diff --git a/bin/ansible b/bin/ansible
index f254eaf3ff..844004ecc4 100755
--- a/bin/ansible
+++ b/bin/ansible
@@ -98,11 +98,11 @@ class Cli(object):
 
     # ----------------------------------------------
 
-    def get_polling_runner(self, old_runner, hosts, jid):
+    def get_polling_runner(self, old_runner, jid):
         return ansible.runner.Runner(
             module_name='async_status', module_path=old_runner.module_path,
             module_args="jid=%s" % jid, remote_user=old_runner.remote_user,
-            remote_pass=old_runner.remote_pass, host_list=hosts,
+            remote_pass=old_runner.remote_pass, inventory=old_runner.inventory,
             timeout=old_runner.timeout, forks=old_runner.forks,
             remote_port=old_runner.remote_port, pattern='*', 
             callbacks=self.silent_callbacks, verbose=True,
@@ -138,8 +138,10 @@ class Cli(object):
 
             clock = options.seconds
             while (clock >= 0):
-                polling_runner = self.get_polling_runner(runner, poll_hosts, jid)
+                runner.inventory.restrict_to(poll_hosts)
+                polling_runner = self.get_polling_runner(runner, jid)
                 poll_results = polling_runner.run()
+                runner.inventory.lift_restrictions()
                 if poll_results is None:
                     break
                 for (host, host_result) in poll_results['contacted'].iteritems():
diff --git a/lib/ansible/inventory.py b/lib/ansible/inventory.py
new file mode 100644
index 0000000000..05f8001fb1
--- /dev/null
+++ b/lib/ansible/inventory.py
@@ -0,0 +1,293 @@
+# (c) 2012, Michael DeHaan <michael.dehaan@gmail.com>
+#
+# This file is part of Ansible
+#
+# Ansible is free software: you can redistribute it and/or modify
+# it under the terms of the GNU General Public License as published by
+# the Free Software Foundation, either version 3 of the License, or
+# (at your option) any later version.
+#
+# Ansible is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with Ansible.  If not, see <http://www.gnu.org/licenses/>.
+
+#############################################
+
+import fnmatch
+import os
+import subprocess
+
+import constants as C
+from ansible import errors
+from ansible import utils
+
+class Inventory(object):
+    """ Host inventory for ansible.
+
+    The inventory is either a simple text file with systems and [groups] of 
+    systems, or a script that will be called with --list or --host.
+    """
+
+    def __init__(self, host_list=C.DEFAULT_HOST_LIST, extra_vars=None):
+
+        self._restriction = None
+        self._variables = {}
+
+        if type(host_list) == list:
+            self.host_list = host_list
+            self.groups = dict(ungrouped=host_list)
+            self._is_script = False
+            return
+
+        inventory_file = os.path.expanduser(host_list)
+        if not os.path.exists(inventory_file):
+            raise errors.AnsibleFileNotFound("inventory file not found: %s" % host_list)
+
+        self.inventory_file = os.path.abspath(inventory_file)
+
+        if os.access(self.inventory_file, os.X_OK):
+            self.host_list, self.groups = self._parse_from_script(extra_vars)
+            self._is_script = True
+        else:
+            self.host_list, self.groups = self._parse_from_file()
+            self._is_script = False
+
+    # *****************************************************
+    # Public API
+
+    def list_hosts(self, pattern="all"):
+        """ Return a list of hosts [matching the pattern] """
+        if self._restriction is None:
+            host_list = self.host_list
+        else:
+            host_list = [ h for h in self.host_list if h in self._restriction ]
+        return [ h for h in host_list if self._matches(h, pattern) ]
+
+    def restrict_to(self, restriction):
+        """ Restrict list operations to the hosts given in restriction """
+        if type(restriction)!=list:
+            restriction = [ restriction ]
+
+        self._restriction = restriction
+
+    def lift_restriction(self):
+        """ Do not restrict list operations """
+        self._restriction = None
+
+    def get_variables(self, host, extra_vars=None):
+        """ Return the variables associated with this host. """
+
+        if host in self._variables:
+            return self._variables[host].copy()
+
+        if not self._is_script:
+            return {}
+
+        return self._get_variables_from_script(host, extra_vars)
+
+    # *****************************************************
+
+    def _parse_from_file(self):
+        ''' parse a textual host file '''
+
+        results = []
+        groups = dict(ungrouped=[])
+        lines = file(self.inventory_file).read().split("\n")
+        if "---" in lines:
+            return self._parse_yaml()
+        group_name = 'ungrouped'
+        for item in lines:
+            item = item.lstrip().rstrip()
+            if item.startswith("#"):
+                # ignore commented out lines
+                pass
+            elif item.startswith("["):
+                # looks like a group
+                group_name = item.replace("[","").replace("]","").lstrip().rstrip()
+                groups[group_name] = []
+            elif item != "":
+                # looks like a regular host
+                if ":" in item:
+                    # a port was specified
+                    item, port = item.split(":")
+                    try:
+                        port = int(port)
+                    except ValueError:
+                        raise errors.AnsibleError("SSH port for %s in inventory (%s) should be numerical."%(item, port))
+                    self._set_variable(item, "ansible_ssh_port", port)
+                groups[group_name].append(item)
+                if not item in results:
+                    results.append(item)
+        return (results, groups)
+
+    # *****************************************************
+
+    def _parse_from_script(self, extra_vars=None):
+        ''' evaluate a script that returns list of hosts by groups '''
+
+        results = []
+        groups = dict(ungrouped=[])
+
+        cmd = [self.inventory_file, '--list']
+
+        if extra_vars:
+            cmd.extend(['--extra-vars', extra_vars])
+
+        cmd = subprocess.Popen(cmd, stdout=subprocess.PIPE, stderr=subprocess.PIPE, shell=False)
+        out, err = cmd.communicate()
+        rc = cmd.returncode
+        if rc:
+            raise errors.AnsibleError("%s: %s" % self.inventory_file, err)
+
+        try:
+            groups = utils.json_loads(out)
+        except:
+            raise errors.AnsibleError("invalid JSON response from script: %s" % self.inventory_file)
+
+        for (groupname, hostlist) in groups.iteritems():
+            for host in hostlist:
+                if host not in results:
+                    results.append(host)
+        return (results, groups)
+
+    # *****************************************************
+
+    def _parse_yaml(self):
+        """ Load the inventory from a yaml file.
+
+        returns hosts and groups"""
+        data = utils.parse_yaml_from_file(self.inventory_file)
+
+        if type(data) != list:
+            raise errors.AnsibleError("YAML inventory should be a list.")
+
+        hosts = []
+        groups = {}
+
+        ungrouped = []
+
+        for item in data:
+            if type(item) == dict:
+                if "group" in item:
+                    group_name = item["group"]
+
+                    group_vars = []
+                    if "vars" in item:
+                        group_vars = item["vars"]
+
+                    group_hosts = []
+                    if "hosts" in item:
+                        for host in item["hosts"]:
+                            host_name = self._parse_yaml_host(host, group_vars)
+                            group_hosts.append(host_name)
+
+                    groups[group_name] = group_hosts
+                    hosts.extend(group_hosts)
+
+                elif "host" in item:
+                    host_name = self._parse_yaml_host(item)
+                    hosts.append(host_name)
+                    ungrouped.append(host_name)
+            else:
+                host_name = self._parse_yaml_host(item)
+                hosts.append(host_name)
+                ungrouped.append(host_name)
+
+        # filter duplicate hosts
+        output_hosts = []
+        for host in hosts:
+            if host not in output_hosts:
+                output_hosts.append(host)
+
+        if len(ungrouped) > 0 :
+            # hosts can be defined top-level, but also in a group
+            really_ungrouped = []
+            for host in ungrouped:
+                already_grouped = False
+                for name, group_hosts in groups.items():
+                    if host in group_hosts:
+                        already_grouped = True
+                if not already_grouped:
+                    really_ungrouped.append(host)
+            groups["ungrouped"] = really_ungrouped
+
+        return output_hosts, groups
+
+    def _parse_yaml_host(self, item, variables=[]):
+        def set_variables(host, variables):
+            for variable in variables:
+                if len(variable) != 1:
+                    raise AnsibleError("Only one item expected in %s"%(variable))
+                k, v = variable.items()[0]
+                self._set_variable(host, k, v)
+
+        if type(item) in [str, unicode]:
+            set_variables(item, variables)
+            return item
+        elif type(item) == dict:
+            if "host" in item:
+                host_name = item["host"]
+                set_variables(host_name, variables)
+
+                if "vars" in item:
+                    set_variables(host_name, item["vars"])
+
+                return host_name
+        else:
+            raise AnsibleError("Unknown item in inventory: %s"%(item))
+
+
+    def _get_variables_from_script(self, host, extra_vars=None):
+        ''' support per system variabes from external variable scripts, see web docs '''
+
+        cmd = [self.inventory_file, '--host', host]
+
+        if extra_vars:
+            cmd.extend(['--extra-vars', extra_vars])
+
+        cmd = subprocess.Popen(cmd,
+            stdout=subprocess.PIPE,
+            stderr=subprocess.PIPE,
+            shell=False
+        )
+        out, err = cmd.communicate()
+
+        variables = {}
+        try:
+            variables = utils.json_loads(out)
+        except:
+            raise errors.AnsibleError("%s returned invalid result when called with hostname %s" % (
+                self.inventory_file,
+                host
+            ))
+        return variables
+
+    def _set_variable(self, host, key, value):
+        if not host in self._variables:
+            self._variables[host] = {}
+        self._variables[host][key] = value
+
+    def _matches(self, host_name, pattern):
+        ''' returns if a hostname is matched by the pattern '''
+
+        # a pattern is in fnmatch format but more than one pattern
+        # can be strung together with semicolons. ex:
+        #   atlanta-web*.example.com;dc-web*.example.com
+
+        if host_name == '':
+            return False
+        pattern = pattern.replace(";",":")
+        subpatterns = pattern.split(":")
+        for subpattern in subpatterns:
+            if subpattern == 'all':
+                return True
+            if fnmatch.fnmatch(host_name, subpattern):
+                return True
+            elif subpattern in self.groups:
+                if host_name in self.groups[subpattern]:
+                    return True
+        return False
diff --git a/lib/ansible/playbook.py b/lib/ansible/playbook.py
index 695895624b..c18e60c741 100755
--- a/lib/ansible/playbook.py
+++ b/lib/ansible/playbook.py
@@ -17,6 +17,7 @@
 
 #############################################
 
+import ansible.inventory
 import ansible.runner
 import ansible.constants as C
 from ansible import utils
@@ -68,7 +69,6 @@ class PlayBook(object):
         if playbook is None or callbacks is None or runner_callbacks is None or stats is None:
             raise Exception('missing required arguments')
 
-        self.host_list        = host_list
         self.module_path      = module_path
         self.forks            = forks
         self.timeout          = timeout
@@ -88,9 +88,13 @@ class PlayBook(object):
         self.basedir          = os.path.dirname(playbook)
         self.playbook         = self._parse_playbook(playbook)
 
-        self.host_list, self.groups = ansible.runner.Runner.parse_hosts(
-            host_list, override_hosts=self.override_hosts, extra_vars=self.extra_vars)
-   
+        if override_hosts is not None:
+            if type(override_hosts) != list:
+                raise errors.AnsibleError("override hosts must be a list")
+            self.inventory = ansible.inventory.Inventory(override_hosts)
+        else:
+            self.inventory = ansible.inventory.Inventory(host_list)
+
     # *****************************************************
 
     def _get_vars(self, play, dirname):
@@ -233,7 +237,6 @@ class PlayBook(object):
     def _async_poll(self, runner, hosts, async_seconds, async_poll_interval, only_if):
         ''' launch an async job, if poll_interval is set, wait for completion '''
 
-        runner.host_list = hosts
         runner.background = async_seconds
         results = runner.run()
         self.stats.compute(results, poll=True)
@@ -257,7 +260,7 @@ class PlayBook(object):
             return results
 
         clock = async_seconds
-        runner.host_list = self.hosts_to_poll(results)
+        host_list = self.hosts_to_poll(results)
 
         poll_results = results
         while (clock >= 0):
@@ -267,11 +270,13 @@ class PlayBook(object):
             runner.module_name = 'async_status'
             runner.background  = 0  
             runner.pattern     = '*'
+            self.inventory.restrict_to(host_list)
             poll_results       = runner.run()
             self.stats.compute(poll_results, poll=True)
-            runner.host_list       = self.hosts_to_poll(poll_results)
+            host_list          = self.hosts_to_poll(poll_results)
+            self.inventory.lift_restriction()
 
-            if len(runner.host_list) == 0:
+            if len(host_list) == 0:
                 break
             if poll_results is None:
                 break
@@ -298,15 +303,16 @@ class PlayBook(object):
 
     # *****************************************************
 
-    def _run_module(self, pattern, host_list, module, args, vars, remote_user, 
+    def _run_module(self, pattern, module, args, vars, remote_user, 
         async_seconds, async_poll_interval, only_if, sudo, transport):
         ''' run a particular module step in a playbook '''
 
-        hosts = [ h for h in host_list if (h not in self.stats.failures) and (h not in self.stats.dark)]
+        hosts = [ h for h in self.inventory.list_hosts() if (h not in self.stats.failures) and (h not in self.stats.dark)]
+        self.inventory.restrict_to(hosts)
 
         runner = ansible.runner.Runner(
-            pattern=pattern, groups=self.groups, module_name=module,
-            module_args=args, host_list=hosts, forks=self.forks,
+            pattern=pattern, inventory=self.inventory, module_name=module,
+            module_args=args, forks=self.forks,
             remote_pass=self.remote_pass, module_path=self.module_path,
             timeout=self.timeout, remote_user=remote_user, 
             remote_port=self.remote_port, module_vars=vars,
@@ -317,13 +323,16 @@ class PlayBook(object):
         )
 
         if async_seconds == 0:
-            return runner.run()
+            results = runner.run()
         else:
-            return self._async_poll(runner, hosts, async_seconds, async_poll_interval, only_if)
+            results = self._async_poll(runner, hosts, async_seconds, async_poll_interval, only_if)
+
+        self.inventory.lift_restriction()
+        return results
 
     # *****************************************************
 
-    def _run_task(self, pattern=None, host_list=None, task=None, 
+    def _run_task(self, pattern=None, task=None, 
         remote_user=None, handlers=None, conditional=False, sudo=False, transport=None):
         ''' run a single task in the playbook and recursively run any subtasks.  '''
 
@@ -354,7 +363,7 @@ class PlayBook(object):
 
         # load up an appropriate ansible runner to
         # run the task in parallel
-        results = self._run_module(pattern, host_list, module_name, 
+        results = self._run_module(pattern, module_name, 
             module_args, module_vars, remote_user, async_seconds, 
             async_poll_interval, only_if, sudo, transport)
 
@@ -406,7 +415,7 @@ class PlayBook(object):
 
     # *****************************************************
 
-    def _do_conditional_imports(self, vars_files, host_list):
+    def _do_conditional_imports(self, vars_files):
         ''' handle the vars_files section, which can contain variables '''
         
         # FIXME: save parsed variable results in memory to avoid excessive re-reading/parsing
@@ -417,7 +426,7 @@ class PlayBook(object):
  
         if type(vars_files) != list:
             raise errors.AnsibleError("vars_files must be a list")
-        for host in host_list:
+        for host in self.inventory.list_hosts():
             cache_vars = SETUP_CACHE.get(host,{}) 
             SETUP_CACHE[host] = cache_vars
             for filename in vars_files:
@@ -460,16 +469,18 @@ class PlayBook(object):
 
         if vars_files is not None:
             self.callbacks.on_setup_secondary()
-            self._do_conditional_imports(vars_files, self.host_list)
+            self._do_conditional_imports(vars_files)
         else:
             self.callbacks.on_setup_primary()
 
-        host_list = [ h for h in self.host_list if not (h in self.stats.failures or h in self.stats.dark) ]
+        host_list = [ h for h in self.inventory.list_hosts(pattern) 
+                        if not (h in self.stats.failures or h in self.stats.dark) ]
+        self.inventory.restrict_to(host_list)
 
         # push any variables down to the system
         setup_results = ansible.runner.Runner(
-            pattern=pattern, groups=self.groups, module_name='setup',
-            module_args=vars, host_list=host_list,
+            pattern=pattern, module_name='setup',
+            module_args=vars, inventory=self.inventory,
             forks=self.forks, module_path=self.module_path,
             timeout=self.timeout, remote_user=user,
             remote_pass=self.remote_pass, remote_port=self.remote_port,
@@ -479,6 +490,8 @@ class PlayBook(object):
         ).run()
         self.stats.compute(setup_results, setup=True)
 
+        self.inventory.lift_restriction()
+
         # now for each result, load into the setup cache so we can
         # let runner template out future commands
         setup_ok = setup_results.get('contacted', {})
@@ -494,7 +507,6 @@ class PlayBook(object):
                     SETUP_CACHE[h].update(extra_vars)
                 except:
                     SETUP_CACHE[h] = extra_vars
-        return host_list
 
     # *****************************************************
 
@@ -530,7 +542,6 @@ class PlayBook(object):
         for task in tasks:
             self._run_task(
                 pattern=pattern,
-                host_list=self.host_list,
                 task=task, 
                 handlers=handlers,
                 remote_user=user,
@@ -547,16 +558,17 @@ class PlayBook(object):
         for task in handlers:
             triggered_by = task.get('run', None)
             if type(triggered_by) == list:
+                self.inventory.restrict_to(triggered_by)
                 self._run_task(
                    pattern=pattern, 
                    task=task,
                    handlers=[],
-                   host_list=triggered_by,
                    conditional=True,
                    remote_user=user,
                    sudo=sudo,
                    transport=transport
                 )
+                self.inventory.lift_restriction()
 
         # end of execution for this particular pattern.  Multiple patterns
         # can be in a single playbook file
diff --git a/lib/ansible/runner.py b/lib/ansible/runner.py
index 78d0160947..186feb3478 100755
--- a/lib/ansible/runner.py
+++ b/lib/ansible/runner.py
@@ -18,7 +18,6 @@
 
 ################################################
 
-import fnmatch
 import multiprocessing
 import signal
 import os
@@ -32,6 +31,7 @@ import getpass
 
 import ansible.constants as C 
 import ansible.connection
+import ansible.inventory
 from ansible import utils
 from ansible import errors
 from ansible import callbacks as ans_callbacks
@@ -68,8 +68,6 @@ def _executor_hook(job_queue, result_queue):
 
 class Runner(object):
 
-    _external_variable_script = None
-
     def __init__(self, host_list=C.DEFAULT_HOST_LIST, module_path=C.DEFAULT_MODULE_PATH,
         module_name=C.DEFAULT_MODULE_NAME, module_args=C.DEFAULT_MODULE_ARGS, 
         forks=C.DEFAULT_FORKS, timeout=C.DEFAULT_TIMEOUT, pattern=C.DEFAULT_PATTERN,
@@ -77,7 +75,8 @@ class Runner(object):
         sudo_pass=C.DEFAULT_SUDO_PASS, remote_port=C.DEFAULT_REMOTE_PORT, background=0, 
         basedir=None, setup_cache=None, transport=C.DEFAULT_TRANSPORT, 
         conditional='True', groups={}, callbacks=None, verbose=False,
-        debug=False, sudo=False, extra_vars=None, module_vars=None, is_playbook=False):
+        debug=False, sudo=False, extra_vars=None, 
+        module_vars=None, is_playbook=False, inventory=None):
    
         if setup_cache is None:
             setup_cache = {}
@@ -93,11 +92,10 @@ class Runner(object):
         self.transport = transport
         self.connector = ansible.connection.Connection(self, self.transport)
 
-        if type(host_list) == str:
-            self.host_list, self.groups = self.parse_hosts(host_list)
+        if inventory is None:
+            self.inventory = ansible.inventory.Inventory(host_list, extra_vars)
         else:
-            self.host_list = host_list
-            self.groups    = groups
+            self.inventory = inventory
 
         self.setup_cache = setup_cache
         self.conditional = conditional
@@ -129,106 +127,17 @@ class Runner(object):
         self._tmp_paths  = {}
         random.seed()
 
-
-    # *****************************************************
-
-    @classmethod
-    def parse_hosts_from_regular_file(cls, host_list):
-        ''' parse a textual host file '''
-
-        results = []
-        groups = dict(ungrouped=[])
-        lines = file(host_list).read().split("\n")
-        group_name = 'ungrouped'
-        for item in lines:
-            item = item.lstrip().rstrip()
-            if item.startswith("#"):
-                # ignore commented out lines
-                pass
-            elif item.startswith("["):
-                # looks like a group
-                group_name = item.replace("[","").replace("]","").lstrip().rstrip()
-                groups[group_name] = []
-            elif item != "":
-                # looks like a regular host
-                groups[group_name].append(item)
-                if not item in results:
-                    results.append(item)
-        return (results, groups)
-
-    # *****************************************************
-
-    @classmethod
-    def parse_hosts_from_script(cls, host_list, extra_vars):
-        ''' evaluate a script that returns list of hosts by groups '''
-
-        results = []
-        groups = dict(ungrouped=[])
-        host_list = os.path.abspath(host_list)
-        cls._external_variable_script = host_list
-        cmd = [host_list, '--list']
-        if extra_vars:
-            cmd.extend(['--extra-vars', extra_vars])
-        cmd = subprocess.Popen(cmd, stdout=subprocess.PIPE, stderr=subprocess.PIPE, shell=False)
-        out, err = cmd.communicate()
-        rc = cmd.returncode
-        if rc:
-            raise errors.AnsibleError("%s: %s" % (host_list, err))
-        try:
-            groups = utils.json_loads(out)
-        except:
-            raise errors.AnsibleError("invalid JSON response from script: %s" % host_list)
-        for (groupname, hostlist) in groups.iteritems():
-            for host in hostlist:
-                if host not in results:
-                    results.append(host)
-        return (results, groups)
-
     # *****************************************************
 
     @classmethod
     def parse_hosts(cls, host_list, override_hosts=None, extra_vars=None):
         ''' parse the host inventory file, returns (hosts, groups) '''
-
-        if override_hosts is not None:
-            if type(override_hosts) != list:
-                raise errors.AnsibleError("override hosts must be a list")
-            return (override_hosts, dict(ungrouped=override_hosts))
-
-        if type(host_list) == list:
-            raise Exception("function can only be called on inventory files")
-
-        host_list = os.path.expanduser(host_list)
-        if not os.path.exists(host_list):
-            raise errors.AnsibleFileNotFound("inventory file not found: %s" % host_list)
-
-        if not os.access(host_list, os.X_OK):
-            return Runner.parse_hosts_from_regular_file(host_list)
+        if override_hosts is None:
+            inventory = ansible.inventory.Inventory(host_list, extra_vars)
         else:
-            return Runner.parse_hosts_from_script(host_list, extra_vars)
+            inventory = ansible.inventory.Inventory(override_hosts)
 
-    # *****************************************************
-
-    def _matches(self, host_name, pattern):
-        ''' returns if a hostname is matched by the pattern '''
-
-        # a pattern is in fnmatch format but more than one pattern
-        # can be strung together with semicolons. ex:
-        #   atlanta-web*.example.com;dc-web*.example.com
-
-        if host_name == '':
-            return False
-        pattern = pattern.replace(";",":")
-        subpatterns = pattern.split(":")
-        for subpattern in subpatterns:
-            if subpattern == 'all':
-                return True
-            if fnmatch.fnmatch(host_name, subpattern):
-                return True
-            elif subpattern in self.groups:
-                if host_name in self.groups[subpattern]:
-                    return True
-        return False
+        return inventory.host_list, inventory.groups
 
     # *****************************************************
 
@@ -298,34 +207,6 @@ class Runner(object):
 
     # *****************************************************
 
-    def _add_variables_from_script(self, conn, inject):
-        ''' support per system variabes from external variable scripts, see web docs '''
-
-        host = conn.host
-
-        cmd = [Runner._external_variable_script, '--host', host]
-        if self.extra_vars:
-            cmd.extend(['--extra-vars', self.extra_vars])
-
-        cmd = subprocess.Popen(cmd,
-            stdout=subprocess.PIPE,
-            stderr=subprocess.PIPE,
-            shell=False
-        )
-        out, err = cmd.communicate()
-        inject2 = {}
-        try:
-            inject2 = utils.json_loads(out)
-        except:
-            raise errors.AnsibleError("%s returned invalid result when called with hostname %s" % (
-                Runner._external_variable_script,
-                host
-            ))
-        # store injected variables in the templates
-        inject.update(inject2)
-
-    # *****************************************************
-
     def _add_setup_vars(self, inject, args):
         ''' setup module variables need special handling '''
 
@@ -379,8 +260,9 @@ class Runner(object):
         if not eval(conditional):
             return [ utils.smjson(dict(skipped=True)), None, 'skipped' ]
 
-        if Runner._external_variable_script is not None:
-            self._add_variables_from_script(conn, inject)
+        host_variables = self.inventory.get_variables(conn.host, self.extra_vars)
+        inject.update(host_variables)
+
         if self.module_name == 'setup':
             args = self._add_setup_vars(inject, args)
             args = self._add_setup_metadata(args)
@@ -714,13 +596,6 @@ class Runner(object):
 
     # *****************************************************
 
-    def _match_hosts(self, pattern):
-        ''' return all matched hosts fitting a pattern '''
-
-        return [ h for h in self.host_list if self._matches(h, pattern) ]
-
-    # *****************************************************
-
     def _parallel_exec(self, hosts):
         ''' handles mulitprocessing when more than 1 fork is required '''
 
@@ -767,7 +642,7 @@ class Runner(object):
                 results2["dark"][host] = result
 
         # hosts which were contacted but never got a chance to return
-        for host in self._match_hosts(self.pattern):
+        for host in self.inventory.list_hosts(self.pattern):
             if not (host in results2['dark'] or host in results2['contacted']):
                 results2["dark"][host] = {}
 
@@ -779,7 +654,7 @@ class Runner(object):
         ''' xfer & run module on all matched hosts '''
        
         # find hosts that match the pattern
-        hosts = self._match_hosts(self.pattern)
+        hosts = self.inventory.list_hosts(self.pattern)
         if len(hosts) == 0:
             self.callbacks.on_no_hosts()
             return dict(contacted={}, dark={})
diff --git a/test/TestInventory.py b/test/TestInventory.py
new file mode 100644
index 0000000000..4f48db14f6
--- /dev/null
+++ b/test/TestInventory.py
@@ -0,0 +1,270 @@
+import os
+import unittest
+
+from ansible.inventory import Inventory
+from ansible.runner import Runner
+
+class TestInventory(unittest.TestCase):
+
+    def setUp(self):
+        self.cwd = os.getcwd()
+        self.test_dir = os.path.join(self.cwd, 'test')
+
+        self.inventory_file = os.path.join(self.test_dir, 'simple_hosts')
+        self.inventory_script = os.path.join(self.test_dir, 'inventory_api.py')
+        self.inventory_yaml = os.path.join(self.test_dir, 'yaml_hosts')
+
+        os.chmod(self.inventory_script, 0755)
+
+    def tearDown(self):
+        os.chmod(self.inventory_script, 0644)
+
+    ### Simple inventory format tests
+
+    def simple_inventory(self):
+        return Inventory( self.inventory_file )
+
+    def script_inventory(self):
+        return Inventory( self.inventory_script )
+
+    def yaml_inventory(self):
+        return Inventory( self.inventory_yaml )
+
+    def test_simple(self):
+        inventory = self.simple_inventory()
+        hosts = inventory.list_hosts()
+
+        expected_hosts=['jupiter', 'saturn', 'zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+    def test_simple_all(self):
+        inventory = self.simple_inventory()
+        hosts = inventory.list_hosts('all')
+
+        expected_hosts=['jupiter', 'saturn', 'zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+    def test_simple_norse(self):
+        inventory = self.simple_inventory()
+        hosts = inventory.list_hosts("norse")
+
+        expected_hosts=['thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+    def test_simple_ungrouped(self):
+        inventory = self.simple_inventory()
+        hosts = inventory.list_hosts("ungrouped")
+
+        expected_hosts=['jupiter', 'saturn']
+        assert hosts == expected_hosts
+
+    def test_simple_combined(self):
+        inventory = self.simple_inventory()
+        hosts = inventory.list_hosts("norse:greek")
+
+        expected_hosts=['zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+    def test_simple_restrict(self):
+        inventory = self.simple_inventory()
+
+        restricted_hosts = ['hera', 'poseidon', 'thor']
+        expected_hosts=['zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+
+        inventory.restrict_to(restricted_hosts)
+        hosts = inventory.list_hosts("norse:greek")
+
+        assert hosts == restricted_hosts
+
+        inventory.lift_restriction()
+        hosts = inventory.list_hosts("norse:greek")
+
+        assert hosts == expected_hosts
+
+    def test_simple_vars(self):
+        inventory = self.simple_inventory()
+        vars = inventory.get_variables('thor')
+
+        assert vars == {}
+
+    def test_simple_extra_vars(self):
+        inventory = self.simple_inventory()
+        vars = inventory.get_variables('thor', 'a=5')
+
+        assert vars == {}
+
+    def test_simple_port(self):
+        inventory = self.simple_inventory()
+        vars = inventory.get_variables('hera')
+
+        assert vars == {'ansible_ssh_port': 3000}
+
+    ### Inventory API tests
+
+    def test_script(self):
+        inventory = self.script_inventory()
+        hosts = inventory.list_hosts()
+
+        expected_hosts=['jupiter', 'saturn', 'zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+
+        print "Expected: %s"%(expected_hosts)
+        print "Got     : %s"%(hosts)
+        assert sorted(hosts) == sorted(expected_hosts)
+
+    def test_script_all(self):
+        inventory = self.script_inventory()
+        hosts = inventory.list_hosts('all')
+
+        expected_hosts=['jupiter', 'saturn', 'zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert sorted(hosts) == sorted(expected_hosts)
+
+    def test_script_norse(self):
+        inventory = self.script_inventory()
+        hosts = inventory.list_hosts("norse")
+
+        expected_hosts=['thor', 'odin', 'loki']
+        assert sorted(hosts) == sorted(expected_hosts)
+
+    def test_script_combined(self):
+        inventory = self.script_inventory()
+        hosts = inventory.list_hosts("norse:greek")
+
+        expected_hosts=['zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert sorted(hosts) == sorted(expected_hosts)
+
+    def test_script_restrict(self):
+        inventory = self.script_inventory()
+
+        restricted_hosts = ['hera', 'poseidon', 'thor']
+        expected_hosts=['zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+
+        inventory.restrict_to(restricted_hosts)
+        hosts = inventory.list_hosts("norse:greek")
+
+        assert sorted(hosts) == sorted(restricted_hosts)
+
+        inventory.lift_restriction()
+        hosts = inventory.list_hosts("norse:greek")
+
+        assert sorted(hosts) == sorted(expected_hosts)
+
+    def test_script_vars(self):
+        inventory = self.script_inventory()
+        vars = inventory.get_variables('thor')
+
+        assert vars == {"hammer":True}
+
+    def test_script_extra_vars(self):
+        inventory = self.script_inventory()
+        vars = inventory.get_variables('thor', 'simple=yes')
+
+        assert vars == {"hammer":True, "simple": "yes"}
+
+    ### Tests for yaml inventory file
+
+    def test_yaml(self):
+        inventory = self.yaml_inventory()
+        hosts = inventory.list_hosts()
+        print hosts
+        expected_hosts=['jupiter', 'saturn', 'zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+    def test_yaml_all(self):
+        inventory = self.yaml_inventory()
+        hosts = inventory.list_hosts('all')
+
+        expected_hosts=['jupiter', 'saturn', 'zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+    def test_yaml_norse(self):
+        inventory = self.yaml_inventory()
+        hosts = inventory.list_hosts("norse")
+
+        expected_hosts=['thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+    def test_simple_ungrouped(self):
+        inventory = self.yaml_inventory()
+        hosts = inventory.list_hosts("ungrouped")
+
+        expected_hosts=['jupiter']
+        assert hosts == expected_hosts
+
+    def test_yaml_combined(self):
+        inventory = self.yaml_inventory()
+        hosts = inventory.list_hosts("norse:greek")
+
+        expected_hosts=['zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+    def test_yaml_restrict(self):
+        inventory = self.yaml_inventory()
+
+        restricted_hosts = ['hera', 'poseidon', 'thor']
+        expected_hosts=['zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+
+        inventory.restrict_to(restricted_hosts)
+        hosts = inventory.list_hosts("norse:greek")
+
+        assert hosts == restricted_hosts
+
+        inventory.lift_restriction()
+        hosts = inventory.list_hosts("norse:greek")
+
+        assert hosts == expected_hosts
+
+    def test_yaml_vars(self):
+        inventory = self.yaml_inventory()
+        vars = inventory.get_variables('thor')
+
+        assert vars == {"hammer":True}
+
+    def test_yaml_change_vars(self):
+        inventory = self.yaml_inventory()
+        vars = inventory.get_variables('thor')
+
+        vars["hammer"] = False
+
+        vars = inventory.get_variables('thor')
+        assert vars == {"hammer":True}
+
+    def test_yaml_host_vars(self):
+        inventory = self.yaml_inventory()
+        vars = inventory.get_variables('saturn')
+
+        assert vars == {"moon":"titan"}
+
+    def test_yaml_extra_vars(self):
+        inventory = self.yaml_inventory()
+        vars = inventory.get_variables('thor', 'a=5')
+
+        assert vars == {"hammer":True}
+
+    def test_yaml_port(self):
+        inventory = self.yaml_inventory()
+        vars = inventory.get_variables('hera')
+
+        assert vars == {'ansible_ssh_port': 3000}
+
+    ### Test Runner class method
+
+    def test_class_method(self):
+        hosts, groups = Runner.parse_hosts(self.inventory_file)
+
+        expected_hosts = ['jupiter', 'saturn', 'zeus', 'hera', 'poseidon', 'thor', 'odin', 'loki']
+        assert hosts == expected_hosts
+
+        expected_groups= {
+            'ungrouped': ['jupiter', 'saturn'],
+            'greek': ['zeus', 'hera', 'poseidon'],
+            'norse': ['thor', 'odin', 'loki']
+        }
+        assert groups == expected_groups
+
+    def test_class_override(self):
+        override_hosts = ['thor', 'odin']
+        hosts, groups = Runner.parse_hosts(self.inventory_file, override_hosts)
+
+        assert hosts == override_hosts
+
+        assert groups == { 'ungrouped': override_hosts }
diff --git a/test/inventory_api.py b/test/inventory_api.py
new file mode 100644
index 0000000000..bcde15bd3c
--- /dev/null
+++ b/test/inventory_api.py
@@ -0,0 +1,39 @@
+#!/usr/bin/env python
+
+import json
+import sys
+
+from optparse import OptionParser
+
+parser = OptionParser()
+parser.add_option('-l', '--list', default=False, dest="list_hosts", action="store_true")
+parser.add_option('-H', '--host', default=None, dest="host")
+parser.add_option('-e', '--extra-vars', default=None, dest="extra")
+
+options, args = parser.parse_args()
+
+systems = {
+    "ungouped": [ "jupiter", "saturn" ],
+    "greek": [ "zeus", "hera", "poseidon" ],
+    "norse": [ "thor", "odin", "loki" ]
+}
+
+variables = {
+    "thor": {
+        "hammer": True
+        }
+}
+
+if options.list_hosts == True:
+    print json.dumps(systems)
+    sys.exit(0)
+
+if options.host is not None:
+    if options.extra:
+        k,v = options.extra.split("=")
+        variables[options.host][k] = v
+    print json.dumps(variables[options.host])
+    sys.exit(0)
+
+parser.print_help()
+sys.exit(1)
\ No newline at end of file
diff --git a/test/simple_hosts b/test/simple_hosts
new file mode 100644
index 0000000000..6a4e297b4f
--- /dev/null
+++ b/test/simple_hosts
@@ -0,0 +1,12 @@
+jupiter
+saturn
+
+[greek]
+zeus
+hera:3000
+poseidon
+
+[norse]
+thor
+odin
+loki
diff --git a/test/yaml_hosts b/test/yaml_hosts
new file mode 100644
index 0000000000..7568ff4bda
--- /dev/null
+++ b/test/yaml_hosts
@@ -0,0 +1,28 @@
+---
+
+- jupiter
+- host: saturn
+  vars:
+  - moon: titan
+
+- zeus
+
+- group: greek
+  hosts:
+  - zeus
+  - hera
+  - poseidon
+  vars:
+  - ansible_ssh_port: 3000
+
+- group: norse
+  hosts:
+  - host: thor
+    vars:
+    - hammer: True
+  - odin
+  - loki
+
+- group: multiple
+  hosts:
+  - saturn