diff --git a/netwerk/base/src/nsProtocolProxyService.cpp b/netwerk/base/src/nsProtocolProxyService.cpp
index b7c437fb537..92692cbba41 100644
--- a/netwerk/base/src/nsProtocolProxyService.cpp
+++ b/netwerk/base/src/nsProtocolProxyService.cpp
@@ -306,7 +306,8 @@ NS_IMPL_CI_INTERFACE_GETTER2(nsProtocolProxyService,
                              nsIProtocolProxyService2)
 
 nsProtocolProxyService::nsProtocolProxyService()
-    : mFilters(nsnull)
+    : mFilterLocalHosts(PR_FALSE)
+    , mFilters(nsnull)
     , mProxyConfig(PROXYCONFIG_DIRECT)
     , mHTTPProxyPort(-1)
     , mFTPProxyPort(-1)
@@ -543,6 +544,12 @@ nsProtocolProxyService::CanUseProxy(nsIURI *aURI, PRInt32 defaultPort)
         }
     }
     
+    // Don't use proxy for local hosts (plain hostname, no dots)
+    if (!is_ipaddr && mFilterLocalHosts && (kNotFound == host.FindChar('.'))) {
+        LOG(("Not using proxy for this local host [%s]!\n", host.get()));
+        return PR_FALSE; // don't allow proxying
+    }
+
     PRInt32 index = -1;
     while (++index < PRInt32(mHostFiltersArray.Length())) {
         HostInfo *hinfo = mHostFiltersArray[index];
@@ -849,8 +856,10 @@ nsProtocolProxyService::Resolve(nsIURI *uri, PRUint32 flags,
 
     PRBool usePAC;
     rv = Resolve_Internal(uri, info, flags, &usePAC, result);
-    if (NS_FAILED(rv))
+    if (NS_FAILED(rv)) {
+        LOG(("Resolve_Internal returned rv(0x%08x)\n", rv));
         return rv;
+    }
 
     if (usePAC && mPACMan) {
         NS_ASSERTION(*result == nsnull, "we should not have a result yet");
@@ -1069,6 +1078,8 @@ nsProtocolProxyService::LoadHostFilters(const char *filters)
     // filter  = ( host | domain | ipaddr ["/" mask] ) [":" port] 
     // filters = filter *( "," LWS filter)
     //
+    // Reset mFilterLocalHosts - will be set to true if "<local>" is in pref string
+    mFilterLocalHosts = PR_FALSE;
     while (*filters) {
         // skip over spaces and ,
         while (*filters && (*filters == ',' || IS_ASCII_SPACE(*filters)))
@@ -1091,11 +1102,6 @@ nsProtocolProxyService::LoadHostFilters(const char *filters)
 
         filters = endhost; // advance iterator up front
 
-        HostInfo *hinfo = new HostInfo();
-        if (!hinfo)
-            return; // fail silently
-        hinfo->port = portLocation ? atoi(portLocation + 1) : 0;
-
         // locate end of host
         const char *end = maskLocation ? maskLocation :
                           portLocation ? portLocation :
@@ -1103,6 +1109,20 @@ nsProtocolProxyService::LoadHostFilters(const char *filters)
 
         nsCAutoString str(starthost, end - starthost);
 
+        // If the current host filter is "<local>", then all local (i.e.
+        // no dots in the hostname) hosts should bypass the proxy
+        if (str.EqualsIgnoreCase("<local>")) {
+            mFilterLocalHosts = PR_TRUE;
+            LOG(("loaded filter for local hosts "
+                 "(plain host names, no dots)\n"));
+            // Continue to next host filter;
+            continue;
+        }
+
+        // For all other host filters, create HostInfo object and add to list
+        HostInfo *hinfo = new HostInfo();
+        hinfo->port = portLocation ? atoi(portLocation + 1) : 0;
+
         PRNetAddr addr;
         if (PR_StringToNetAddr(str.get(), &addr) == PR_SUCCESS) {
             hinfo->is_ipaddr   = PR_TRUE;
diff --git a/netwerk/base/src/nsProtocolProxyService.h b/netwerk/base/src/nsProtocolProxyService.h
index c696e96e904..fd3c2facdf0 100644
--- a/netwerk/base/src/nsProtocolProxyService.h
+++ b/netwerk/base/src/nsProtocolProxyService.h
@@ -353,6 +353,9 @@ protected:
       ~FilterLink() { if (next) delete next; }
     };
 
+    // Indicates if local hosts (plain hostnames, no dots) should use the proxy
+    PRBool mFilterLocalHosts;
+
     // Holds an array of HostInfo objects
     nsTArray<nsAutoPtr<HostInfo> > mHostFiltersArray;
 
diff --git a/netwerk/test/unit/test_protocolproxyservice.js b/netwerk/test/unit/test_protocolproxyservice.js
index 44cfcdae33e..253336cd95d 100644
--- a/netwerk/test/unit/test_protocolproxyservice.js
+++ b/netwerk/test/unit/test_protocolproxyservice.js
@@ -384,6 +384,79 @@ function run_pac_cancel_test() {
   do_test_pending();
 }
 
+function check_host_filters(hostList, bShouldBeFiltered) {
+  var uri;
+  var proxy;
+  for (var i=0; i<hostList.length; i++) {
+    dump("*** uri=" + hostList[i] + " bShouldBeFiltered=" + bShouldBeFiltered + "\n");
+    uri = ios.newURI(hostList, null, null);
+    proxy = pps.resolve(uri, 0); 
+    if (bShouldBeFiltered) {
+      do_check_eq(proxy, null);
+    } else {
+      do_check_neq(proxy, null);
+      // Just to be sure, let's check that the proxy is correct
+      // - this should match the proxy setup in the calling function
+      check_proxy(proxy, "http", "foopy", 8080, 0, -1, false);
+    }
+  }
+}
+
+
+// Verify that hists in the host filter list are not proxied
+// refers to "network.proxy.no_proxies_on"
+
+function run_proxy_host_filters_test() {
+  // Get prefs object from DOM
+  var prefs = Components.classes["@mozilla.org/preferences-service;1"]
+                        .getService(Components.interfaces.nsIPrefBranch);
+  // Setup a basic HTTP proxy configuration
+  // - pps.resolve() needs this to return proxy info for non-filtered hosts
+  prefs.setIntPref("network.proxy.type", 1);
+  prefs.setCharPref("network.proxy.http", "foopy");
+  prefs.setIntPref("network.proxy.http_port", 8080);
+
+  // Setup host filter list string for "no_proxies_on"
+  var hostFilterList = "www.mozilla.org, www.google.com, www.apple.com, "
+                       + ".domain, .domain2.org"
+  prefs.setCharPref("network.proxy.no_proxies_on", hostFilterList);
+  do_check_eq(prefs.getCharPref("network.proxy.no_proxies_on"), hostFilterList);
+  
+  var rv;
+  // Check the hosts that should be filtered out
+  var uriStrFilterList = [ "http://www.mozilla.org/",
+                           "http://www.google.com/",
+                           "http://www.apple.com/",
+                           "http://somehost.domain/",
+                           "http://someotherhost.domain/",
+                           "http://somehost.domain2.org/",
+                           "http://somehost.subdomain.domain2.org/" ];
+  check_host_filters(uriStrFilterList, true);
+
+  // Check the hosts that should be proxied
+  var uriStrUseProxyList = [ "http://www.mozilla.com/",
+                             "http://mail.google.com/",
+                             "http://somehost.domain.co.uk/",
+                             "http://somelocalhost/" ];  
+  check_host_filters(uriStrUseProxyList, false);
+  
+  // Set no_proxies_on to include local hosts
+  prefs.setCharPref("network.proxy.no_proxies_on", hostFilterList + ", <local>");
+  do_check_eq(prefs.getCharPref("network.proxy.no_proxies_on"),
+              hostFilterList + ", <local>");
+
+  // Amend lists - move local domain to filtered list
+  uriStrFilterList.push(uriStrUseProxyList.pop());
+  check_host_filters(uriStrFilterList, true);
+  check_host_filters(uriStrUseProxyList, false);
+
+  // Cleanup
+  prefs.setCharPref("network.proxy.no_proxies_on", "");
+  do_check_eq(prefs.getCharPref("network.proxy.no_proxies_on"), "");  
+
+  do_test_finished();
+}
+
 function run_test() {
   register_test_protocol_handler();
   run_filter_test();
@@ -399,4 +472,5 @@ function run_test_continued() {
 }
 
 function run_test_continued_2() {
+  run_proxy_host_filters_test();
 }