diff --git a/Engine/source/materials/processedShaderMaterial.cpp b/Engine/source/materials/processedShaderMaterial.cpp
index 410773d7e..8a704c6e2 100644
--- a/Engine/source/materials/processedShaderMaterial.cpp
+++ b/Engine/source/materials/processedShaderMaterial.cpp
@@ -389,11 +389,9 @@ void ProcessedShaderMaterial::_determineFeatures(  U32 stageNum,
    // cannot do on SM 2.0 and below.
    if ( shaderVersion > 2.0f )
    {
-      // Only allow parallax if we have a normal map and
-      // we're not using DXTnm compression.
+
       if (  mMaterial->mParallaxScale[stageNum] > 0.0f &&
-         fd.features[ MFT_NormalMap ] &&
-         !fd.features[ MFT_IsDXTnm ] )
+         fd.features[ MFT_NormalMap ] )
          fd.features.addFeature( MFT_Parallax );
 
       // If not parallax then allow per-pixel specular if
diff --git a/Engine/source/shaderGen/HLSL/bumpHLSL.cpp b/Engine/source/shaderGen/HLSL/bumpHLSL.cpp
index 2d6dc8464..b167db102 100644
--- a/Engine/source/shaderGen/HLSL/bumpHLSL.cpp
+++ b/Engine/source/shaderGen/HLSL/bumpHLSL.cpp
@@ -345,8 +345,16 @@ void ParallaxFeatHLSL::processPix(  Vector<ShaderComponent*> &componentList,
    Var *normalMap = getNormalMapTex();
 
    // Call the library function to do the rest.
-   meta->addStatement( new GenOp( "   @.xy += parallaxOffset( @, @.xy, @, @ );\r\n", 
-      texCoord, normalMap, texCoord, negViewTS, parallaxInfo ) );
+   if(fd.features.hasFeature( MFT_IsDXTnm, getProcessIndex() ))
+   {
+      meta->addStatement( new GenOp( "   @.xy += parallaxOffsetDxtnm( @, @.xy, @, @ );\r\n", 
+         texCoord, normalMap, texCoord, negViewTS, parallaxInfo ) );
+   }
+   else
+   {
+      meta->addStatement( new GenOp( "   @.xy += parallaxOffset( @, @.xy, @, @ );\r\n", 
+         texCoord, normalMap, texCoord, negViewTS, parallaxInfo ) );
+   }
 
    // TODO: Fix second UV maybe?
 
diff --git a/Engine/source/terrain/hlsl/terrFeatureHLSL.cpp b/Engine/source/terrain/hlsl/terrFeatureHLSL.cpp
index 6c94e0743..37ad1730d 100644
--- a/Engine/source/terrain/hlsl/terrFeatureHLSL.cpp
+++ b/Engine/source/terrain/hlsl/terrFeatureHLSL.cpp
@@ -456,8 +456,16 @@ void TerrainDetailMapFeatHLSL::processPix(   Vector<ShaderComponent*> &component
       Var *normalMap = _getNormalMapTex();
 
       // Call the library function to do the rest.
-      meta->addStatement( new GenOp( "   @.xy += parallaxOffset( @, @.xy, @, @.z * @ );\r\n", 
-         inDet, normalMap, inDet, negViewTS, detailInfo, detailBlend ) );
+      if(fd.features.hasFeature( MFT_IsDXTnm, detailIndex ) )
+      {
+         meta->addStatement( new GenOp( "   @.xy += parallaxOffsetDxtnm( @, @.xy, @, @.z * @ );\r\n", 
+            inDet, normalMap, inDet, negViewTS, detailInfo, detailBlend ) );
+      }
+      else
+      {
+         meta->addStatement( new GenOp( "   @.xy += parallaxOffset( @, @.xy, @, @.z * @ );\r\n", 
+            inDet, normalMap, inDet, negViewTS, detailInfo, detailBlend ) );
+      }
    }
 
    // If this is a prepass then we skip color.
diff --git a/Templates/Empty/game/shaders/common/torque.hlsl b/Templates/Empty/game/shaders/common/torque.hlsl
index 3821ce693..1d253936b 100644
--- a/Templates/Empty/game/shaders/common/torque.hlsl
+++ b/Templates/Empty/game/shaders/common/torque.hlsl
@@ -151,6 +151,21 @@ float2 parallaxOffset( sampler2D texMap, float2 texCoord, float3 negViewTS, floa
    return offset;
 }
 
+/// Same as parallaxOffset but for dxtnm where depth is stored in the red channel instead of the alpha
+float2 parallaxOffsetDxtnm(sampler2D texMap, float2 texCoord, float3 negViewTS, float depthScale)
+{
+   float depth = tex2D(texMap, texCoord).r;
+   float2 offset = negViewTS.xy * (depth * depthScale);
+
+   for (int i = 0; i < PARALLAX_REFINE_STEPS; i++)
+   {
+      depth = (depth + tex2D(texMap, texCoord + offset).r) * 0.5;
+      offset = negViewTS.xy * (depth * depthScale);
+   }
+
+   return offset;
+}
+
 
 /// The maximum value for 16bit per component integer HDR encoding.
 static const float HDR_RGB16_MAX = 100.0;
diff --git a/Templates/Full/game/shaders/common/torque.hlsl b/Templates/Full/game/shaders/common/torque.hlsl
index 3821ce693..1d253936b 100644
--- a/Templates/Full/game/shaders/common/torque.hlsl
+++ b/Templates/Full/game/shaders/common/torque.hlsl
@@ -151,6 +151,21 @@ float2 parallaxOffset( sampler2D texMap, float2 texCoord, float3 negViewTS, floa
    return offset;
 }
 
+/// Same as parallaxOffset but for dxtnm where depth is stored in the red channel instead of the alpha
+float2 parallaxOffsetDxtnm(sampler2D texMap, float2 texCoord, float3 negViewTS, float depthScale)
+{
+   float depth = tex2D(texMap, texCoord).r;
+   float2 offset = negViewTS.xy * (depth * depthScale);
+
+   for (int i = 0; i < PARALLAX_REFINE_STEPS; i++)
+   {
+      depth = (depth + tex2D(texMap, texCoord + offset).r) * 0.5;
+      offset = negViewTS.xy * (depth * depthScale);
+   }
+
+   return offset;
+}
+
 
 /// The maximum value for 16bit per component integer HDR encoding.
 static const float HDR_RGB16_MAX = 100.0;