diff --git a/core/includes/file.inc b/core/includes/file.inc
index 133d64f..d6247f4 100644
--- a/core/includes/file.inc
+++ b/core/includes/file.inc
@@ -2322,12 +2322,97 @@ function drupal_mkdir($uri, $mode = NULL, $recursive = FALSE, $context = NULL) {
     $mode = variable_get('file_chmod_directory', 0775);
   }
 
-  if (!isset($context)) {
-    return mkdir($uri, $mode, $recursive);
+  if (file_uri_scheme($uri)) {
+    if (!isset($context)) {
+      $success = mkdir($uri, $mode, $recursive);
+    }
+    else {
+      $success = mkdir($uri, $mode, $recursive, $context);
+    }
   }
   else {
-    return mkdir($uri, $mode, $recursive, $context);
+    $success = drupal_mkdir_local($uri, $mode, $recursive, $context);
   }
+
+  return $success;
+}
+
+/**
+ * Creates a local directory.
+ *
+ * @param string $localpath
+ *   A local pathname.
+ * @param integer $mode
+ *   The mode will be passed only to new directories in the path. Defaults to
+ *   Drupal mode.
+ * @param boolean $recursive
+ *   Whether or not directories should be created recursively.
+ * @param array $context
+ *   Refer to http://php.net/manual/ref.stream.php
+ *
+ * @return boolean
+ *   TRUE on success, or FALSE on failure.
+ */
+function drupal_mkdir_local($localpath, $mode = NULL, $recursive = FALSE, $context = NULL) {
+  $mode = isset($mode) ? $mode : variable_get('file_chmod_directory', 0775);
+
+  // Note this does not literally recurse because we must create directories
+  // first, then change mode in reverse, to fix a PHP mkdir() bug.
+  // See http://drupal.org/node/1068266 for reasoning.
+  if ($recursive) {
+    // Get an array of path directories from from local directory path.
+    $directories = explode(DIRECTORY_SEPARATOR, $localpath);
+    $new = array();
+    if (is_array($directories)) {
+      // Create directories in order, ignoring mode for the moment.
+      $directory_path = '';
+      foreach ($directories as $directory) {
+        // Add to the current directory path, since we are descending.
+        $directory_path .= DIRECTORY_SEPARATOR . $directory;
+
+        // Check if the directory already exists. If so, skip it.
+        if (file_exists($directory_path)) {
+          continue;
+        }
+
+        // Set mkdir() $mode and $recursive defaults explicitly only so that we
+        // can also set $context (otherwise we would not bother passing them,
+        // since the defaults happen to be exactly what we want here).
+        if (!$success = mkdir($directory_path, 0777, FALSE, $context)) {
+          break;
+        }
+
+        // Flag new directories so we know to change them mode below.
+        $new[] = $directory_path;
+      }
+
+      // Now change mode in reverse.
+      $directories = array_reverse($directories);
+      foreach($directories as $directory) {
+        // Get the current directory path from part of the entire path, up to
+        // and including the current directory. Since we are in reverse now, use
+        // the position and length of the last directory with this name (since
+        // there may be multiple directories by the same name in the path).
+        $length = strrpos($localpath, $directory) + strlen($directory);
+        $directory_path = substr($localpath, 0, $length);
+
+        // Check if the directory already existed. If so, leave the mode alone.
+        if (!in_array($directory_path, $new)) {
+          continue;
+        }
+
+        if (!$success = drupal_chmod($directory_path, $mode)) {
+          break;
+        }
+      }
+    }
+  }
+  else {
+    // If this is not recursive, PHP's mkdir() needs no adjustment.
+    $success = mkdir($localpath, $mode, $recursive, $context);
+  }
+
+  return $success;
 }
 
 /**
diff --git a/core/lib/Drupal/Core/StreamWrapper/LocalStream.php b/core/lib/Drupal/Core/StreamWrapper/LocalStream.php
index b6e1dd1..1f5d574 100644
--- a/core/lib/Drupal/Core/StreamWrapper/LocalStream.php
+++ b/core/lib/Drupal/Core/StreamWrapper/LocalStream.php
@@ -425,10 +425,10 @@ abstract class LocalStream implements StreamWrapperInterface {
       $localpath = $this->getLocalPath($uri);
     }
     if ($options & STREAM_REPORT_ERRORS) {
-      return mkdir($localpath, $mode, $recursive);
+      return drupal_mkdir_local($localpath, $mode, $recursive);
     }
     else {
-      return @mkdir($localpath, $mode, $recursive);
+      return @drupal_mkdir_local($localpath, $mode, $recursive);
     }
   }