Update 6 years later (2017)
all other git commands, by the way, work perfectly under this Emacs inferior shell, so I can only assume this must be something specific to difftool
What is specific to difftool is that it is still (but not for long) written in perl: git-difftool.perl
But that will change soon with Git 2.12 (Q1 2017).
That means difftool should run under Emacs just fine, not being bothered with Perl anymore.
See commit 03831ef and commit 019678d (19 Jan 2017) by Johannes Schindelin (dscho).
difftool: implement the functionality in the builtin
The motivation for converting the difftool is that Perl scripts are not at all native on Windows, and that git difftool therefore is pretty slow on that platform, when there is no good reason for it to be slow.
In addition, Perl does not really have access to Git's internals.
That means that any script will always have to jump through unnecessary hoops, and it will often need to perform unnecessary work (e.g. when reading the entire config every time git config is called to query a single config value).
The current version of the builtin difftool does not, however, make full use of the internals but instead chooses to spawn a couple of Git processes, still, to make for an easier conversion. There remains a lot of room for improvement, left later.
Note: to play it safe, the original difftool is still called unless the config setting difftool.useBuiltin is set to true.
The reason: this new, experimental, builtin difftool was shipped as part of Git for Windows v2.11.0, to allow for easier large-scale testing, but of course as an opt-in feature.
The speedup is actually more noticable on Linux than on Windows: a quick test shows that t7800-difftool.sh runs/
- in (2.183s/0.052s/0.108s) (real/user/sys) in a Linux VM, down from (6.529s/3.112s/0.644s), while
- on Windows, it is (36.064s/2.730s/7.194s), down from (47.637s/2.407s/6.863s).
The culprit is most likely the overhead incurred from still having to shell out to mergetool-lib.sh and difftool--helper.sh.
Still, it is an improvement.