diff --git a/features/nifty_layout.feature b/features/nifty_layout.feature
index eea37f8..5fe241e 100644
--- a/features/nifty_layout.feature
+++ b/features/nifty_layout.feature
@@ -3,18 +3,28 @@ Feature: Nifty Layout Generator
   As a rails developer
   I want to generate a simple layout
 
+  Background: Create a new rails app
+    Given a new Rails 3.0.x app
+
   Scenario: Generate normal application layout
-    Given a new Rails app
     When I run "rails g nifty:layout -f"
     Then I should see "stylesheet_link_tag "application"" in file "app/views/layouts/application.html.erb"
     Then I should see "h(page_title" in file "app/helpers/layout_helper.rb"
-    And I should see file "app/helpers/layout_helper.rb"
-    And I should see file "app/helpers/error_messages_helper.rb"
-    And I should see file "public/stylesheets/application.css"
+    And I should see the following files
+      | app/helpers/layout_helper.rb            |
+      | app/helpers/error_messages_helper.rb    |
+      | public/stylesheets/application.css      |
 
-  Scenario: Generate named layout with haml and sass
-    Given a new Rails app
-    When I run "rails g nifty:layout FooBar --haml -f"
-    Then I should see "stylesheet_link_tag "foo_bar"" in file "app/views/layouts/foo_bar.html.haml"
-    And I should see file "public/stylesheets/sass/foo_bar.sass"
+  Scenario Outline: Generate named layout with haml...
+    When I run "rails g nifty:layout FooBar --<option> -f"
+    Then I should see "stylesheet_link_tag "foo_bar" in file "app/views/layouts/foo_bar.html.haml"
+    And I should see file "public/stylesheets/foo_bar.<sass_version>"
     And I should see file "app/helpers/layout_helper.rb"
+
+    Scenarios: ...and sass
+      | option | sass_version |
+      | haml   | sass         |
+
+    Scenarios: ...and scss
+      | option | sass_version |
+      | scss   | css.scss     |
diff --git a/features/nifty_layout_3.1.feature b/features/nifty_layout_3.1.feature
new file mode 100644
index 0000000..eed6822
--- /dev/null
+++ b/features/nifty_layout_3.1.feature
@@ -0,0 +1,30 @@
+Feature: Nifty Layout Generator
+  In order to have a layout
+  As a rails developer
+  I want to generate a simple layout
+
+  Background: Create a new rails app
+    Given a new Rails 3.1.x app
+
+  Scenario: Generate normal application layout
+    When I run "rails g nifty:layout -f"
+    Then I should see "stylesheet_link_tag "application"" in file "app/views/layouts/application.html.erb"
+    Then I should see "h(page_title" in file "app/helpers/layout_helper.rb"
+    And I should see the following files
+      | app/helpers/layout_helper.rb            |
+      | app/helpers/error_messages_helper.rb    |
+      | app/assets/stylesheets/application.css  |
+
+  Scenario Outline: Generate named layout with haml...
+    When I run "rails g nifty:layout FooBar --<option> -f"
+    Then I should see "stylesheet_link_tag "foo_bar" in file "app/views/layouts/foo_bar.html.haml"
+    And I should see file "app/assets/stylesheets/foo_bar.<sass_version>"
+    And I should see file "app/helpers/layout_helper.rb"
+
+    Scenarios: ...and sass
+      | option | sass_version |
+      | haml   | sass         |
+
+    Scenarios: ...and scss
+      | option | sass_version |
+      | scss   | css.scss     |
diff --git a/features/step_definitions/rails_setup_steps.rb b/features/step_definitions/rails_setup_steps.rb
index 9745819..57ac07f 100644
--- a/features/step_definitions/rails_setup_steps.rb
+++ b/features/step_definitions/rails_setup_steps.rb
@@ -1,6 +1,13 @@
 Given /^a new Rails app$/ do
-  FileUtils.mkdir_p("tmp")
-  system("rails new tmp/rails_app").should be_true
-  system("ln -s ../../../lib/generators tmp/rails_app/lib/generators").should be_true
-  @current_directory = File.expand_path("tmp/rails_app")
+#  FileUtils.mkdir_p("tmp")
+  system("rails new tmp/rails_app/any_version").should be_true
+  FileUtils.ln_s("../../../../lib/generators", "tmp/rails_app/any_version/lib/generators").should be_true
+  @current_directory = File.expand_path("tmp/rails_app/any_version")
+end
+
+Given /^a new Rails (\d+)\.(\d+)\.x app$/ do |major, minor|
+#  FileUtils.mkdir_p("tmp")
+  system("rails _#{major}.#{minor}_ new tmp/rails_app/version_#{major}.#{minor}.x").should be_true
+  FileUtils.ln_s("../../../../lib/generators", "tmp/rails_app/version_#{major}.#{minor}.x/lib/generators").should be_true
+  @current_directory = File.expand_path("tmp/rails_app/version_#{major}.#{minor}.x")
 end
diff --git a/lib/generators/nifty/layout/USAGE b/lib/generators/nifty/layout/USAGE
index f94af0d..5e40b26 100644
--- a/lib/generators/nifty/layout/USAGE
+++ b/lib/generators/nifty/layout/USAGE
@@ -3,8 +3,8 @@ Description:
   helper which will give some structure to a starting Rails app.
 
   The generator takes one argument which will be the name of the
-	layout and stylesheet files. If no argument is passed then it defaults
-	to "application".
+  layout and stylesheet files. If no argument is passed then it defaults
+  to "application".
 
   The helper module includes some methods which can be called in any
   template or partial to set variables to be used in the layout, such as
@@ -14,12 +14,12 @@ Examples:
     rails generate nifty:layout
 
         Layout:     app/views/layouts/application.html.erb
-        Stylesheet: public/stylesheets/application.css
+        Stylesheet: app/assets/stylesheets/application.css
         Helper:     app/helpers/layout_helper.rb
 
 
     rails generate nifty:layout admin
 
         Layout:     app/views/layouts/admin.html.erb
-        Stylesheet: public/stylesheets/admin.css
+        Stylesheet: app/assets/stylesheets/admin.css
         Helper:     app/helpers/layout_helper.rb
diff --git a/lib/generators/nifty/layout/layout_generator.rb b/lib/generators/nifty/layout/layout_generator.rb
index abed99a..64d66bb 100644
--- a/lib/generators/nifty/layout/layout_generator.rb
+++ b/lib/generators/nifty/layout/layout_generator.rb
@@ -6,14 +6,25 @@ class LayoutGenerator < Base
       argument :layout_name, :type => :string, :default => 'application', :banner => 'layout_name'
 
       class_option :haml, :desc => 'Generate HAML for view, and SASS for stylesheet.', :type => :boolean
+      class_option :scss, :desc => 'Generate HAML for view, and SCSS for stylesheet.', :type => :boolean
 
       def create_layout
+        style_name = file_name
+        style_path = 'public'
+        if (Rails.version =~ /^3\.1/) != nil
+          # For Rails 3.1 and its assets pipeline we don't want to overwrite application.css
+          style_name = 'nifty_layout' if file_name == 'application'
+          style_path = 'app/assets'
+        end
         if options.haml?
           template 'layout.html.haml', "app/views/layouts/#{file_name}.html.haml"
-          copy_file 'stylesheet.sass', "public/stylesheets/sass/#{file_name}.sass"
+          copy_file 'stylesheet.sass', "#{style_path}/stylesheets/#{style_name}.sass"
+        elsif options.scss?
+          template 'layout.html.haml', "app/views/layouts/#{file_name}.html.haml"
+          copy_file 'stylesheet.css.scss', "#{style_path}/stylesheets/#{style_name}.css.scss"
         else
           template 'layout.html.erb', "app/views/layouts/#{file_name}.html.erb"
-          copy_file 'stylesheet.css', "public/stylesheets/#{file_name}.css"
+          copy_file 'stylesheet.css', "#{style_path}/stylesheets/#{style_name}.css"
         end
         copy_file 'layout_helper.rb', 'app/helpers/layout_helper.rb'
         copy_file 'error_messages_helper.rb', 'app/helpers/error_messages_helper.rb'
diff --git a/lib/generators/nifty/layout/templates/stylesheet.css.scss b/lib/generators/nifty/layout/templates/stylesheet.css.scss
new file mode 100644
index 0000000..e130599
--- /dev/null
+++ b/lib/generators/nifty/layout/templates/stylesheet.css.scss
@@ -0,0 +1,83 @@
+$primary_color: #4b7399;
+
+body {
+  background-color: $primary_color;
+  font: {
+    family: Verdana, Helvetica, Arial;
+    size: 14px; 
+  }; 
+}
+
+a {
+  color: blue;
+  img {
+    border: none; 
+  } 
+}
+
+.clear {
+  clear: both;
+  height: 0;
+  overflow: hidden; 
+}
+
+#container {
+  width: 75%;
+  margin: 0 auto;
+  background: white;
+  padding: 20px 40px;
+  border: solid 1px black;
+  margin-top: 20px; 
+}
+
+#flash_notice,
+#flash_error {
+  padding: 5px 8px;
+  margin: 10px 0; 
+}
+
+#flash_notice {
+  background-color: #ccffcc;
+  border: solid 1px #66cc66; 
+}
+
+#flash_error {
+  background-color: #ffcccc;
+  border: solid 1px #cc6666; 
+}
+
+.fieldWithErrors {
+  display: inline; 
+}
+
+#errorExplanation {
+  width: 400px;
+  border: 2px solid #cf0000;
+  padding: 0;
+  padding-bottom: 12px;
+  margin-bottom: 20px;
+  background-color: #f0f0f0;
+  h2 {
+    text-align: left;
+    padding: 5px 5px 5px 15px;
+    margin: 0;
+    font: {
+      weight: bold;
+      size: 12px; 
+    };
+    background-color: #cc0000;
+    color: white; 
+  }
+  p {
+    color: #333333;
+    margin-bottom: 0;
+    padding: 8px; 
+  }
+  ul {
+    margin: 2px 24px;
+    li {
+      font-size: 12px;
+      list-style: disc; 
+    }
+  } 
+}
\ No newline at end of file