diff --git a/src/term.c b/src/term.c
index 755d5c7..103ec96 100644
--- a/src/term.c
+++ b/src/term.c
@@ -1661,6 +1661,11 @@
 	sprintf((char *)nr_colors, "%d", t_colors);
     else
 	*nr_colors = NUL;
+#ifdef FEAT_TERMGUICOLORS
+    // xterm-direct, enable termguicolors
+    if (t_colors == 0x1000000 && !p_tgc)
+	set_option_value((char_u *)"termguicolors", 1L, NULL, 0);
+#endif
     set_string_option_direct((char_u *)"t_Co", -1, nr_colors, OPT_FREE, 0);
 }
 
@@ -1694,8 +1699,9 @@
 static char *(key_names[]) =
 {
 # ifdef FEAT_TERMRESPONSE
-    // Do this one first, it may cause a screen redraw.
+    // Do those ones first, both may cause a screen redraw.
     "Co",
+    "RGB",
 # endif
     "ku", "kd", "kr", "kl",
     "#2", "#4", "%i", "*7",
@@ -5854,6 +5860,7 @@
 {
     int i, j;
 
+    LOG_TR(("Received DCS response: %s", (char*)tp));
     j = 1 + (tp[0] == ESC);
     if (len < j + 3)
 	i = len; // need more chars
@@ -7100,7 +7107,7 @@
     static void
 req_more_codes_from_term(void)
 {
-    char	buf[23];  // extra size to shut up LGTM
+    char	buf[32];  // extra size to shut up LGTM
     int		old_idx = xt_index_out;
 
     // Don't do anything when going to exit.
@@ -7115,7 +7122,10 @@
 
 	MAY_WANT_TO_LOG_THIS;
 	LOG_TR(("Requesting XT %d: %s", xt_index_out, key_name));
-	sprintf(buf, "\033P+q%02x%02x\033\\", key_name[0], key_name[1]);
+	if (key_name[2] != NUL)
+	    sprintf(buf, "\033P+q%02x%02x%02x\033\\", key_name[0], key_name[1], key_name[2]);
+	else
+	    sprintf(buf, "\033P+q%02x%02x\033\\", key_name[0], key_name[1]);
 	out_str_nf((char_u *)buf);
 	++xt_index_out;
     }
@@ -7135,7 +7145,7 @@
 got_code_from_term(char_u *code, int len)
 {
 #define XT_LEN 100
-    char_u	name[3];
+    char_u	name[4];
     char_u	str[XT_LEN];
     int		i;
     int		j = 0;
@@ -7143,13 +7153,16 @@
 
     // A '1' means the code is supported, a '0' means it isn't.
     // When half the length is > XT_LEN we can't use it.
-    // Our names are currently all 2 characters.
-    if (code[0] == '1' && code[7] == '=' && len / 2 < XT_LEN)
+    if (code[0] == '1' && (code[7] || code[9] == '=') && len / 2 < XT_LEN)
     {
 	// Get the name from the response and find it in the table.
 	name[0] = hexhex2nr(code + 3);
 	name[1] = hexhex2nr(code + 5);
-	name[2] = NUL;
+	if (code[9] == '=')
+	    name[2] = hexhex2nr(code + 7);
+	else
+	    name[2] = NUL;
+	name[3] = NUL;
 	for (i = 0; key_names[i] != NULL; ++i)
 	{
 	    if (STRCMP(key_names[i], name) == 0)
@@ -7163,7 +7176,8 @@
 
 	if (key_names[i] != NULL)
 	{
-	    for (i = 8; (c = hexhex2nr(code + i)) >= 0; i += 2)
+	    i = (code[7] == '=') ? 8 : 10;
+	    for (; (c = hexhex2nr(code + i)) >= 0; i += 2)
 		str[j++] = c;
 	    str[j] = NUL;
 	    if (name[0] == 'C' && name[1] == 'o')
@@ -7180,6 +7194,22 @@
 #endif
 		may_adjust_color_count(val);
 	    }
+#ifdef FEAT_TERMGUICOLORS
+	    // when RGB result comes back, it is supported when the result contains an '='
+	    else if (name[0] == 'R' && name[1] == 'G' && name[2] == 'B' && code[9] == '=')
+	    {
+		int val = atoi((char *)str);
+		// 8 bits per color channel
+		if (val == 8)
+		{
+#ifdef FEAT_EVAL
+		    ch_log(NULL, "got_code_from_term(RGB): xterm-direct colors detected");
+#endif
+		    // RGB capability set, enable termguicolors
+		    set_option_value((char_u *)"termguicolors", 1L, NULL, 0);
+		}
+	    }
+#endif
 	    else
 	    {
 		i = find_term_bykeys(str);
diff --git a/src/testdir/test_termcodes.vim b/src/testdir/test_termcodes.vim
index 25034ed..098fdb3 100644
--- a/src/testdir/test_termcodes.vim
+++ b/src/testdir/test_termcodes.vim
@@ -2739,4 +2739,40 @@
   call assert_notequal(-1, index(output, 'builtin_dumb'))
 endfunc
 
+func Test_xterm_direct_enables_termguicolors()
+  " TERM=xterm-direct enables termguicolors
+  CheckNotMSWindows
+  if !CanRunVimInTerminal()
+    throw 'Skipped: cannot make screendumps'
+  endif
+  if !executable('tput')
+    throw "Skipped: tput not executable!"
+  endif
+  if has("gui_running")
+    throw "Skipped: does not work in GUI mode"
+  endif
+  call system('tput -Txterm-direct RGB 2>/dev/null')
+  if v:shell_error
+    throw "Skipped: xterm-direct $TERM has no RGB capability"
+  endif
+  let colors  = systemlist('tput -Txterm-direct colors')[0]
+  defer delete('XTerm-direct.txt')
+
+  let buf = RunVimInTerminal('--cmd ":set noswapfile" --clean XTerm-direct.txt',
+        \  {'rows': 10, 'env': {'TERM': 'xterm-direct'}})
+  call TermWait(buf)
+  call term_sendkeys(buf, ":$put ='TERM: ' .. &term\<cr>")
+  " doesn't work. Vim cannot query xterm colors in the embedded terminal?
+  "call term_sendkeys(buf, ":$put ='Colors: ' .. &t_Co\<cr>")
+  call term_sendkeys(buf, ":$put ='Termguicolors: ' .. &tgc\<cr>")
+  call term_sendkeys(buf, ":wq\<cr>")
+  call TermWait(buf)
+
+  let result=readfile('XTerm-direct.txt')
+  " call assert_equal(['', 'TERM: xterm-direct', 'Colors: ' .. colors, 'Termguicolors: 1'], result)
+  call assert_equal(['', 'TERM: xterm-direct', 'Termguicolors: 1'], result)
+  " cleanup
+  bw!
+endfunc
+
 " vim: shiftwidth=2 sts=2 expandtab
diff --git a/src/version.c b/src/version.c
index 75fbffc..f145500 100644
--- a/src/version.c
+++ b/src/version.c
@@ -705,6 +705,8 @@
 static int included_patches[] =
 {   /* Add new patch number below this line */
 /**/
+    1054,
+/**/
     1053,
 /**/
     1052,