diff --git a/mkdocs/build.py b/mkdocs/build.py
index 22a91b2e..b0430e33 100644
--- a/mkdocs/build.py
+++ b/mkdocs/build.py
@@ -11,18 +11,21 @@ import json
 
 
 class PathToURL(object):
-    def __init__(self, nav=None):
+    def __init__(self, template, nav=None):
+        self.template = template
         self.nav = nav
 
     def __call__(self, match):
         url = match.groups()[0]
         scheme, netloc, path, query, query, fragment = urlparse(url)
 
-        if (scheme or netloc or not utils.is_markdown_file(path)):
+        if scheme or netloc:
             # Ignore URLs unless they are a relative link to a markdown file.
-            return 'a href="%s"' % url
+            return self.template % url
 
-        if self.nav:
+        if self.nav and not utils.is_markdown_file(path):
+            path = utils.create_media_urls(self.nav, [path])[0]
+        elif self.nav:
             # If the site navigation has been provided, then validate
             # the internal hyperlink, making sure the target actually exists.
             target_file = self.nav.file_context.make_absolute(path)
@@ -40,7 +43,7 @@ class PathToURL(object):
 
         # Convert the .md hyperlink to a relative hyperlink to the HTML page.
         url = urlunparse((scheme, netloc, path, query, query, fragment))
-        return 'a href="%s"' % url
+        return self.template % url
 
 
 def convert_markdown(markdown_source, extensions=()):
@@ -73,8 +76,15 @@ def convert_markdown(markdown_source, extensions=()):
 
 
 def post_process_html(html_content, nav=None):
-    html_content = re.sub(r'a href="([^"]*)"', PathToURL(nav), html_content)
-    html_content = re.sub('<pre>', '<pre class="prettyprint well">', html_content)
+
+    anchor_sub = PathToURL('a href="%s"', nav)
+    html_content = re.sub(r'a href="([^"]*)"', anchor_sub, html_content)
+
+    img_sub = PathToURL('src="%s"', nav)
+    html_content = re.sub(r'src="([^"]*)"', img_sub, html_content)
+
+    html_content = html_content.replace('<pre>', '<pre class="prettyprint well">')
+
     return html_content
 
 
diff --git a/mkdocs/compat.py b/mkdocs/compat.py
index bb04bc1e..49bd396a 100644
--- a/mkdocs/compat.py
+++ b/mkdocs/compat.py
@@ -14,6 +14,9 @@ if PY2:
     import SocketServer
     socketserver = SocketServer
 
+    import itertools
+    zip = itertools.izip
+
     text_type = unicode
     binary_type = str
     string_types = (str, unicode)
@@ -28,6 +31,8 @@ else:  # PY3
     import socketserver
     socketserver = socketserver
 
+    zip = zip
+
     text_type = str
     binary_type = bytes
     string_types = (str,)
diff --git a/mkdocs/nav.py b/mkdocs/nav.py
index 7a1a7e77..3a0cee0a 100644
--- a/mkdocs/nav.py
+++ b/mkdocs/nav.py
@@ -98,7 +98,10 @@ class URLContext(object):
                 # Workaround for static assets
                 return '.'
             return url.lstrip('/')
-        return posixpath.relpath(url, start=self.base_path) + suffix
+        relative_path = posixpath.relpath(url, start=self.base_path) + suffix
+
+        # Under Python 2.6, relative_path adds an extra '/' at the end.
+        return relative_path.rstrip('/')
 
 
 class FileContext(object):
diff --git a/mkdocs/test.py b/mkdocs/test.py
index f05891a8..5d1f6c63 100755
--- a/mkdocs/test.py
+++ b/mkdocs/test.py
@@ -3,7 +3,7 @@
 
 
 from mkdocs import build, nav, toc, utils, config
-from mkdocs.compat import PY2
+from mkdocs.compat import PY2, zip
 import markdown
 import os
 import shutil
@@ -431,6 +431,26 @@ class BuildTests(unittest.TestCase):
         html = build.post_process_html(html)
         self.assertEqual(html.strip(), expected.strip())
 
+    def test_convert_internal_media(self):
+        pages = [
+            ('index.md',),
+            ('internal.md',),
+            ('sub/internal.md')
+        ]
+
+        site_navigation = nav.SiteNavigation(pages)
+
+        expected_results = (
+            '<p><img alt="The initial MkDocs layout" src="./img/initial-layout.png" /></p>',
+            '<p><img alt="The initial MkDocs layout" src="../img/initial-layout.png" /></p>',
+            '<p><img alt="The initial MkDocs layout" src="../../img/initial-layout.png" /></p>',
+        )
+
+        for (page, expected) in zip(site_navigation.walk_pages(), expected_results):
+            html = '<p><img alt="The initial MkDocs layout" src="img/initial-layout.png" /></p>'
+            html = build.post_process_html(html, site_navigation)
+            self.assertEqual(html, expected)
+
     def test_ignore_external_link(self):
         md_text = 'An [external link](http://example.com/external.md).'
         expected = '<p>An <a href="http://example.com/external.md">external link</a>.</p>'