diff --git a/examples/playbooks/group_by.yml b/examples/playbooks/group_by.yml
new file mode 100644
index 0000000000..d08f260bd0
--- /dev/null
+++ b/examples/playbooks/group_by.yml
@@ -0,0 +1,23 @@
+---
+# Example playbook to demonstrate the group_by action plugin.
+
+- hosts: all
+  # This runs the setup module to gather facts
+  tasks:
+  # Use the ansible_machine variable to create a group for every value,
+  # prefix the group name with 'ansible-'
+  - action: group_by key=ansible-${ansible_machine}
+
+- hosts: ansible-x86_64
+  tasks:
+  # Run ping on all x86_64 machines
+  - action: ping
+
+- hosts: all
+  tasks:
+  # Create a group of all kvm hosts
+  - action: group_by key=${ansible_virtualization_type}-${ansible_virtualization_role}
+
+- hosts: kvm-host
+  tasks:
+  - action: ping
diff --git a/lib/ansible/runner/action_plugins/group_by.py b/lib/ansible/runner/action_plugins/group_by.py
new file mode 100644
index 0000000000..d65ec24dd0
--- /dev/null
+++ b/lib/ansible/runner/action_plugins/group_by.py
@@ -0,0 +1,71 @@
+# Copyright 2012, Jeroen Hoekx <jeroen@hoekx.be>
+#
+# This file is part of Ansible
+#
+# Ansible is free software: you can redistribute it and/or modify
+# it under the terms of the GNU General Public License as published by
+# the Free Software Foundation, either version 3 of the License, or
+# (at your option) any later version.
+#
+# Ansible is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with Ansible.  If not, see <http://www.gnu.org/licenses/>.
+
+import ansible
+
+from ansible.callbacks import vv
+from ansible.errors import AnsibleError as ae
+from ansible.runner.return_data import ReturnData
+from ansible.utils import parse_kv, template
+
+class ActionModule(object):
+    ''' Create inventory groups based on variables '''
+
+    ### We need to be able to modify the inventory
+    BYPASS_HOST_LOOP = True
+
+    def __init__(self, runner):
+        self.runner = runner
+
+    def run(self, conn, tmp, module_name, module_args, inject):
+        args = parse_kv(self.runner.module_args)
+        if not 'key' in args:
+            raise ae("'key' is a required argument.")
+
+        vv("created 'group_by' ActionModule: key=%s"%(args['key']))
+
+        inventory = self.runner.inventory
+
+        result = {'changed': False}
+
+        ### find all groups
+        groups = {}
+        for host in self.runner.host_set:
+            data = inject['hostvars'][host]
+            group_name = template(self.runner.basedir, args['key'], data)
+            group_name = group_name.replace(' ','-')
+            if group_name not in groups:
+                groups[group_name] = []
+            groups[group_name].append(host)
+
+        result['groups'] = groups
+
+        ### add to inventory
+        for group, hosts in groups.items():
+            inv_group = inventory.get_group(group)
+            if not inv_group:
+                inv_group = ansible.inventory.Group(name=group)
+                inventory.add_group(inv_group)
+            for host in hosts:
+                inv_host = inventory.get_host(host)
+                if not inv_host:
+                    inv_host = ansible.inventory.Host(name=host)
+                if inv_group not in inv_host.get_groups():
+                    result['changed'] = True
+                    inv_group.add_host(inv_host)
+
+        return ReturnData(conn=conn, comm_ok=True, result=result)
diff --git a/library/group_by b/library/group_by
new file mode 100644
index 0000000000..4a1609ec55
--- /dev/null
+++ b/library/group_by
@@ -0,0 +1,23 @@
+# -*- mode: python -*-
+
+DOCUMENTATION = '''
+---
+module: group_by
+short_description: Create Ansible groups based on facts
+description:
+  - Use facts to create ad-hoc groups that can be used later in a playbook.
+version_added: 0.9
+options:
+  key:
+    description:
+    - The variables whose values will be used as groups
+    required: true
+author: Jeroen Hoekx
+examples:
+  - description: Create groups based on the machine architecture
+    code: group_by key=${ansible_machine}
+  - description: Create groups like 'kvm-host'
+    code: group_by key=${ansible_virtualization_type}-${ansible_virtualization_role}
+notes:
+  - Spaces in group names are converted to dashes '-'.
+'''