diff --git a/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/corext/template/c/CContext.java b/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/corext/template/c/CContext.java
index f87fae0d5af..9166cba0246 100644
--- a/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/corext/template/c/CContext.java
+++ b/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/corext/template/c/CContext.java
@@ -126,7 +126,8 @@ public class CContext extends TranslationUnitContext {
 		boolean useCodeFormatter= prefs.getBoolean(PreferenceConstants.TEMPLATES_USE_CODEFORMATTER);			
 
 		ICProject project= getCProject();
-		CFormatter formatter= new CFormatter(TextUtilities.getDefaultLineDelimiter(getDocument()), getIndentationLevel(), useCodeFormatter, project);
+		int indentationLevel = isReadOnly() ? 0 : getIndentationLevel();
+		CFormatter formatter= new CFormatter(TextUtilities.getDefaultLineDelimiter(getDocument()), indentationLevel, useCodeFormatter, project);
 		formatter.format(buffer, this);
 		
 		return buffer;
diff --git a/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/corext/template/c/CFormatter.java b/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/corext/template/c/CFormatter.java
index 1177cc5bc86..73c68fc3296 100644
--- a/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/corext/template/c/CFormatter.java
+++ b/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/corext/template/c/CFormatter.java
@@ -14,6 +14,7 @@
 package org.eclipse.cdt.internal.corext.template.c;
 
 import java.util.ArrayList;
+import java.util.Arrays;
 import java.util.HashMap;
 import java.util.Iterator;
 import java.util.List;
@@ -41,6 +42,7 @@ import org.eclipse.text.edits.TextEdit;
 
 import org.eclipse.cdt.core.CCorePlugin;
 import org.eclipse.cdt.core.formatter.CodeFormatter;
+import org.eclipse.cdt.core.formatter.DefaultCodeFormatterConstants;
 import org.eclipse.cdt.core.model.ICProject;
 import org.eclipse.cdt.ui.text.ICPartitions;
 
@@ -95,6 +97,7 @@ public class CFormatter {
 			
 			internalFormat(document, context);
 			convertLineDelimiters(document);
+			convertTabs(document);
 			if (isReplacedAreaEmpty(context))
 				trimStart(document);
 			
@@ -134,6 +137,50 @@ public class CFormatter {
 		}
 	}
 
+	/**
+	 * Converts tabs into spaces if such conversion is required according
+	 * to the current code style.
+	 *
+	 * @param document the document to process.
+	 * @throws BadLocationException
+	 */
+	private void convertTabs(IDocument document) throws BadLocationException {
+		int lines= document.getNumberOfLines();
+		if (lines == 0)
+			return;
+
+		String option;
+		if (fProject == null)
+			option= CCorePlugin.getOption(DefaultCodeFormatterConstants.FORMATTER_TAB_CHAR);
+		else
+			option= fProject.getOption(DefaultCodeFormatterConstants.FORMATTER_TAB_CHAR, true);
+
+		if (!CCorePlugin.SPACE.equals(option))
+			return;
+
+		int tabWidth= CodeFormatterUtil.getTabWidth(fProject);
+		char[] spaces= null;
+		for (int line= 0; line < lines; line++) {
+			IRegion region= document.getLineInformation(line);
+			int offset= region.getOffset();
+			int length = region.getLength();
+			for (int i= 0; i < length; i++) {
+				char c= document.getChar(offset + i); 
+				if (c == '\t') {
+					int numSpaces= tabWidth - i % tabWidth;
+					if (spaces == null) {
+						spaces= new char[tabWidth];
+						Arrays.fill(spaces, ' ');
+					}
+					document.replace(offset + i, 1, String.valueOf(spaces, 0, numSpaces));
+					numSpaces--;
+					i += numSpaces;
+					length += numSpaces;
+				}
+			}
+		}
+	}
+
 	private void trimStart(IDocument document) throws BadLocationException {
 		int i= 0;
 		while ((i != document.getLength()) && Character.isWhitespace(document.getChar(i)))
@@ -175,13 +222,9 @@ public class CFormatter {
 	}	
 
 	private void indent(IDocument document) throws BadLocationException, MalformedTreeException {
-		// first line
-		int offset= document.getLineOffset(0);
-		document.replace(offset, 0, CodeFormatterUtil.createIndentString(fInitialIndentLevel, fProject));
-		
-		// following lines
+		String indent = CodeFormatterUtil.createIndentString(fInitialIndentLevel, fProject);
 		int lineCount= document.getNumberOfLines();
-		IndentUtil.indentLines(document, new LineRange(1, lineCount - 1), fProject, null);
+		IndentUtil.indentLines(document, new LineRange(0, lineCount), indent);
 	}
 
 	/**
diff --git a/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/ui/editor/IndentUtil.java b/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/ui/editor/IndentUtil.java
index 96539e48278..d57404f180a 100644
--- a/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/ui/editor/IndentUtil.java
+++ b/core/org.eclipse.cdt.ui/src/org/eclipse/cdt/internal/ui/editor/IndentUtil.java
@@ -1,5 +1,5 @@
 /*******************************************************************************
- * Copyright (c) 2005 IBM Corporation and others.
+ * Copyright (c) 2005, 2007 IBM Corporation and others.
  * All rights reserved. This program and the accompanying materials
  * are made available under the terms of the Eclipse Public License v1.0
  * which accompanies this distribution, and is available at
@@ -17,6 +17,7 @@ import org.eclipse.jface.text.IRegion;
 import org.eclipse.jface.text.ITypedRegion;
 import org.eclipse.jface.text.TextUtilities;
 import org.eclipse.jface.text.source.ILineRange;
+import org.eclipse.jface.text.source.LineRange;
 
 import org.eclipse.cdt.core.CCorePlugin;
 import org.eclipse.cdt.core.formatter.DefaultCodeFormatterConstants;
@@ -102,6 +103,22 @@ public final class IndentUtil {
 		return result;
 	}
 
+	/**
+	 * Inserts <code>indent</code> string at the beginning of each line in <code>lines</code>.
+	 * @param document the document to be changed.
+	 * @param lines the line range to be indented.
+	 * @param indent the indent string to be inserted.
+	 * @throws BadLocationException if <code>lines</code> is not a valid line
+	 *         range on <code>document</code>
+	 */
+	public static void indentLines(IDocument document, LineRange lines, String indent) throws BadLocationException {
+		int numberOfLines= lines.getNumberOfLines();
+		for (int line= lines.getStartLine(), last= line + numberOfLines; line < last; line++) {
+			int offset= document.getLineOffset(line);
+			document.replace(offset, 0, indent);
+		}
+	}
+	
 	/**
 	 * Returns <code>true</code> if line comments at column 0 should be indented inside, <code>false</code> otherwise.
 	 * 
@@ -580,5 +597,4 @@ public final class IndentUtil {
 		computed= new StringBuffer(previousIndent);
 		return computed.toString();
 	}
-	
 }