diff --git a/ANNOUNCE b/ANNOUNCE
index 4b0f190b3..7520963d0 100644
--- a/ANNOUNCE
+++ b/ANNOUNCE
@@ -70,6 +70,12 @@ New command line editor features:
 
 New features in shell options:
 
+- A new --functrace long-form shell option causes the -x/--xtrace option's
+  state and the DEBUG trap action to be inherited by function scopes instead
+  of being reset to default. Changes made to them within a function scope
+  still do not propagate back to the parent scope. Similarly, this option
+  also causes the DEBUG trap action to be inherited by subshells.
+
 - The new --histreedit and --histverify options modify history expansion
   (--histexpand). If --histreedit is on and a history expansion fails, the
   command line is reloaded into the next prompt's edit buffer, allowing
diff --git a/NEWS b/NEWS
index 598b10de6..123e7a3fe 100644
--- a/NEWS
+++ b/NEWS
@@ -3,6 +3,14 @@ For full details, see the git log at: https://github.com/ksh93/ksh/tree/1.0
 
 Any uppercase BUG_* names are modernish shell bug IDs.
 
+2022-06-04:
+
+- Added a new --functrace long-form shell option which causes the -x/--xtrace
+  option's state and the DEBUG trap action to be inherited by function scopes
+  instead of being reset to default. Changes made to them within a function
+  scope still do not propagate back to the parent scope. Similarly, this
+  option also causes the DEBUG trap action to be inherited by subshells.
+
 2022-06-03:
 
 - Fixed a couple of bugs that caused floating point variables imported from
diff --git a/src/cmd/ksh93/data/builtins.c b/src/cmd/ksh93/data/builtins.c
index 183a1b263..5db5a2ca4 100644
--- a/src/cmd/ksh93/data/builtins.c
+++ b/src/cmd/ksh93/data/builtins.c
@@ -210,6 +210,9 @@ const char sh_set[] =
 		"[+emacs?Enables/disables \bemacs\b editing mode.]"
 #endif
 		"[+errexit?Equivalent to \b-e\b.]"
+		"[+functrace?Function scopes and subshells inherit the parent "
+		"environment's \bDEBUG\b trap action. Function scopes inherit "
+		"the \b-x\b option's state.]"
 #if SHOPT_GLOBCASEDET
 		"[+globcasedetect?Pathname expansion and file name completion "
 		"automatically become case-insensitive on file systems where "
@@ -1625,7 +1628,7 @@ const char sh_optksh[] =
 "[+SEE ALSO?\bset\b(1), \bbuiltin\b(1)]"
 ;
 const char sh_optset[] =
-"+[-1c?\n@(#)$Id: set (AT&T Research) 1999-09-28 $\n]"
+"+[-1c?\n@(#)$Id: set (ksh 93u+m) 2022-06-04 $\n]"
 "[--catalog?" SH_DICT "]"
 "[+NAME?set - set/unset options and positional parameters]"
 "[+DESCRIPTION?\bset\b sets or unsets options and positional parameters.  "
diff --git a/src/cmd/ksh93/data/options.c b/src/cmd/ksh93/data/options.c
index 07499ff6b..7f430c647 100644
--- a/src/cmd/ksh93/data/options.c
+++ b/src/cmd/ksh93/data/options.c
@@ -42,6 +42,7 @@ const Shtable_t shtab_options[] =
 #endif
 	"errexit",			SH_ERREXIT,
 	"noexec",			SH_NOEXEC,
+	"functrace",			SH_FUNCTRACE,
 	"noglob",			SH_NOGLOB,
 #if SHOPT_GLOBCASEDET
 	"globcasedetect",		SH_GLOBCASEDET,
diff --git a/src/cmd/ksh93/include/shell.h b/src/cmd/ksh93/include/shell.h
index 9b3fc21ae..020152c5f 100644
--- a/src/cmd/ksh93/include/shell.h
+++ b/src/cmd/ksh93/include/shell.h
@@ -99,6 +99,7 @@ typedef union Shnode_u Shnode_t;
 #define SH_NOUNSET	9
 #define SH_NOGLOB	10
 #define SH_ALLEXPORT	11
+#define SH_FUNCTRACE	12
 #define SH_IGNOREEOF	13
 #define SH_NOCLOBBER	14
 #define SH_MARKDIRS	15
diff --git a/src/cmd/ksh93/include/version.h b/src/cmd/ksh93/include/version.h
index f03ddaca5..9c0daad67 100644
--- a/src/cmd/ksh93/include/version.h
+++ b/src/cmd/ksh93/include/version.h
@@ -21,7 +21,7 @@
 
 #define SH_RELEASE_FORK	"93u+m"		/* only change if you develop a new ksh93 fork */
 #define SH_RELEASE_SVER	"1.0.0-beta.2"	/* semantic version number: https://semver.org */
-#define SH_RELEASE_DATE	"2022-06-03"	/* must be in this format for $((.sh.version)) */
+#define SH_RELEASE_DATE	"2022-06-04"	/* must be in this format for $((.sh.version)) */
 #define SH_RELEASE_CPYR	"(c) 2020-2022 Contributors to ksh " SH_RELEASE_FORK
 
 /* Scripts sometimes field-split ${.sh.version}, so don't change amount of whitespace. */
diff --git a/src/cmd/ksh93/sh.1 b/src/cmd/ksh93/sh.1
index e7fa955a7..290c3c34e 100644
--- a/src/cmd/ksh93/sh.1
+++ b/src/cmd/ksh93/sh.1
@@ -7566,6 +7566,22 @@ style in-line editor for command entry.
 Same as
 .BR \-e .
 .TP 8
+.B functrace
+Causes the
+.B \-x
+option's state and the
+.B DEBUG
+trap action to be inherited by functions defined using the
+.B function
+keyword (see
+.I "Functions\^"
+above) instead of being reset to default.
+Changes made to them within the function
+do not propagate back to the parent scope.
+Similarly, this option also causes the
+.B DEBUG
+trap action to be inherited by subshells.
+.TP 8
 .B globcasedetect
 When this option is turned on, globbing (see
 .I "Pathname Expansion\^"
diff --git a/src/cmd/ksh93/sh/subshell.c b/src/cmd/ksh93/sh/subshell.c
index e0bab0842..1f9a4e865 100644
--- a/src/cmd/ksh93/sh/subshell.c
+++ b/src/cmd/ksh93/sh/subshell.c
@@ -532,6 +532,7 @@ Sfio_t *sh_subshell(Shnode_t *t, volatile int flags, int comsub)
 	if(!sh.subshare)
 	{
 		struct subshell *xp;
+		char *save_debugtrap = 0;
 #if _lib_fchdir
 		sp->pwdfd = -1;
 		for(xp=sp->prev; xp; xp=xp->prev) 
@@ -591,7 +592,11 @@ Sfio_t *sh_subshell(Shnode_t *t, volatile int flags, int comsub)
 		sp->coutpipe = sh.coutpipe;
 		sp->cpipe = sh.cpipe[1];
 		sh.cpid = 0;
+		if(sh_isoption(SH_FUNCTRACE) && sh.st.trap[SH_DEBUGTRAP] && *sh.st.trap[SH_DEBUGTRAP])
+			save_debugtrap = sh_strdup(sh.st.trap[SH_DEBUGTRAP]);
 		sh_sigreset(0);
+		if(save_debugtrap)
+			sh.st.trap[SH_DEBUGTRAP] = save_debugtrap;
 	}
 	jmpval = sigsetjmp(checkpoint.buff,0);
 	if(jmpval==0)
diff --git a/src/cmd/ksh93/sh/xec.c b/src/cmd/ksh93/sh/xec.c
index cf9ca676d..3c21e62f6 100644
--- a/src/cmd/ksh93/sh/xec.c
+++ b/src/cmd/ksh93/sh/xec.c
@@ -3109,7 +3109,7 @@ int sh_funscope(int argn, char *argv[],int(*fun)(void*),void *arg,int execflg)
 	int			isig,jmpval;
 	volatile int		r = 0;
 	int			n;
-	char 			**savsig;
+	char 			**savsig, *save_debugtrap = 0;
 	struct funenv		*fp = 0;
 	struct checkpt	*buffp = (struct checkpt*)stkalloc(sh.stk,sizeof(struct checkpt));
 	Namval_t		*nspace = sh.namespace;
@@ -3146,7 +3146,7 @@ int sh_funscope(int argn, char *argv[],int(*fun)(void*),void *arg,int execflg)
 	sh.st.save_tree = sh.var_tree;
 	if(!fun)
 	{
-		if(nv_isattr(fp->node,NV_TAGGED))
+		if(sh_isoption(SH_FUNCTRACE) && is_option(&options,SH_XTRACE) || nv_isattr(fp->node,NV_TAGGED))
 			sh_onoption(SH_XTRACE);
 		else
 			sh_offoption(SH_XTRACE);
@@ -3171,7 +3171,11 @@ int sh_funscope(int argn, char *argv[],int(*fun)(void*),void *arg,int execflg)
 				savsig[isig] = NULL;
 		}
 	}
+	if(!fun && sh_isoption(SH_FUNCTRACE) && sh.st.trap[SH_DEBUGTRAP] && *sh.st.trap[SH_DEBUGTRAP])
+		save_debugtrap = sh_strdup(sh.st.trap[SH_DEBUGTRAP]);
 	sh_sigreset(0);
+	if(save_debugtrap)
+		sh.st.trap[SH_DEBUGTRAP] = save_debugtrap;
 	argsav = sh_argnew(argv,&saveargfor);
 	sh_pushcontext(buffp,SH_JMPFUN);
 	errorpush(&buffp->err,0);
diff --git a/src/cmd/ksh93/tests/basic.sh b/src/cmd/ksh93/tests/basic.sh
index e6102506a..4a52c6bc4 100755
--- a/src/cmd/ksh93/tests/basic.sh
+++ b/src/cmd/ksh93/tests/basic.sh
@@ -797,8 +797,7 @@ trap - DEBUG  # bug compat
 	"(expected $(printf %q "$exp"), got $(printf %q "$got"))"
 
 # Make sure the DEBUG trap still exits a POSIX function on exit status 255
-# TODO: same test for ksh function with -o functrace, once we add that option
-exp=$'one\ntwo'
+exp=$'one\ntwo\nEND'
 got=$(
 	myfn()
 	{
@@ -813,11 +812,74 @@ got=$(
 	}
 	trap '[[ ${.sh.command} == *three ]] && set255' DEBUG
 	myfn
+	echo END
 )
 trap - DEBUG  # bug compat
 [[ $got == "$exp" ]] || err_exit "DEBUG trap did not trigger return from POSIX function on status 255" \
 	"(expected $(printf %q "$exp"), got $(printf %q "$got"))"
 
+# Test the new --functrace option <https://github.com/ksh93/ksh/issues/162>
+if	! [[ -o ?functrace ]]
+then
+	warning 'shell does not have --functrace; skipping those tests'
+else
+	# Make sure the DEBUG trap is inherited by ksh functions if --functrace is on
+	exp=$'Debug 0\nDebug 1\nDebugLocal 1\nDebugLocal 2\nFunction\nDebugLocal 1\nDebug 0\nNofunction'
+	got=$(
+		function entryfn
+		{
+			trap 'echo DebugLocal ${.sh.level}' DEBUG
+			myfn
+			:
+		}
+		function myfn
+		{
+			echo Function
+		}
+		set --functrace
+		trap 'echo Debug ${.sh.level}' DEBUG
+		entryfn
+		echo Nofunction
+	)
+	[[ $got == "$exp" ]] || err_exit "DEBUG trap not inherited by ksh function with --functrace on" \
+		"(expected $(printf %q "$exp"), got $(printf %q "$got"))"
+
+	# Make sure the DEBUG trap exits a ksh function with --functrace on exit status 255
+	exp=$'one\ntwo\nEND'
+	got=$(
+		function myfn
+		{
+			echo one
+			echo two
+			echo three
+			echo four
+		}
+		function set255
+		{
+			return 255
+		}
+		set --functrace
+		trap '[[ ${.sh.command} == *three ]] && set255' DEBUG
+		myfn
+		echo END
+	)
+	[[ $got == "$exp" ]] || err_exit "DEBUG trap did not trigger return from POSIX function on status 255" \
+		"(expected $(printf %q "$exp"), got $(printf %q "$got"))"
+
+	# Make sure --functrace causes subshells to inherit the DEBUG trap
+	exp=$'[DEBUG] 1\nfoo:5\n[DEBUG] 2\nbar:6\n[DEBUG] 3\nbar:6a\n[DEBUG] 2\nbaz:7'
+	got=$(
+		typeset -i dbg=0
+		set --functrace
+		trap 'echo "[DEBUG] $((++dbg))"' DEBUG
+		echo foo:5
+		( echo bar:6; (echo bar:6a) )
+		echo baz:7
+	)
+	[[ $got == "$exp" ]] || err_exit "DEBUG trap not inherited by subshell" \
+		"(expected $(printf %q "$exp"), got $(printf %q "$got"))"
+fi
+
 # ======
 # In ksh93v- and ksh2020 EXIT traps don't work in forked subshells
 # https://github.com/att/ast/issues/1452