Solved! It was related to my proxy configuration after all. Setting the no_proxy environment variable fixed this issue for me. I see this is a corner case but just in case someone else runs into it, this is a summary of what I did. If your network uses a http proxy who do not answer to local hostnames requests and you have setup the http_proxy environment variable. In order to get a local toolshed going, you will need to do two things. - Add to ~/.hgrc: [http_proxy] no = [comma separated list of hostnames for your local toolsheds. Note: domain regex won't work] - Set no_proxy environment variable. For bash in Redhat/CentOS I like adding to /etc/profile.d/custom.sh: export no_proxy=[comma separated list of local domains] Hope it helps, Carlos