diff --git a/BluntDx/Enumerations.h b/BluntDx/Enumerations.h
index 2c1f680cf3..494d296c0d 100644
--- a/BluntDx/Enumerations.h
+++ b/BluntDx/Enumerations.h
@@ -17,6 +17,7 @@ namespace BluntDirectX { namespace Direct3D
 		Position = D3DFVF_XYZ,
 		Normal = D3DFVF_NORMAL,
 		Texture = D3DFVF_TEX1,
+		Texture2 = D3DFVF_TEX2,
 	};
 
 	public enum class PrimitiveType
diff --git a/OpenRa.FileFormats/BitmapBuilder.cs b/OpenRa.FileFormats/BitmapBuilder.cs
index 7e4d1bfaba..f80370d956 100644
--- a/OpenRa.FileFormats/BitmapBuilder.cs
+++ b/OpenRa.FileFormats/BitmapBuilder.cs
@@ -7,12 +7,12 @@ namespace OpenRa.FileFormats
 {
 	public static class BitmapBuilder
 	{
-		public static Bitmap FromBytes( byte[] imageBytes, int width, int height, Palette pal )
+		public static Bitmap FromBytes(byte[] imageBytes, Size size, Palette pal)
 		{
-			Bitmap bitmap = new Bitmap( width, height );
-			for( int x = 0 ; x < width ; x++ )
-				for( int y = 0 ; y < height ; y++ )
-					bitmap.SetPixel( x, y, pal.GetColor( imageBytes[ x + width * y ] ) );
+			Bitmap bitmap = new Bitmap(size.Width, size.Height);
+			for (int x = 0; x < size.Width; x++)
+				for (int y = 0; y < size.Height; y++)
+					bitmap.SetPixel(x, y, pal.GetColor(imageBytes[x + size.Width * y]));
 
 			return bitmap;
 		}
diff --git a/OpenRa.FileFormats/ShpReader.cs b/OpenRa.FileFormats/ShpReader.cs
index 1387a40047..efbc39f1b7 100644
--- a/OpenRa.FileFormats/ShpReader.cs
+++ b/OpenRa.FileFormats/ShpReader.cs
@@ -42,6 +42,8 @@ namespace OpenRa.FileFormats
 		public readonly ushort Width;
 		public readonly ushort Height;
 
+		public Size Size { get { return new Size(Width, Height); } }
+
 		private readonly List<ImageHeader> headers = new List<ImageHeader>();
 
 		int recurseDepth = 0;
diff --git a/OpenRa.FileFormats/Terrain.cs b/OpenRa.FileFormats/Terrain.cs
index 5ff5580ee3..37d157ae50 100644
--- a/OpenRa.FileFormats/Terrain.cs
+++ b/OpenRa.FileFormats/Terrain.cs
@@ -16,6 +16,7 @@ namespace OpenRa.FileFormats
 
 		readonly byte[] index;
 		readonly List<Bitmap> TileBitmaps = new List<Bitmap>();
+		public readonly List<byte[]> TileBitmapBytes = new List<byte[]>();
 
 		public Terrain( Stream stream, Palette pal )
 		{
@@ -44,15 +45,19 @@ namespace OpenRa.FileFormats
 
 			for( int i = 0 ; i < index.Length ; i++ )
 			{
-				if( index[ i ] != 255 )
+				if (index[i] != 255)
 				{
-					byte[] tileData = new byte[ 24 * 24 ];
-					stream.Position = ImgStart + index[ i ] * 24 * 24;
-					stream.Read( tileData, 0, 24 * 24 );
-					TileBitmaps.Add( BitmapBuilder.FromBytes( tileData, 24, 24, pal ) );
+					byte[] tileData = new byte[24 * 24];
+					stream.Position = ImgStart + index[i] * 24 * 24;
+					stream.Read(tileData, 0, 24 * 24);
+					TileBitmaps.Add(BitmapBuilder.FromBytes(tileData, new Size(24, 24), pal));
+					TileBitmapBytes.Add(tileData);
 				}
 				else
-					TileBitmaps.Add( null );
+				{
+					TileBitmaps.Add(null);
+					TileBitmapBytes.Add(null);
+				}
 			}
 		}
 
diff --git a/OpenRa.Game/HardwarePalette.cs b/OpenRa.Game/HardwarePalette.cs
index 79f89a986c..852a31c77b 100644
--- a/OpenRa.Game/HardwarePalette.cs
+++ b/OpenRa.Game/HardwarePalette.cs
@@ -24,7 +24,7 @@ namespace OpenRa.Game
 			this.device = device;
 		}
 
-		public void Resolve()
+		void Resolve()
 		{
 			const string filename = "../../../palette-cache.png";
 			bitmap.Save(filename);
diff --git a/OpenRa.Game/MainWindow.cs b/OpenRa.Game/MainWindow.cs
index 17f80d6d85..dd8412e927 100644
--- a/OpenRa.Game/MainWindow.cs
+++ b/OpenRa.Game/MainWindow.cs
@@ -53,27 +53,25 @@ namespace OpenRa.Game
 
 					if (!tileMapping.ContainsKey(tileRef))
 					{
-						Bitmap srcImage = tileSet.tiles[tileRef.tile].GetTile(tileRef.image);
-						SheetRectangle<Sheet> rect = builder.AddImage(srcImage.Size);
-
-						using (Graphics g = Graphics.FromImage(rect.sheet.bitmap))
-							g.DrawImage(srcImage, rect.origin);
+						SheetRectangle<Sheet> rect = builder.AddImage(new Size(24, 24));
+						Util.CopyIntoChannel(rect.sheet.bitmap, TextureChannel.Red,
+							tileSet.tiles[tileRef.tile].TileBitmapBytes[tileRef.image], rect);
 
 						tileMapping.Add(tileRef, rect);
 					}
 				}
 
 			world = new World(renderer.Device);
-			treeCache = new TreeCache(renderer.Device, map, TileMix, pal);
+			treeCache = new TreeCache(renderer.Device, map, TileMix);
 
 			foreach (TreeReference treeReference in map.Trees)
 				world.Add(new Tree(treeReference, treeCache, map));
 
 			UnitSheetBuilder.Initialize(renderer.Device);
-			UnitSheetBuilder.AddUnit("mcv", playerPal);
-			UnitSheetBuilder.AddUnit("1tnk", playerPal);
-			UnitSheetBuilder.AddUnit("2tnk", playerPal);
-			UnitSheetBuilder.AddUnit("3tnk", playerPal);
+			UnitSheetBuilder.AddUnit("mcv");
+			UnitSheetBuilder.AddUnit("1tnk");
+			UnitSheetBuilder.AddUnit("2tnk");
+			UnitSheetBuilder.AddUnit("3tnk");
 
 			world.Add(new Mcv(new PointF(24 * 5, 24 * 5)));
 		}
@@ -226,7 +224,7 @@ namespace OpenRa.Game
 				hardwarePalette.AddPalette(new Palette(pal, new PaletteRemap(
 					File.OpenRead("../../../" + remap + ".rem"))));
 
-			hardwarePalette.Resolve();
+			renderer.SetPalette(hardwarePalette);
 
 			return new TileSet(TileMix, TileSuffix, pal);
 		}
diff --git a/OpenRa.Game/Renderer.cs b/OpenRa.Game/Renderer.cs
index 46483c0495..1fbf25b614 100644
--- a/OpenRa.Game/Renderer.cs
+++ b/OpenRa.Game/Renderer.cs
@@ -13,10 +13,15 @@ namespace OpenRa.Game
 		readonly GraphicsDevice device;
 		readonly Effect shader;
 
-		readonly IntPtr r1Handle, r2Handle, baseTextureHandle, scrollHandle;
+		readonly IntPtr r1Handle, r2Handle, baseTextureHandle, scrollHandle, paletteHandle;
 
 		const string shaderName = "diffuse.fx";
 
+		public void SetPalette(HardwarePalette hp)
+		{
+			shader.SetTexture(paletteHandle, hp.PaletteTexture);
+		}
+
 		public Renderer(Control host, Size resolution, bool windowed)
 		{
 			host.ClientSize = resolution;
@@ -30,6 +35,7 @@ namespace OpenRa.Game
 			scrollHandle = shader.GetHandle("Scroll");
 			r1Handle = shader.GetHandle("r1");
 			r2Handle = shader.GetHandle("r2");
+			paletteHandle = shader.GetHandle("Palette");
 		}
 
 		public GraphicsDevice Device { get { return device; } }
diff --git a/OpenRa.Game/Sheet.cs b/OpenRa.Game/Sheet.cs
index aa68852d16..7b34245a1c 100644
--- a/OpenRa.Game/Sheet.cs
+++ b/OpenRa.Game/Sheet.cs
@@ -16,6 +16,15 @@ namespace OpenRa.Game
 		Texture texture;
 
 		public Sheet(Bitmap b, GraphicsDevice d) { bitmap = b; device = d; }
+		
+		public Sheet(Size size, GraphicsDevice d)
+		{
+			bitmap = new Bitmap(size.Width, size.Height);
+			device = d;
+
+			using (Graphics g = Graphics.FromImage(bitmap))
+				g.FillRectangle(Brushes.Fuchsia, 0, 0, size.Width, size.Height);
+		}
 
 		public Texture Texture
 		{
diff --git a/OpenRa.Game/TreeCache.cs b/OpenRa.Game/TreeCache.cs
index 3bfdf25e0c..d2355d818f 100644
--- a/OpenRa.Game/TreeCache.cs
+++ b/OpenRa.Game/TreeCache.cs
@@ -13,14 +13,14 @@ namespace OpenRa.Game
 
 		public readonly Sheet sh;
 
-		public TreeCache(GraphicsDevice device, Map map, Package package, Palette pal)
+		public TreeCache(GraphicsDevice device, Map map, Package package)
 		{
 			Size pageSize = new Size(1024, 512);
 			List<Sheet> sheets = new List<Sheet>();
 
 			Provider<Sheet> sheetProvider = delegate
 			{
-				Sheet sheet = new Sheet(new Bitmap(pageSize.Width, pageSize.Height), device);
+				Sheet sheet = new Sheet(pageSize, device);
 				sheets.Add(sheet);
 				return sheet;
 			};
@@ -32,13 +32,11 @@ namespace OpenRa.Game
 				if (trees.ContainsKey(r.Image))
 					continue;
 
-				ShpReader reader = new ShpReader(package.GetContent(r.Image + "." + map.Theater.Substring(0, 3)));
-				Bitmap bitmap = BitmapBuilder.FromBytes(reader[0].Image, reader.Width, reader.Height, pal);
-
-				SheetRectangle<Sheet> rect = builder.AddImage(bitmap.Size);
-				using (Graphics g = Graphics.FromImage(rect.sheet.bitmap))
-					g.DrawImage(bitmap, rect.origin);
+				string filename = r.Image + "." + map.Theater.Substring(0, 3);
 
+				ShpReader reader = new ShpReader(package.GetContent(filename));
+				SheetRectangle<Sheet> rect = builder.AddImage(reader.Size);
+				Util.CopyIntoChannel(rect.sheet.bitmap, TextureChannel.Red, reader[0].Image, rect);
 				trees.Add(r.Image, rect);
 			}
 
diff --git a/OpenRa.Game/UnitSheetBuilder.cs b/OpenRa.Game/UnitSheetBuilder.cs
index 941ae6d18c..82f0123f39 100644
--- a/OpenRa.Game/UnitSheetBuilder.cs
+++ b/OpenRa.Game/UnitSheetBuilder.cs
@@ -20,7 +20,7 @@ namespace OpenRa.Game
 		{
 			Provider<Sheet> sheetProvider = delegate
 			{
-				Sheet sheet = new Sheet(new Bitmap(pageSize.Width, pageSize.Height), device);
+				Sheet sheet = new Sheet(pageSize, device);
 				sheets.Add(sheet);
 				return sheet;
 			};
@@ -28,17 +28,13 @@ namespace OpenRa.Game
 			builder = new TileSheetBuilder<Sheet>(pageSize, sheetProvider);
 		}
 
-		public static void AddUnit( string name, Palette pal )
+		public static void AddUnit( string name )
 		{
 			ShpReader reader = new ShpReader( unitsPackage.GetContent( name + ".shp" ) );
 			foreach( ImageHeader h in reader )
 			{
-				Bitmap bitmap = BitmapBuilder.FromBytes( h.Image, reader.Width, reader.Height, pal );
-
-				SheetRectangle<Sheet> rect = builder.AddImage( bitmap.Size );
-				using( Graphics g = Graphics.FromImage( rect.sheet.bitmap ) )
-					g.DrawImage( bitmap, rect.origin );
-
+				SheetRectangle<Sheet> rect = builder.AddImage(reader.Size);
+				Util.CopyIntoChannel(rect.sheet.bitmap, TextureChannel.Red, h.Image, rect);
 				McvSheet.Add( rect );
 			}
 		}
diff --git a/OpenRa.Game/Util.cs b/OpenRa.Game/Util.cs
index 655814dc20..bae229797b 100644
--- a/OpenRa.Game/Util.cs
+++ b/OpenRa.Game/Util.cs
@@ -13,7 +13,7 @@ namespace OpenRa.Game
 			float u0 = (float)(s.origin.X + 0.5f) / (float)s.sheet.bitmap.Width;
 			float u1 = (float)(s.origin.X + s.size.Width) / (float)s.sheet.bitmap.Width;
 
-			return (u > 0) ? u1 : u0;// (1 - u) * u0 + u * u1;
+			return (u > 0) ? u1 : u0;
 		}
 
 		public static float V(SheetRectangle<Sheet> s, float v)
@@ -21,7 +21,7 @@ namespace OpenRa.Game
 			float v0 = (float)(s.origin.Y + 0.5f) / (float)s.sheet.bitmap.Height;
 			float v1 = (float)(s.origin.Y + s.size.Height) / (float)s.sheet.bitmap.Height;
 
-			return (v > 0) ? v1 : v0;// return (1 - v) * v0 + v * v1;
+			return (v > 0) ? v1 : v0;
 		}
 
 		public static Vertex MakeVertex(PointF o, float u, float v, SheetRectangle<Sheet> r)
@@ -29,7 +29,8 @@ namespace OpenRa.Game
 			float x2 = o.X + r.size.Width;
 			float y2 = o.Y + r.size.Height;
 
-			return new Vertex(Lerp(o.X, x2, u), Lerp(o.Y, y2, v), 0, U(r, u), V(r, v));
+			return new Vertex(Lerp(o.X, x2, u), Lerp(o.Y, y2, v), 0, U(r, u), V(r, v), 
+				0, 1);
 		}
 
 		static float Lerp(float a, float b, float t)
@@ -54,5 +55,39 @@ namespace OpenRa.Game
 			indices.Add((ushort)(offset + 3));
 			indices.Add((ushort)(offset + 2));
 		}
+
+		public static void CopyIntoChannel(Bitmap bitmap, TextureChannel channel, byte[] src, SheetRectangle<Sheet> s)
+		{
+			for( int i = 0; i < s.size.Width; i++ )
+				for (int j = 0; j < s.size.Height; j++)
+				{
+					Point p = new Point(s.origin.X + i, s.origin.Y + j);
+					byte b = src[i + s.size.Width * j];
+					Color original = bitmap.GetPixel(p.X, p.Y);
+					bitmap.SetPixel(p.X, p.Y, ReplaceChannel(original, channel, b));
+				}
+		}
+
+		static Color ReplaceChannel(Color o, TextureChannel channel, byte p)
+		{
+			switch (channel)
+			{
+				case TextureChannel.Red: return Color.FromArgb(o.A, p, o.G, o.B);
+				case TextureChannel.Green: return Color.FromArgb(o.A, o.R, p, o.B);
+				case TextureChannel.Blue: return Color.FromArgb(o.A, o.R, o.G, p);
+				case TextureChannel.Alpha: return Color.FromArgb(p, o.R, o.G, o.B);
+
+				default:
+					throw new ArgumentException();
+			}
+		}
+	}
+
+	enum TextureChannel
+	{
+		Red,
+		Green,
+		Blue,
+		Alpha,
 	}
 }
diff --git a/OpenRa.Game/Vertex.cs b/OpenRa.Game/Vertex.cs
index 140025efd3..d5061e22d1 100644
--- a/OpenRa.Game/Vertex.cs
+++ b/OpenRa.Game/Vertex.cs
@@ -10,14 +10,18 @@ namespace OpenRa.Game
 	struct Vertex
 	{
 		public float x, y, z, u, v;
+		public float p, c;
 
-		public Vertex(float x, float y, float z, float u, float v)
+		public Vertex(float x, float y, float z, float u, float v, float p, float c)
 		{
 			this.x = x; this.y = y; this.z = z;
 			this.u = u;
 			this.v = v;
+
+			this.p = p;
+			this.c = c;
 		}
 
-		public const VertexFormat Format = VertexFormat.Position | VertexFormat.Texture;
+		public const VertexFormat Format = VertexFormat.Position | VertexFormat.Texture2;
 	}
 }
diff --git a/OpenRa.TechTreeTest/Item.cs b/OpenRa.TechTreeTest/Item.cs
index dee583439c..fcf4f1a25b 100644
--- a/OpenRa.TechTreeTest/Item.cs
+++ b/OpenRa.TechTreeTest/Item.cs
@@ -143,7 +143,7 @@ namespace OpenRa.TechTreeTest
 				Stream s = package.GetContent(filename);
 				ShpReader reader = new ShpReader(s);
 				foreach (ImageHeader h in reader)
-					return BitmapBuilder.FromBytes(h.Image, reader.Width, reader.Height, palette);
+					return BitmapBuilder.FromBytes(h.Image, reader.Size, palette);
 
 				return null;
 			}
diff --git a/ShpViewer/MapViewControl.cs b/ShpViewer/MapViewControl.cs
index 4fcafc762d..d09c4cf4c0 100644
--- a/ShpViewer/MapViewControl.cs
+++ b/ShpViewer/MapViewControl.cs
@@ -92,7 +92,7 @@ namespace ShpViewer
 			if (!TreeCache.TryGetValue(name, out ret))
 			{
 				ShpReader shp = new ShpReader(TileSet.MixFile.GetContent(name + TileSuffix));
-				ret = BitmapBuilder.FromBytes(shp[0].Image, shp.Width, shp.Height, pal); ;
+				ret = BitmapBuilder.FromBytes(shp[0].Image, shp.Size, pal); ;
 				TreeCache.Add(name, ret);
 			}
 			return ret;
diff --git a/ShpViewer/ShpViewForm.cs b/ShpViewer/ShpViewForm.cs
index b62c7ef541..e990d4297a 100644
--- a/ShpViewer/ShpViewForm.cs
+++ b/ShpViewer/ShpViewForm.cs
@@ -30,7 +30,7 @@ namespace ShpViewer
 				pal = new Palette(pal, remap);
 
 				foreach( ImageHeader h in shpReader )
-					bitmaps.Add( BitmapBuilder.FromBytes( h.Image, shpReader.Width, shpReader.Height, pal ) );
+					bitmaps.Add( BitmapBuilder.FromBytes( h.Image, shpReader.Size, pal ) );
 			}
 			else if( ext == ".tem" || ext == ".sno" || ext == ".int" )
 			{
diff --git a/diffuse.fx b/diffuse.fx
index bd61ce7f56..a3c3bf2fab 100644
--- a/diffuse.fx
+++ b/diffuse.fx
@@ -2,7 +2,7 @@
 // Author: C. Forbes
 //--------------------------------------------------------
 
-shared texture DiffuseTexture;
+shared texture DiffuseTexture, Palette;
 shared float2 Scroll;
 
 shared float2 r1, r2;		// matrix elements
@@ -18,32 +18,57 @@ sampler s_DiffuseTexture = sampler_state {
 	AddressW = Wrap;
 };
 
+sampler s_PaletteTexture = sampler_state {
+	Texture = <Palette>;
+	MinFilter = None;
+	MagFilter = None;
+	MipFilter = None;
+	
+	AddressU = Clamp;
+	AddressV = Clamp;
+};
+
 struct VertexIn {
 	float4 Position: POSITION;
 	float2 Tex0: TEXCOORD0;
+	float2 Tex1: TEXCOORD1;
 };
 
 struct VertexOut {
 	float4 Position: POSITION;
-	float2 Tex0: TEXCOORD0;
+	float3 Tex0: TEXCOORD0;
+	float4 ChannelMask: TEXCOORD1;
 };
 
 struct FragmentIn {
-	float2 Tex0: TEXCOORD0;
+	float3 Tex0: TEXCOORD0;
+	float4 ChannelMask: TEXCOORD1;
 };
 
+float4 DecodeChannelMask( float x )
+{
+	if (x > 0)
+		return (x > 0.5f) ? float4(1,0,0,0) : float4(0,1,0,0);
+	else
+		return (x <-0.5f) ? float4(0,0,0,1) : float4(0,0,1,0);
+}
+
 VertexOut Simple_vp(VertexIn v) {
 	VertexOut o;
 	
 	float2 p = (v.Position.xy - Scroll.xy) * r1 + r2;
 	o.Position = float4(p.x,p.y,0,1);
-	o.Tex0 = v.Tex0;
+	o.Tex0 = float3(v.Tex0.x, v.Tex0.y, v.Tex1.x);
+	o.ChannelMask = DecodeChannelMask( v.Tex1.y );
 	return o;
 }
 
-float4 Simple_fp(FragmentIn f) : COLOR0 {
-	float4 color = tex2D(s_DiffuseTexture, f.Tex0);
-	return color;
+const float2 texelOffset = float2( 0, 1.0f/32.0f );
+
+float4 Palette_fp(FragmentIn f) : COLOR0 {
+	float4 x = tex2D(s_DiffuseTexture, f.Tex0.xy);
+	float2 p = float2( dot(x, f.ChannelMask), f.Tex0.z );
+	return tex2D(s_PaletteTexture, p + texelOffset);
 }
 
 technique low_quality {
@@ -53,7 +78,7 @@ technique low_quality {
 		ZEnable = false;
 		CullMode = None;
 		VertexShader = compile vs_2_0 Simple_vp();
-		PixelShader = compile ps_2_0 Simple_fp();
+		PixelShader = compile ps_2_0 Palette_fp();
 	}
 }
 
@@ -64,7 +89,7 @@ technique high_quality {
 		ZEnable = false;
 		CullMode = None;
 		VertexShader = compile vs_2_0 Simple_vp();
-		PixelShader = compile ps_2_0 Simple_fp();
+		PixelShader = compile ps_2_0 Palette_fp();
 		
 		SrcBlend = SrcAlpha;
 		DestBlend = InvSrcAlpha;