diff --git a/lang/funcs/filesystem.go b/lang/funcs/filesystem.go
index 12ed96af8..5a8341a7e 100644
--- a/lang/funcs/filesystem.go
+++ b/lang/funcs/filesystem.go
@@ -6,6 +6,7 @@ import (
 	"io/ioutil"
 	"os"
 	"path/filepath"
+	"strings"
 	"unicode/utf8"
 
 	"github.com/hashicorp/hcl2/hcl"
@@ -212,6 +213,10 @@ func MakeFileExistsFunc(baseDir string) function.Function {
 func MakeFileSetFunc(baseDir string) function.Function {
 	return function.New(&function.Spec{
 		Params: []function.Parameter{
+			{
+				Name: "path",
+				Type: cty.String,
+			},
 			{
 				Name: "pattern",
 				Type: cty.String,
@@ -219,18 +224,22 @@ func MakeFileSetFunc(baseDir string) function.Function {
 		},
 		Type: function.StaticReturnType(cty.Set(cty.String)),
 		Impl: func(args []cty.Value, retType cty.Type) (cty.Value, error) {
-			pattern := args[0].AsString()
-			pattern, err := homedir.Expand(pattern)
+			path := args[0].AsString()
+			pattern := args[1].AsString()
+
+			path, err := homedir.Expand(path)
 			if err != nil {
 				return cty.UnknownVal(cty.Set(cty.String)), fmt.Errorf("failed to expand ~: %s", err)
 			}
 
-			if !filepath.IsAbs(pattern) {
-				pattern = filepath.Join(baseDir, pattern)
+			if !filepath.IsAbs(path) {
+				path = filepath.Join(baseDir, path)
 			}
 
-			// Ensure that the path is canonical for the host OS
-			pattern = filepath.Clean(pattern)
+			// Join the path to the glob pattern, while ensuring the full
+			// pattern is canonical for the host OS. The joined path is
+			// automatically cleaned during this operation.
+			pattern = filepath.Join(path, pattern)
 
 			matches, err := filepath.Glob(pattern)
 			if err != nil {
@@ -249,6 +258,13 @@ func MakeFileSetFunc(baseDir string) function.Function {
 					continue
 				}
 
+				// Remove the path and file separator from matches.
+				match = strings.TrimPrefix(match, path+string(filepath.Separator))
+
+				// Return matches with the Terraform canonical pattern
+				// of forward slashes for cross-system compatibility.
+				match = filepath.ToSlash(match)
+
 				matchVals = append(matchVals, cty.StringVal(match))
 			}
 
@@ -375,9 +391,9 @@ func FileExists(baseDir string, path cty.Value) (cty.Value, error) {
 // The underlying function implementation works relative to a particular base
 // directory, so this wrapper takes a base directory string and uses it to
 // construct the underlying function before calling it.
-func FileSet(baseDir string, pattern cty.Value) (cty.Value, error) {
+func FileSet(baseDir string, path, pattern cty.Value) (cty.Value, error) {
 	fn := MakeFileSetFunc(baseDir)
-	return fn.Call([]cty.Value{pattern})
+	return fn.Call([]cty.Value{path, pattern})
 }
 
 // FileBase64 reads the contents of the file at the given path.
diff --git a/lang/funcs/filesystem_test.go b/lang/funcs/filesystem_test.go
index 03d5ba75a..b331de2d6 100644
--- a/lang/funcs/filesystem_test.go
+++ b/lang/funcs/filesystem_test.go
@@ -226,36 +226,43 @@ func TestFileExists(t *testing.T) {
 
 func TestFileSet(t *testing.T) {
 	tests := []struct {
+		Path    cty.Value
 		Pattern cty.Value
 		Want    cty.Value
 		Err     bool
 	}{
 		{
-			cty.StringVal("testdata/missing"),
-			cty.SetValEmpty(cty.String),
-			false,
-		},
-		{
-			cty.StringVal("testdata/missing*"),
-			cty.SetValEmpty(cty.String),
-			false,
-		},
-		{
-			cty.StringVal("*/missing"),
-			cty.SetValEmpty(cty.String),
-			false,
-		},
-		{
-			cty.StringVal("testdata"),
-			cty.SetValEmpty(cty.String),
-			false,
-		},
-		{
+			cty.StringVal("."),
 			cty.StringVal("testdata*"),
 			cty.SetValEmpty(cty.String),
 			false,
 		},
 		{
+			cty.StringVal("."),
+			cty.StringVal("testdata"),
+			cty.SetValEmpty(cty.String),
+			false,
+		},
+		{
+			cty.StringVal("."),
+			cty.StringVal("testdata/missing"),
+			cty.SetValEmpty(cty.String),
+			false,
+		},
+		{
+			cty.StringVal("."),
+			cty.StringVal("testdata/missing*"),
+			cty.SetValEmpty(cty.String),
+			false,
+		},
+		{
+			cty.StringVal("."),
+			cty.StringVal("*/missing"),
+			cty.SetValEmpty(cty.String),
+			false,
+		},
+		{
+			cty.StringVal("."),
 			cty.StringVal("testdata/*.txt"),
 			cty.SetVal([]cty.Value{
 				cty.StringVal("testdata/hello.txt"),
@@ -263,6 +270,7 @@ func TestFileSet(t *testing.T) {
 			false,
 		},
 		{
+			cty.StringVal("."),
 			cty.StringVal("testdata/hello.txt"),
 			cty.SetVal([]cty.Value{
 				cty.StringVal("testdata/hello.txt"),
@@ -270,6 +278,7 @@ func TestFileSet(t *testing.T) {
 			false,
 		},
 		{
+			cty.StringVal("."),
 			cty.StringVal("testdata/hello.???"),
 			cty.SetVal([]cty.Value{
 				cty.StringVal("testdata/hello.txt"),
@@ -277,6 +286,7 @@ func TestFileSet(t *testing.T) {
 			false,
 		},
 		{
+			cty.StringVal("."),
 			cty.StringVal("testdata/hello*"),
 			cty.SetVal([]cty.Value{
 				cty.StringVal("testdata/hello.tmpl"),
@@ -285,6 +295,7 @@ func TestFileSet(t *testing.T) {
 			false,
 		},
 		{
+			cty.StringVal("."),
 			cty.StringVal("*/hello.txt"),
 			cty.SetVal([]cty.Value{
 				cty.StringVal("testdata/hello.txt"),
@@ -292,6 +303,7 @@ func TestFileSet(t *testing.T) {
 			false,
 		},
 		{
+			cty.StringVal("."),
 			cty.StringVal("*/*.txt"),
 			cty.SetVal([]cty.Value{
 				cty.StringVal("testdata/hello.txt"),
@@ -299,6 +311,7 @@ func TestFileSet(t *testing.T) {
 			false,
 		},
 		{
+			cty.StringVal("."),
 			cty.StringVal("*/hello*"),
 			cty.SetVal([]cty.Value{
 				cty.StringVal("testdata/hello.tmpl"),
@@ -307,20 +320,67 @@ func TestFileSet(t *testing.T) {
 			false,
 		},
 		{
+			cty.StringVal("."),
 			cty.StringVal("["),
 			cty.SetValEmpty(cty.String),
 			true,
 		},
 		{
+			cty.StringVal("."),
 			cty.StringVal("\\"),
 			cty.SetValEmpty(cty.String),
 			true,
 		},
+		{
+			cty.StringVal("testdata"),
+			cty.StringVal("missing"),
+			cty.SetValEmpty(cty.String),
+			false,
+		},
+		{
+			cty.StringVal("testdata"),
+			cty.StringVal("missing*"),
+			cty.SetValEmpty(cty.String),
+			false,
+		},
+		{
+			cty.StringVal("testdata"),
+			cty.StringVal("*.txt"),
+			cty.SetVal([]cty.Value{
+				cty.StringVal("hello.txt"),
+			}),
+			false,
+		},
+		{
+			cty.StringVal("testdata"),
+			cty.StringVal("hello.txt"),
+			cty.SetVal([]cty.Value{
+				cty.StringVal("hello.txt"),
+			}),
+			false,
+		},
+		{
+			cty.StringVal("testdata"),
+			cty.StringVal("hello.???"),
+			cty.SetVal([]cty.Value{
+				cty.StringVal("hello.txt"),
+			}),
+			false,
+		},
+		{
+			cty.StringVal("testdata"),
+			cty.StringVal("hello*"),
+			cty.SetVal([]cty.Value{
+				cty.StringVal("hello.tmpl"),
+				cty.StringVal("hello.txt"),
+			}),
+			false,
+		},
 	}
 
 	for _, test := range tests {
-		t.Run(fmt.Sprintf("FileSet(\".\", %#v)", test.Pattern), func(t *testing.T) {
-			got, err := FileSet(".", test.Pattern)
+		t.Run(fmt.Sprintf("FileSet(\".\", %#v, %#v)", test.Path, test.Pattern), func(t *testing.T) {
+			got, err := FileSet(".", test.Path, test.Pattern)
 
 			if test.Err {
 				if err == nil {
diff --git a/lang/functions_test.go b/lang/functions_test.go
index 046c7b940..ac0ff91d9 100644
--- a/lang/functions_test.go
+++ b/lang/functions_test.go
@@ -281,10 +281,31 @@ func TestFunctions(t *testing.T) {
 
 		"fileset": {
 			{
-				`fileset("hello.*")`,
+				`fileset(".", "*/hello.*")`,
 				cty.SetVal([]cty.Value{
-					cty.StringVal("testdata/functions-test/hello.tmpl"),
-					cty.StringVal("testdata/functions-test/hello.txt"),
+					cty.StringVal("subdirectory/hello.tmpl"),
+					cty.StringVal("subdirectory/hello.txt"),
+				}),
+			},
+			{
+				`fileset(".", "subdirectory/hello.*")`,
+				cty.SetVal([]cty.Value{
+					cty.StringVal("subdirectory/hello.tmpl"),
+					cty.StringVal("subdirectory/hello.txt"),
+				}),
+			},
+			{
+				`fileset(".", "hello.*")`,
+				cty.SetVal([]cty.Value{
+					cty.StringVal("hello.tmpl"),
+					cty.StringVal("hello.txt"),
+				}),
+			},
+			{
+				`fileset("subdirectory", "hello.*")`,
+				cty.SetVal([]cty.Value{
+					cty.StringVal("hello.tmpl"),
+					cty.StringVal("hello.txt"),
 				}),
 			},
 		},
diff --git a/lang/testdata/functions-test/subdirectory/hello.tmpl b/lang/testdata/functions-test/subdirectory/hello.tmpl
new file mode 100644
index 000000000..f112ef899
--- /dev/null
+++ b/lang/testdata/functions-test/subdirectory/hello.tmpl
@@ -0,0 +1 @@
+Hello, ${name}!
\ No newline at end of file
diff --git a/lang/testdata/functions-test/subdirectory/hello.txt b/lang/testdata/functions-test/subdirectory/hello.txt
new file mode 100644
index 000000000..3462721fd
--- /dev/null
+++ b/lang/testdata/functions-test/subdirectory/hello.txt
@@ -0,0 +1 @@
+hello!
\ No newline at end of file
diff --git a/website/docs/configuration/functions/fileset.html.md b/website/docs/configuration/functions/fileset.html.md
index 35753dcad..749183469 100644
--- a/website/docs/configuration/functions/fileset.html.md
+++ b/website/docs/configuration/functions/fileset.html.md
@@ -12,10 +12,13 @@ description: |-
 earlier, see
 [0.11 Configuration Language: Interpolation Syntax](../../configuration-0-11/interpolation.html).
 
-`fileset` enumerates a set of regular file names given a pattern.
+`fileset` enumerates a set of regular file names given a path and pattern.
+The path is automatically removed from the resulting set of file names and any
+result still containing path separators always returns forward slash (`/`) as
+the path separator for cross-system compatibility.
 
 ```hcl
-fileset(pattern)
+fileset(path, pattern)
 ```
 
 Supported pattern matches:
@@ -32,16 +35,25 @@ before Terraform takes any actions.
 ## Examples
 
 ```
-> fileset("${path.module}/*.txt")
+> fileset(path.module, "files/*.txt")
 [
-  "path/to/module/hello.txt",
-  "path/to/module/world.txt",
+  "files/hello.txt",
+  "files/world.txt",
+]
+
+> fileset("${path.module}/files", "*.txt")
+[
+  "hello.txt",
+  "world.txt",
 ]
 ```
 
+A common use of `fileset` is to create one resource instance per matched file, using
+[the `for_each` meta-argument](/docs/configuration/resources.html#for_each-multiple-resource-instances-defined-by-a-map-or-set-of-strings):
+
 ```hcl
 resource "example_thing" "example" {
-  for_each = fileset("${path.module}/files/*")
+  for_each = fileset(path.module, "files/*")
 
   # other configuration using each.value
 }