diff --git a/src/builder/builder.js b/src/builder/builder.js
index 44023906..b0c117ed 100644
--- a/src/builder/builder.js
+++ b/src/builder/builder.js
@@ -26,7 +26,12 @@ const defaultOptions = {
 
 module.exports = function builder (createChunker, ipld, createReducer, _options) {
   const options = extend({}, defaultOptions, _options)
-  options.cidVersion = options.cidVersion || 0
+  options.cidVersion = options.cidVersion || options.cidVersion
+  options.hashAlg = options.hashAlg || defaultOptions.hashAlg
+
+  if (options.hashAlg !== 'sha2-256') {
+    options.cidVersion = 1
+  }
 
   return function (source) {
     return function (items, cb) {
@@ -71,8 +76,10 @@ module.exports = function builder (createChunker, ipld, createReducer, _options)
           return cb(null, node)
         }
 
+        node.cid = new CID(options.cidVersion, 'dag-pb', node.multihash)
+
         ipld.put(node, {
-          cid: new CID(options.cidVersion, 'dag-pb', node.multihash)
+          cid: node.cid
         }, (err) => cb(err, node))
       }
     ], (err, node) => {
@@ -81,7 +88,7 @@ module.exports = function builder (createChunker, ipld, createReducer, _options)
       }
       callback(null, {
         path: item.path,
-        multihash: node.multihash,
+        multihash: node.cid.buffer,
         size: node.size
       })
     })
@@ -155,7 +162,7 @@ module.exports = function builder (createChunker, ipld, createReducer, _options)
       pull.map((leaf) => {
         return {
           path: file.path,
-          multihash: leaf.multihash,
+          multihash: leaf.cid.buffer,
           size: leaf.size,
           leafSize: leaf.leafSize,
           name: '',
diff --git a/test/builder.js b/test/builder.js
index 586d907c..f5d7f976 100644
--- a/test/builder.js
+++ b/test/builder.js
@@ -40,11 +40,13 @@ module.exports = (repo) => {
           const node = nodes[0]
           expect(node).to.exist()
 
+          const cid = new CID(node.multihash)
+
           // Verify multihash has been encoded using hashAlg
-          expect(mh.decode(node.multihash).name).to.equal(hashAlg)
+          expect(mh.decode(cid.multihash).name).to.equal(hashAlg)
 
           // Fetch using hashAlg encoded multihash
-          ipld.get(new CID(node.multihash), (err, res) => {
+          ipld.get(cid, (err, res) => {
             if (err) return cb(err)
             const content = UnixFS.unmarshal(res.value.data).data
             expect(content.equals(inputFile.content)).to.be.true()
@@ -77,7 +79,8 @@ module.exports = (repo) => {
 
           try {
             expect(node).to.exist()
-            expect(mh.decode(node.multihash).name).to.equal(hashAlg)
+            const cid = new CID(node.multihash)
+            expect(mh.decode(cid.multihash).name).to.equal(hashAlg)
           } catch (err) {
             return cb(err)
           }
@@ -92,5 +95,41 @@ module.exports = (repo) => {
         )
       }, done)
     })
+
+    it('allows multihash hash algorithm to be specified for a directory', (done) => {
+      eachSeries(testMultihashes, (hashAlg, cb) => {
+        const options = { hashAlg, strategy: 'flat' }
+        const inputFile = {
+          path: `${String(Math.random() + Date.now())}-dir`,
+          content: null
+        }
+
+        const onCollected = (err, nodes) => {
+          if (err) return cb(err)
+
+          const node = nodes[0]
+
+          expect(node).to.exist()
+
+          const cid = new CID(node.multihash)
+
+          expect(mh.decode(cid.multihash).name).to.equal(hashAlg)
+
+          // Fetch using hashAlg encoded multihash
+          ipld.get(cid, (err, res) => {
+            if (err) return cb(err)
+            const meta = UnixFS.unmarshal(res.value.data)
+            expect(meta.type).to.equal('directory')
+            cb()
+          })
+        }
+
+        pull(
+          pull.values([Object.assign({}, inputFile)]),
+          createBuilder(FixedSizeChunker, ipld, options),
+          pull.collect(onCollected)
+        )
+      }, done)
+    })
   })
 }