diff --git a/src/calibre/ebooks/conversion/preprocess.py b/src/calibre/ebooks/conversion/preprocess.py
index cb2564ec0a..029b9752e1 100644
--- a/src/calibre/ebooks/conversion/preprocess.py
+++ b/src/calibre/ebooks/conversion/preprocess.py
@@ -223,16 +223,7 @@ class HTMLPreProcessor(object):
         elif self.is_book_designer(html):
             rules = self.BOOK_DESIGNER
         elif self.is_pdftohtml(html):
-            end_rules = []
-            if getattr(self.extra_opts, 'unwrap_factor', None):
-                length = line_length(html, getattr(self.extra_opts, 'unwrap_factor'))
-                if length:
-                    end_rules.append(
-                        # Un wrap using punctuation
-                        (re.compile(r'(?<=.{%i}[a-z\.,;:)-IA])\s*(?P<ital></(i|b|u)>)?\s*(<p.*?>)\s*(?=(<(i|b|u)>)?\s*[\w\d(])' % length, re.UNICODE), wrap_lines),
-                    )
-
-            rules = self.PDFTOHTML + end_rules
+            rules = self.PDFTOHTML
         else:
             rules = []
 
@@ -246,7 +237,16 @@ class HTMLPreProcessor(object):
                 (re.compile(getattr(self.extra_opts, 'footer_regex')), lambda match : '')
             )
 
-        for rule in self.PREPROCESS + pre_rules + rules:
+            end_rules = []
+            if getattr(self.extra_opts, 'unwrap_factor', None):
+                length = line_length(html, getattr(self.extra_opts, 'unwrap_factor'))
+                if length:
+                    end_rules.append(
+                        # Un wrap using punctuation
+                        (re.compile(r'(?<=.{%i}[a-z\.,;:)-IA])\s*(?P<ital></(i|b|u)>)?\s*(<p.*?>)\s*(?=(<(i|b|u)>)?\s*[\w\d(])' % length, re.UNICODE), wrap_lines),
+                    )
+
+        for rule in self.PREPROCESS + pre_rules + rules + end_rules:
             html = rule[0].sub(rule[1], html)
 
         # Handle broken XHTML w/ SVG (ugh)
diff --git a/src/calibre/ebooks/html/input.py b/src/calibre/ebooks/html/input.py
index 92c2df9690..7b7bfdf3aa 100644
--- a/src/calibre/ebooks/html/input.py
+++ b/src/calibre/ebooks/html/input.py
@@ -262,7 +262,7 @@ class HTMLInput(InputFormatPlugin):
                 )
         ),
 
-        OptionRecommendation(name='pdf_line_length', recommended_value=0.5,
+        OptionRecommendation(name='unwrap_factor', recommended_value=0.5,
             help=_('Average line length for line breaking if the HTML is from a '
                 'previous partial conversion of a PDF file.')),
 
diff --git a/src/calibre/ebooks/oeb/base.py b/src/calibre/ebooks/oeb/base.py
index 3f9e6a4d4a..2e06fffe4e 100644
--- a/src/calibre/ebooks/oeb/base.py
+++ b/src/calibre/ebooks/oeb/base.py
@@ -934,7 +934,7 @@ class Manifest(object):
 
             self.oeb.log.debug('Converting', self.href, '...')
 
-            from calibre.ebooks.txt.processor import txt_to_markdown
+            from calibre.ebooks.txt.processor import convert_markdown
 
             title = self.oeb.metadata.title
             if title:
@@ -942,7 +942,7 @@ class Manifest(object):
             else:
                 title = _('Unknown')
 
-            return self._parse_xhtml(txt_to_markdown(data, title))
+            return self._parse_xhtml(convert_markdown(data, title))
 
 
         def _parse_css(self, data):
diff --git a/src/calibre/ebooks/pdb/palmdoc/reader.py b/src/calibre/ebooks/pdb/palmdoc/reader.py
index e1935db566..8992382597 100644
--- a/src/calibre/ebooks/pdb/palmdoc/reader.py
+++ b/src/calibre/ebooks/pdb/palmdoc/reader.py
@@ -13,8 +13,8 @@ import struct
 
 from calibre.ebooks.compression.palmdoc import decompress_doc
 from calibre.ebooks.pdb.formatreader import FormatReader
-from calibre.ebooks.txt.processor import opf_writer
-from calibre.ebooks.txt.processor import txt_to_markdown
+from calibre.ebooks.txt.processor import convert_basic, separate_paragraphs, \
+    opf_writer
 
 class HeaderRecord(object):
     '''
@@ -62,7 +62,9 @@ class Reader(FormatReader):
             txt += self.decompress_text(i)
 
         self.log.info('Converting text to OEB...')
-        html = txt_to_markdown(txt, single_line_paras=self.single_line_paras)
+        if self.single_line_paras:
+            txt = separate_paragraphs(txt)
+        html = convert_basic(txt)
         with open(os.path.join(output_dir, 'index.html'), 'wb') as index:
             index.write(html.encode('utf-8'))
 
diff --git a/src/calibre/ebooks/pdb/ztxt/reader.py b/src/calibre/ebooks/pdb/ztxt/reader.py
index 86c5abfe82..664f498bee 100644
--- a/src/calibre/ebooks/pdb/ztxt/reader.py
+++ b/src/calibre/ebooks/pdb/ztxt/reader.py
@@ -12,7 +12,8 @@ import os, struct, zlib
 
 from calibre.ebooks.pdb.formatreader import FormatReader
 from calibre.ebooks.pdb.ztxt import zTXTError
-from calibre.ebooks.txt.processor import txt_to_markdown, opf_writer
+from calibre.ebooks.txt.processor import convert_basic, separate_paragraphs, \
+    opf_writer
 
 SUPPORTED_VERSION = (1, 40)
 
@@ -77,7 +78,9 @@ class Reader(FormatReader):
             txt += self.decompress_text(i)
 
         self.log.info('Converting text to OEB...')
-        html = txt_to_markdown(txt, single_line_paras=self.single_line_paras)
+        if self.single_line_paras:
+            txt = separate_paragraphs(txt)
+        html = convert_basic(txt)
         with open(os.path.join(output_dir, 'index.html'), 'wb') as index:
             index.write(html.encode('utf-8'))
                         
diff --git a/src/calibre/ebooks/txt/input.py b/src/calibre/ebooks/txt/input.py
index 5d84a1bde1..2b0245c98b 100644
--- a/src/calibre/ebooks/txt/input.py
+++ b/src/calibre/ebooks/txt/input.py
@@ -7,7 +7,8 @@ __docformat__ = 'restructuredtext en'
 import os
 
 from calibre.customize.conversion import InputFormatPlugin, OptionRecommendation
-from calibre.ebooks.txt.processor import txt_to_markdown
+from calibre.ebooks.txt.processor import convert_basic, convert_markdown, \
+    separate_paragraphs
 
 class TXTInput(InputFormatPlugin):
 
@@ -21,6 +22,8 @@ class TXTInput(InputFormatPlugin):
             help=_('Normally calibre treats blank lines as paragraph markers. '
                 'With this option it will assume that every line represents '
                 'a paragraph instead.')),
+        OptionRecommendation(name='markdown', recommended_value=False,
+            help=_('Run the text input though the markdown processor.')),
     ])
 
     def convert(self, stream, options, file_ext, log,
@@ -31,12 +34,18 @@ class TXTInput(InputFormatPlugin):
         log.debug('Reading text from file...')
         txt = stream.read().decode(ienc, 'replace')
 
-        log.debug('Running text though markdown conversion...')
-        try:
-            html = txt_to_markdown(txt, single_line_paras=options.single_line_paras)
-        except RuntimeError:
-            raise ValueError('This txt file has malformed markup, it cannot be'
-                'converted by calibre. See http://daringfireball.net/projects/markdown/syntax')
+        if options.single_line_paras:
+            txt = separate_paragraphs(txt)
+
+        if options.markdown:
+            log.debug('Running text though markdown conversion...')
+            try:
+                html = convert_markdown(txt)
+            except RuntimeError:
+                raise ValueError('This txt file has malformed markup, it cannot be'
+                    'converted by calibre. See http://daringfireball.net/projects/markdown/syntax')
+        else:
+            html = convert_basic(txt)
 
         from calibre.customize.ui import plugin_for_input_format
         html_input = plugin_for_input_format('html')
diff --git a/src/calibre/ebooks/txt/processor.py b/src/calibre/ebooks/txt/processor.py
index 3005d633b8..f6503c0bc5 100644
--- a/src/calibre/ebooks/txt/processor.py
+++ b/src/calibre/ebooks/txt/processor.py
@@ -5,7 +5,9 @@ Read content from txt file.
 '''
 
 import os
+import re
 
+from calibre import prepare_string_for_xml
 from calibre.ebooks.markdown import markdown
 from calibre.ebooks.metadata.opf2 import OPFCreator
 
@@ -13,18 +15,41 @@ __license__   = 'GPL v3'
 __copyright__ = '2009, John Schember <john@nachtimwald.com>'
 __docformat__ = 'restructuredtext en'
 
-def txt_to_markdown(txt, title='', single_line_paras=False):
-    if single_line_paras:
-        txt = txt.replace('\r\n', '\n')
-        txt = txt.replace('\r', '\n')
-        txt = txt.replace('\n', '\n\n')
+HTML_TEMPLATE = u'<html><head><meta http-equiv="Content-Type" content="text/html; charset=utf-8"/><title>%s</title></head><body>\n%s\n</body></html>'
+
+def convert_basic(txt, title=''):
+    lines = []
+    # Strip whitespace from the beginning and end of the line. Also replace
+    # all line breaks with \n.
+    for line in txt.splitlines():
+        lines.append(line.strip())
+    txt = '\n'.join(lines)
+
+    # Remove blank lines from the beginning and end of the document.
+    txt = re.sub('^\s+(?=.)', '', txt)
+    txt = re.sub('(?<=.)\s+$', '', txt)
+    # Remove excessive line breaks.
+    txt = re.sub('\n{3,}', '\n\n', txt)
+
+    lines = []
+    # Split into paragraphs based on having a blank line between text.
+    for line in txt.split('\n\n'):
+        if line.strip():
+            lines.append('<p>%s</p>' % prepare_string_for_xml(line.replace('\n', ' ')))
+
+    return HTML_TEMPLATE % (title, '\n'.join(lines))
+
+def convert_markdown(txt, title=''):
     md = markdown.Markdown(
         extensions=['footnotes', 'tables', 'toc'],
         safe_mode=False,)
-    html = u'<html><head><meta http-equiv="Content-Type" content="text/html; charset=utf-8"/><title>%s</title></head><body>%s</body></html>' % (title,
-        md.convert(txt))
+    return HTML_TEMPLATE % (title, md.convert(txt))
 
-    return html
+def separate_paragraphs(txt):
+    txt = txt.replace('\r\n', '\n')
+    txt = txt.replace('\r', '\n')
+    txt = re.sub(u'(?<=.)\n(?=.)', u'\n\n', txt)
+    return txt
 
 def opf_writer(path, opf_name, manifest, spine, mi):
     opf = OPFCreator(path, mi)
diff --git a/src/calibre/gui2/convert/txt_input.py b/src/calibre/gui2/convert/txt_input.py
index 71dbbe1fe2..3d17eefe0d 100644
--- a/src/calibre/gui2/convert/txt_input.py
+++ b/src/calibre/gui2/convert/txt_input.py
@@ -14,6 +14,6 @@ class PluginWidget(Widget, Ui_Form):
 
     def __init__(self, parent, get_option, get_help, db=None, book_id=None):
         Widget.__init__(self, parent, 'txt_input',
-            ['single_line_paras'])
+            ['single_line_paras', 'markdown'])
         self.db, self.book_id = db, book_id
         self.initialize_options(get_option, get_help, db, book_id)
diff --git a/src/calibre/gui2/convert/txt_input.ui b/src/calibre/gui2/convert/txt_input.ui
index 191e749833..8c22ff721e 100644
--- a/src/calibre/gui2/convert/txt_input.ui
+++ b/src/calibre/gui2/convert/txt_input.ui
@@ -14,7 +14,7 @@
    <string>Form</string>
   </property>
   <layout class="QGridLayout" name="gridLayout">
-   <item row="1" column="0">
+   <item row="3" column="0">
     <spacer name="verticalSpacer">
      <property name="orientation">
       <enum>Qt::Vertical</enum>
@@ -34,6 +34,23 @@
      </property>
     </widget>
    </item>
+   <item row="1" column="0">
+    <widget class="QCheckBox" name="opt_markdown">
+     <property name="text">
+      <string>Process using markdown</string>
+     </property>
+    </widget>
+   </item>
+   <item row="2" column="0">
+    <widget class="QLabel" name="label">
+     <property name="text">
+      <string>&lt;p&gt;Markdown is a simple markup language for text files, that allows for advanced formatting. To learn more visit &lt;a href=&quot;http://daringfireball.net/projects/markdown&quot;&gt;markdown&lt;/a&gt;.</string>
+     </property>
+     <property name="wordWrap">
+      <bool>true</bool>
+     </property>
+    </widget>
+   </item>
   </layout>
  </widget>
  <resources/>