_dir
+                            )
+                            continue
+                        if os.path.islink(target_item_dir):
+                            logger.warn(
+                                'Target directory %s already exists and is '
+                                'a link. Pip will not automatically replace '
+                                'links, please remove if replacement is '
+                                'desired.'
+                                % target_item_dir
+                            )
+                            continue
+                        if os.path.isdir(target_item_dir):
+                            shutil.rmtree(target_item_dir)
+                        else:
+                            os.remove(target_item_dir)
+
                     shutil.move(
                         os.path.join(lib_dir, item),
-                        os.path.join(options.target_dir, item),
+                        target_item_dir
                     )
                 shutil.rmtree(temp_target_dir)
             return requirement_set
diff --git a/tests/functional/test_install.py b/tests/functional/test_install.py
index 07f6a6f5b98..8a0a5b19781 100644
--- a/tests/functional/test_install.py
+++ b/tests/functional/test_install.py
@@ -527,6 +527,33 @@ def test_install_package_with_target(script):
         str(result)
     )
 
+    # Test repeated call without --upgrade, no files should have changed
+    result = script.pip('install', '-t', target_dir, "initools==0.1")
+    assert not Path('scratch') / 'target' / 'initools' in result.files_updated
+
+    # Test upgrade call, check that new version is installed
+    result = script.pip('install', '--upgrade', '-t',
+                        target_dir, "initools==0.2")
+    assert Path('scratch') / 'target' / 'initools' in result.files_updated, (
+        str(result)
+    )
+    egg_folder = (
+        Path('scratch') / 'target' / 'INITools-0.2-py%s.egg-info' % pyversion)
+    assert egg_folder in result.files_created, (
+        str(result)
+    )
+
+    # Test install and upgrade of single-module package
+    result = script.pip('install', '-t', target_dir, 'six')
+    assert Path('scratch') / 'target' / 'six.py' in result.files_created, (
+        str(result)
+    )
+
+    result = script.pip('install', '-t', target_dir, '--upgrade', 'six')
+    assert Path('scratch') / 'target' / 'six.py' in result.files_updated, (
+        str(result)
+    )
+
 
 def test_install_package_with_root(script, data):
     """