Is it better to keep Git repository inside or outside of Eclipse workspace?

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The implications of both solutions are listed directly in the user guide that you linked. I can tell you that the part

This can result in performance issues

is unfortunately very true. So if you have a git directory with a huge number of files inside your workspace, many git operations will start with a “counting objects…” dialog that blocks your IDE because it scans all files in the workspace. For my current 20000 files this means waiting 10 to 20 seconds for every commit, every switch, …

In spare time activities, where I can fortunately use the other alternative (having the git working directory outside the workspace) everything feels much snappier and it is fun to merge and switch.

So if you go for large projects, consider the git directory outside the workspace as first choice.

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