diff --git a/README.HG b/README.HG
index c08a893bf..8d879f0e0 100644
--- a/README.HG
+++ b/README.HG
@@ -4,3 +4,5 @@ version may not work with any other version of S3QL (including the forthcoming
 release). s3qladm may not be able to upgrade file systems either to or from
 this version. You have been warned.
 
+Please refer to rst/installation.rst for compilation and installation
+instructions.
diff --git a/rst/installation.rst b/rst/installation.rst
index 2a4086a69..d8badff14 100644
--- a/rst/installation.rst
+++ b/rst/installation.rst
@@ -91,3 +91,22 @@ Now you have three options:
 * You can install S3QL into `~/.local` by executing `python
   setup.py install --user`. In this case you should make sure that
   `~/.local/bin` is in your `$PATH` environment variable.
+
+
+Development Version
+===================
+
+If you have checked out the unstable development version from the
+Mercurial repository, a bit more effort is required. You need to also
+have Cython_ (0.16 or newer) and Sphinx_ (1.1 or newer) installed, and
+the necessary commands are::
+
+  python setup.py build_cython
+  python setup.py build_ext --inplace
+  python setup.py build_sphinx
+  python setup.py test
+  python setup.py install
+  
+
+.. _Cython: http://www.cython.org/
+.. _Sphinx: http://sphinx.pocoo.org/