diff --git a/java.freeform/apichanges.xml b/java.freeform/apichanges.xml
--- a/java.freeform/apichanges.xml
+++ b/java.freeform/apichanges.xml
@@ -48,6 +48,17 @@
     </apidefs>
     <changes>
 
+        <change id="source-16">
+            <summary>Added freeform-project-java/3 schema to support annotation processors and source levels 1.6 and 1.7</summary>
+            <version major="1" minor="16"/>
+            <date day="24" month="3" year="2010"/>
+            <author login="tzezula"/>
+            <compatibility binary="compatible" source="compatible" semantic="compatible"/>
+            <description>
+                Added freeform-project-java/3 schema to support annotation processors and source levels 1.6 and 1.7
+            </description>
+            <issue number="181439"/>
+        </change>
         <change id="friend-packages">
             <summary>Declare SPI packages for friends only</summary>
             <version major="1" minor="2"/>
diff --git a/java.freeform/manifest.mf b/java.freeform/manifest.mf
--- a/java.freeform/manifest.mf
+++ b/java.freeform/manifest.mf
@@ -1,6 +1,6 @@
 Manifest-Version: 1.0
 OpenIDE-Module: org.netbeans.modules.java.freeform/1
-OpenIDE-Module-Specification-Version: 1.15
+OpenIDE-Module-Specification-Version: 1.16
 OpenIDE-Module-Localizing-Bundle: org/netbeans/modules/java/freeform/Bundle.properties
 OpenIDE-Module-Layer: org/netbeans/modules/java/freeform/resources/layer.xml
 AutoUpdate-Show-In-Client: false
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/Classpaths.java b/java.freeform/src/org/netbeans/modules/java/freeform/Classpaths.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/Classpaths.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/Classpaths.java
@@ -189,7 +189,7 @@
             }
         }
         // Need to create it.
-        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
         if (java == null) {
             return null;
         }
@@ -254,7 +254,7 @@
             for (String type : TYPES) {
                 _registeredClasspaths.put(type, new HashSet<ClassPath>());
             }
-            Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+            Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
             if (java == null) {
                 return;
             }
@@ -567,7 +567,7 @@
         }
         
         private Element findCompilationUnit() {
-            Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+            Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
             if (java == null) {
                 return null;
             }
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/JavaActions.java b/java.freeform/src/org/netbeans/modules/java/freeform/JavaActions.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/JavaActions.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/JavaActions.java
@@ -611,7 +611,7 @@
     }
     
     private List<Element> compilationUnits() {
-        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
         if (java == null) {
             return Collections.emptyList();
         }
@@ -745,7 +745,7 @@
     String findSourceLevel(String sources) {
         Element compilationUnitEl = findCompilationUnit(sources);
         if (compilationUnitEl != null) {
-            Element sourceLevel = Util.findElement(compilationUnitEl, "source-level", JavaProjectNature.NS_JAVA_2);
+            Element sourceLevel = Util.findElement(compilationUnitEl, "source-level", JavaProjectNature.NS_JAVA_3);
             if (sourceLevel != null) {
                 return Util.findText(sourceLevel);
             }
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/JavaFreeformFileBuiltQuery.java b/java.freeform/src/org/netbeans/modules/java/freeform/JavaFreeformFileBuiltQuery.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/JavaFreeformFileBuiltQuery.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/JavaFreeformFileBuiltQuery.java
@@ -94,7 +94,7 @@
             ERR.log(ErrorManager.INFORMATIONAL, "JavaFreeformFileBuiltQuery.createDelegateTo start"); // NOI18N
         }
         
-        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
         List<String> from = new ArrayList<String>();
         List<String> to   = new ArrayList<String>();
         
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/JavaProjectGenerator.java b/java.freeform/src/org/netbeans/modules/java/freeform/JavaProjectGenerator.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/JavaProjectGenerator.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/JavaProjectGenerator.java
@@ -58,6 +58,7 @@
 import org.netbeans.spi.project.support.ant.PropertyEvaluator;
 import org.netbeans.spi.project.support.ant.PropertyUtils;
 import org.openide.filesystems.FileUtil;
+import org.openide.modules.SpecificationVersion;
 import org.openide.util.Exceptions;
 import org.w3c.dom.Document;
 import org.w3c.dom.Element;
@@ -358,8 +359,23 @@
         }
         Util.putPrimaryConfigurationData(helper, data);
     }
-    
-    
+
+    /**
+     * Returns {@link Element} for {@link JavaCompilationUnit}.
+     * @param aux AuxiliaryConfiguration instance
+     * @return {@link Element} representing JavaCompilationUnit instances or null
+     */
+    public static Element getJavaCompilationUnits (final AuxiliaryConfiguration aux) {
+        Element data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
+        if (data == null) {
+            data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+        }
+        if (data == null) {
+            data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
+        }
+        return data;
+    }
+
     /**
      * Read Java compilation units from the project.
      * @param helper AntProjectHelper instance
@@ -370,10 +386,7 @@
             AntProjectHelper helper, AuxiliaryConfiguration aux) {
         //assert ProjectManager.mutex().isReadAccess() || ProjectManager.mutex().isWriteAccess();
         List<JavaCompilationUnit> list = new ArrayList<JavaCompilationUnit>();
-        Element data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
-        if (data == null) {
-            data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
-        }
+        final Element data = getJavaCompilationUnits(aux);
         if (data == null) {
             return list;
         }
@@ -432,6 +445,14 @@
             AuxiliaryConfiguration aux, List<JavaCompilationUnit> compUnits) {
         //assert ProjectManager.mutex().isWriteAccess();
         // First check whether we need /2 data.
+        boolean need3 = false;
+        for (JavaCompilationUnit unit : compUnits) {
+            if (needsNS3(unit)) {
+                need3 = true;
+                break;
+            }
+        }
+        // Second check whether we need /2 data.
         boolean need2 = false;
         for (JavaCompilationUnit unit : compUnits) {
             if (unit.isTests || (unit.javadoc != null && !unit.javadoc.isEmpty())) {
@@ -440,26 +461,45 @@
             }
         }
         String namespace;
-        // Look for existing /2 data.
-        Element data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+        // Look for existing /3 data.
+        Element data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
         if (data != null) {
-            // Fine, use it as is.
-            namespace = JavaProjectNature.NS_JAVA_2;
-        } else {
-            // Or, for existing /1 data.
-            namespace = need2 ? JavaProjectNature.NS_JAVA_2 : JavaProjectNature.NS_JAVA_1;
-            data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
+            namespace = JavaProjectNature.NS_JAVA_3;
+        }
+        else {
+            // Look for existing /2 data and possibly update to /3
+            data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
             if (data != null) {
-                if (need2) {
-                    // Have to upgrade.
-                    aux.removeConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
+                namespace = need3 ? JavaProjectNature.NS_JAVA_3 : JavaProjectNature.NS_JAVA_2;
+                if (need3) {
+                    // Have to upgrade to /3
+                    aux.removeConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
                     data = Util.getPrimaryConfigurationData(helper).getOwnerDocument().
-                        createElementNS(JavaProjectNature.NS_JAVA_2, JavaProjectNature.EL_JAVA);
-                } // else can use it as is
+                        createElementNS(JavaProjectNature.NS_JAVA_3, JavaProjectNature.EL_JAVA);
+                }
             } else {
-                // Create /1 or /2 data acc. to need.
-                data = Util.getPrimaryConfigurationData(helper).getOwnerDocument().
-                    createElementNS(namespace, JavaProjectNature.EL_JAVA);
+                //Look for existing /1 and possibly update to /2 or /3 as needed
+                data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
+                namespace = need3 ? JavaProjectNature.NS_JAVA_3 : need2 ? JavaProjectNature.NS_JAVA_2 : JavaProjectNature.NS_JAVA_1;
+                if (data != null) {
+
+                    if (need3) {
+                        // Have to upgrade to /3
+                        aux.removeConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
+                        data = Util.getPrimaryConfigurationData(helper).getOwnerDocument().
+                            createElementNS(JavaProjectNature.NS_JAVA_3, JavaProjectNature.EL_JAVA);
+                    }
+                    else if (need2) {
+                        // Have to upgrade to /2
+                        aux.removeConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
+                        data = Util.getPrimaryConfigurationData(helper).getOwnerDocument().
+                            createElementNS(JavaProjectNature.NS_JAVA_2, JavaProjectNature.EL_JAVA);
+                    } // else can use it as is
+                } else {
+                    // Create a new /1, /2 or /3 data acc. to need.
+                    data = Util.getPrimaryConfigurationData(helper).getOwnerDocument().
+                        createElementNS(namespace, JavaProjectNature.EL_JAVA);
+                }
             }
         }
         Document doc = data.getOwnerDocument();
@@ -478,7 +518,7 @@
                 }
             }
             if (cu.isTests) {
-                assert namespace.equals(JavaProjectNature.NS_JAVA_2);
+                assert namespace.equals(JavaProjectNature.NS_JAVA_2) || namespace.equals(JavaProjectNature.NS_JAVA_3);
                 cuEl.appendChild(doc.createElementNS(namespace, "unit-tests")); // NOI18N
             }
             if (cu.classpath != null) {
@@ -502,7 +542,7 @@
                 Iterator it3 = cu.javadoc.iterator();
                 while (it3.hasNext()) {
                     String javadoc = (String) it3.next();
-                    assert namespace.equals(JavaProjectNature.NS_JAVA_2);
+                    assert namespace.equals(JavaProjectNature.NS_JAVA_2) || namespace.equals(JavaProjectNature.NS_JAVA_3);
                     el = doc.createElementNS(namespace, "javadoc-built-to"); // NOI18N
                     el.appendChild(doc.createTextNode(javadoc));
                     cuEl.appendChild(el);
@@ -517,7 +557,6 @@
         aux.putConfigurationFragment(data, true);
     }
 
-    
     /**
      * Structure describing compilation unit.
      * Data in the struct are in the same format as they are stored in XML.
@@ -959,4 +998,23 @@
         props.setProperty(key, value);
     }
 
+    private static boolean needsNS3(final JavaCompilationUnit unit) {
+        if (unit.classpath != null) {
+            for (JavaCompilationUnit.CP cp : unit.classpath) {
+                if ("processor".equals(cp.mode)) {  //NOI18N
+                    return true;
+                }
+            }
+        }
+        if (unit.sourceLevel != null) {
+            final SpecificationVersion JAVA_6 = new SpecificationVersion("1.6");  //NOI18N
+            final SpecificationVersion JAvA_7 = new SpecificationVersion("1.7");  //NOI18N
+            final SpecificationVersion current = new SpecificationVersion(unit.sourceLevel);
+            if (JAVA_6.equals(current) || JAvA_7.equals(current)) {
+                return true;
+            }
+        }
+        return false;
+    }
+
 }
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/JavaProjectNature.java b/java.freeform/src/org/netbeans/modules/java/freeform/JavaProjectNature.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/JavaProjectNature.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/JavaProjectNature.java
@@ -68,6 +68,7 @@
 
     public static final String NS_JAVA_1 = "http://www.netbeans.org/ns/freeform-project-java/1"; // NOI18N
     public static final String NS_JAVA_2 = "http://www.netbeans.org/ns/freeform-project-java/2"; // NOI18N
+    public static final String NS_JAVA_3 = "http://www.netbeans.org/ns/freeform-project-java/3"; //NOI18N
     public static final String EL_JAVA = "java-data"; // NOI18N
     public static final String STYLE_PACKAGES = "packages"; // NOI18N
     
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/JavadocQuery.java b/java.freeform/src/org/netbeans/modules/java/freeform/JavadocQuery.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/JavadocQuery.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/JavadocQuery.java
@@ -72,7 +72,7 @@
     }
 
     public JavadocForBinaryQuery.Result findJavadoc(URL binaryRoot) {
-        Element data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+        Element data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
         if (data != null) {
             for (Element cu : Util.findSubElements(data)) {
                 assert cu.getLocalName().equals("compilation-unit") : cu;
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/LookupProviderImpl.java b/java.freeform/src/org/netbeans/modules/java/freeform/LookupProviderImpl.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/LookupProviderImpl.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/LookupProviderImpl.java
@@ -100,8 +100,7 @@
     }
     
     public static boolean isMyProject(AuxiliaryConfiguration aux) {
-        return aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true) != null ||
-               aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true) != null;
+        return JavaProjectGenerator.getJavaCompilationUnits(aux) != null;
     }
     
     private static final class HelpIDFragmentProviderImpl implements HelpIDFragmentProvider {
@@ -143,12 +142,28 @@
         }
 
         public Element getConfigurationFragment(String elementName, String namespace, boolean shared) {
-            if (elementName.equals(JavaProjectNature.EL_JAVA) && namespace.equals(JavaProjectNature.NS_JAVA_2) && shared) {
-                Element nue = delegate.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
-                if (nue == null) {
-                    Element old = delegate.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
-                    if (old != null) {
-                        nue = upgradeSchema(old);
+            if (elementName.equals(JavaProjectNature.EL_JAVA) && shared) {
+                Element nue = null;
+                if (namespace.equals(JavaProjectNature.NS_JAVA_3)) {
+                    nue = delegate.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
+                    if (nue == null) {
+                        Element old = delegate.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+                        if (old != null) {
+                            nue = upgradeSchema(old);
+                        } else {
+                            old = delegate.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
+                            if (old != null) {
+                                nue = upgradeSchema(old);
+                            }
+                        }
+                    }
+                } else if (namespace.equals(JavaProjectNature.NS_JAVA_2)) {
+                    nue = delegate.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+                    if (nue == null) {
+                        Element old = delegate.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
+                        if (old != null) {
+                            nue = upgradeSchema(old, JavaProjectNature.NS_JAVA_2);
+                        }
                     }
                 }
                 return nue;
@@ -166,13 +181,17 @@
         }
         
     }
-    
+
     static Element upgradeSchema(Element old) {
+        return upgradeSchema(old, JavaProjectNature.NS_JAVA_3);
+    }
+
+    static Element upgradeSchema(final Element old, final String to) {
         Document doc = old.getOwnerDocument();
-        Element nue = doc.createElementNS(JavaProjectNature.NS_JAVA_2, JavaProjectNature.EL_JAVA);
-        copyXMLTree(doc, old, nue, JavaProjectNature.NS_JAVA_2);
+        Element nue = doc.createElementNS(to, JavaProjectNature.EL_JAVA);
+        copyXMLTree(doc, old, nue, to);
         return nue;
-    }  
+    }
     // Copied from org.netbeans.modules.java.j2seproject.UpdateHelper with changes; could be an API eventually:
     private static void copyXMLTree(Document doc, Element from, Element to, String newNamespace) {
         NodeList nl = from.getChildNodes();
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/SourceForBinaryQueryImpl.java b/java.freeform/src/org/netbeans/modules/java/freeform/SourceForBinaryQueryImpl.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/SourceForBinaryQueryImpl.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/SourceForBinaryQueryImpl.java
@@ -96,7 +96,7 @@
         if (roots == null) {
             // Need to compute it. Easiest to compute them all at once.
             roots = new HashMap<URL,FileObject[]>();
-            Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+            Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
             if (java == null) {
                 return null;
             }
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/SourceLevelQueryImpl.java b/java.freeform/src/org/netbeans/modules/java/freeform/SourceLevelQueryImpl.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/SourceLevelQueryImpl.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/SourceLevelQueryImpl.java
@@ -98,7 +98,7 @@
             }
         }
         // Need to compute it.
-        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
         if (java == null) {
             return null;
         }
@@ -133,7 +133,7 @@
      * Get the source level indicated in a compilation unit (or null if none is indicated).
      */
     private String getLevel(Element compilationUnitEl) {
-        Element sourceLevelEl = Util.findElement(compilationUnitEl, "source-level", JavaProjectNature.NS_JAVA_2);
+        Element sourceLevelEl = Util.findElement(compilationUnitEl, "source-level", JavaProjectNature.NS_JAVA_3);
         if (sourceLevelEl != null) {
             return Util.findText(sourceLevelEl);
         } else {
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/TestQuery.java b/java.freeform/src/org/netbeans/modules/java/freeform/TestQuery.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/TestQuery.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/TestQuery.java
@@ -115,11 +115,11 @@
     private URL[][] findSourcesAndTests() {
         List<URL> sources = new ArrayList<URL>();
         List<URL> tests = new ArrayList<URL>();
-        Element data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
+        Element data = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_3, true);
         if (data != null) {
             for (Element cu : Util.findSubElements(data)) {
                 assert cu.getLocalName().equals("compilation-unit") : cu;
-                boolean isTests = Util.findElement(cu, "unit-tests", JavaProjectNature.NS_JAVA_2) != null; // NOI18N
+                boolean isTests = Util.findElement(cu, "unit-tests", JavaProjectNature.NS_JAVA_3) != null; // NOI18N
                 for (Element pr : Util.findSubElements(cu)) {
                     if (pr.getLocalName().equals("package-root")) { // NOI18N
                         String rawtext = Util.findText(pr);
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/UsageLogger.java b/java.freeform/src/org/netbeans/modules/java/freeform/UsageLogger.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/UsageLogger.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/UsageLogger.java
@@ -105,10 +105,7 @@
         int compilationUnitsMissingBuiltTo = 0;
         int compilationUnitsMultipleRoots = 0;
         Set<String> classpathEntries = new HashSet<String>();
-        Element java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, true);
-        if (java == null) {
-            java = aux.getConfigurationFragment(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_1, true);
-        }
+        Element java = JavaProjectGenerator.getJavaCompilationUnits(aux);
         if (java != null) {
             for (Element compilationUnitEl : Util.findSubElements(java)) {
                 compilationUnits++;
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/resources/freeform-project-java-3.xsd b/java.freeform/src/org/netbeans/modules/java/freeform/resources/freeform-project-java-3.xsd
new file mode 100644
--- /dev/null
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/resources/freeform-project-java-3.xsd
@@ -0,0 +1,108 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<!--
+DO NOT ALTER OR REMOVE COPYRIGHT NOTICES OR THIS HEADER.
+
+Copyright 1997-2007 Sun Microsystems, Inc. All rights reserved.
+
+
+The contents of this file are subject to the terms of either the GNU
+General Public License Version 2 only ("GPL") or the Common
+Development and Distribution License("CDDL") (collectively, the
+"License"). You may not use this file except in compliance with the
+License. You can obtain a copy of the License at
+http://www.netbeans.org/cddl-gplv2.html
+or nbbuild/licenses/CDDL-GPL-2-CP. See the License for the
+specific language governing permissions and limitations under the
+License.  When distributing the software, include this License Header
+Notice in each file and include the License file at
+nbbuild/licenses/CDDL-GPL-2-CP.  Sun designates this
+particular file as subject to the "Classpath" exception as provided
+by Sun in the GPL Version 2 section of the License file that
+accompanied this code. If applicable, add the following below the
+License Header, with the fields enclosed by brackets [] replaced by
+your own identifying information:
+"Portions Copyrighted [year] [name of copyright owner]"
+
+Contributor(s):
+
+The Original Software is NetBeans. The Initial Developer of the Original
+Software is Sun Microsystems, Inc. Portions Copyright 1997-2006 Sun
+Microsystems, Inc. All Rights Reserved.
+
+If you wish your version of this file to be governed by only the CDDL
+or only the GPL Version 2, indicate your decision by adding
+"[Contributor] elects to include this software in this distribution
+under the [CDDL or GPL Version 2] license." If you do not indicate a
+single choice of license, a recipient has the option to distribute
+your version of this file under either the CDDL, the GPL Version 2 or
+to extend the choice of license to its licensees as provided above.
+However, if you add GPL Version 2 code and therefore, elected the GPL
+Version 2 license, then the option applies only if the new code is
+made subject to such option by the copyright holder.
+-->
+
+<!--
+XML Schema to define the project.xml for a freeform project.
+Cf. http://projects.netbeans.org/buildsys/design.html#freeform
+-->
+
+<xsd:schema xmlns:xsd="http://www.w3.org/2001/XMLSchema"
+            targetNamespace="http://www.netbeans.org/ns/freeform-project-java/3"
+            xmlns="http://www.netbeans.org/ns/freeform-project-java/3"
+            elementFormDefault="qualified">
+
+    <xsd:element name="java-data">
+        <xsd:complexType>
+            <xsd:sequence>
+                <xsd:element name="compilation-unit" minOccurs="0" maxOccurs="unbounded" type="compilation-unit"/>
+            </xsd:sequence>
+        </xsd:complexType>
+    </xsd:element>
+    
+    <xsd:complexType name="compilation-unit">
+        <xsd:sequence>
+            <xsd:element name="package-root" maxOccurs="unbounded" type="substitutable-text"/>
+            <xsd:element name="unit-tests" minOccurs="0"><xsd:complexType/></xsd:element>
+            <xsd:element name="classpath" minOccurs="0" maxOccurs="unbounded">
+                <!-- XXX use schema to declare that the mode must be unique within this group -->
+                <xsd:complexType>
+                    <xsd:simpleContent>
+                        <xsd:extension base="substitutable-text">
+                            <xsd:attribute name="mode" use="required">
+                                <xsd:simpleType>
+                                    <xsd:restriction base="xsd:NMTOKEN">
+                                        <xsd:enumeration value="boot"/>
+                                        <xsd:enumeration value="compile"/>
+                                        <xsd:enumeration value="execute"/>
+                                        <xsd:enumeration value="processor"/>
+                                    </xsd:restriction>
+                                </xsd:simpleType>
+                            </xsd:attribute>
+                        </xsd:extension>
+                    </xsd:simpleContent>
+                </xsd:complexType>
+            </xsd:element>
+            <xsd:element name="built-to" minOccurs="0" maxOccurs="unbounded" type="substitutable-text"/>
+            <xsd:element name="javadoc-built-to" minOccurs="0" maxOccurs="unbounded" type="substitutable-text"/>
+            <xsd:element name="source-level" minOccurs="0">
+                <xsd:simpleType>
+                    <xsd:restriction base="xsd:NMTOKEN">
+                        <xsd:enumeration value="1.3"/>
+                        <xsd:enumeration value="1.4"/>
+                        <xsd:enumeration value="1.5"/>
+                        <xsd:enumeration value="1.6"/>
+                        <xsd:enumeration value="1.7"/>
+                    </xsd:restriction>
+                </xsd:simpleType>
+            </xsd:element>
+        </xsd:sequence>
+    </xsd:complexType>
+
+    <!-- XXX: this type was copied from freeform-project-general.xsd -->
+    <!-- Some text that might be substituted with Ant property references. -->
+    <xsd:simpleType name="substitutable-text">
+        <xsd:restriction base="xsd:string">
+            <!-- XXX limit by regexp, perhaps -->
+        </xsd:restriction>
+    </xsd:simpleType>
+</xsd:schema>
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/ui/Bundle.properties b/java.freeform/src/org/netbeans/modules/java/freeform/ui/Bundle.properties
--- a/java.freeform/src/org/netbeans/modules/java/freeform/ui/Bundle.properties
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/ui/Bundle.properties
@@ -75,6 +75,8 @@
 LBL_SourceFoldersPanel_JDK13=JDK 1.3
 LBL_SourceFoldersPanel_JDK14=JDK 1.4
 LBL_SourceFoldersPanel_JDK15=JDK 1.5
+LBL_SourceFoldersPanel_JDK16=JDK 1.6
+LBL_SourceFoldersPanel_JDK17=JDK 1.7
 LBL_SourceFoldersPanel_Package=Package Folder
 LBL_SourceFoldersPanel_Label=Label
 BTN_SourceFoldersPanel_addTestFolder=Add F&older...
diff --git a/java.freeform/src/org/netbeans/modules/java/freeform/ui/SourceFoldersPanel.java b/java.freeform/src/org/netbeans/modules/java/freeform/ui/SourceFoldersPanel.java
--- a/java.freeform/src/org/netbeans/modules/java/freeform/ui/SourceFoldersPanel.java
+++ b/java.freeform/src/org/netbeans/modules/java/freeform/ui/SourceFoldersPanel.java
@@ -143,9 +143,11 @@
     }
     
     private void initSourceLevel() {
-        sourceLevel.addItem(org.openide.util.NbBundle.getMessage(SourceFoldersPanel.class, "LBL_SourceFoldersPanel_JDK13")); // NOI18N
-        sourceLevel.addItem(org.openide.util.NbBundle.getMessage(SourceFoldersPanel.class, "LBL_SourceFoldersPanel_JDK14")); // NOI18N
-        sourceLevel.addItem(org.openide.util.NbBundle.getMessage(SourceFoldersPanel.class, "LBL_SourceFoldersPanel_JDK15")); // NOI18N
+        sourceLevel.addItem(NbBundle.getMessage(SourceFoldersPanel.class, "LBL_SourceFoldersPanel_JDK13")); // NOI18N
+        sourceLevel.addItem(NbBundle.getMessage(SourceFoldersPanel.class, "LBL_SourceFoldersPanel_JDK14")); // NOI18N
+        sourceLevel.addItem(NbBundle.getMessage(SourceFoldersPanel.class, "LBL_SourceFoldersPanel_JDK15")); // NOI18N
+        sourceLevel.addItem(NbBundle.getMessage(SourceFoldersPanel.class, "LBL_SourceFoldersPanel_JDK16")); // NOI18N
+        sourceLevel.addItem(NbBundle.getMessage(SourceFoldersPanel.class, "LBL_SourceFoldersPanel_JDK17")); // NOI18N
     }
     
     private void updateButtons() {
@@ -176,7 +178,11 @@
             sourceLevel.setSelectedIndex(1);
         } else if (sourceLevelValue.equals("1.5")) { // NOI18N
             sourceLevel.setSelectedIndex(2);
-        } else {
+        } else if (sourceLevelValue.equals("1.6")) { // NOI18N
+            sourceLevel.setSelectedIndex(3);
+        } else if (sourceLevelValue.equals("1.7")) { // NOI18N
+            sourceLevel.setSelectedIndex(4);
+        }else {
             // user specified some other value in project.xml
             sourceLevel.addItem(sourceLevelValue);
             sourceLevel.setSelectedIndex(3);
@@ -192,6 +198,8 @@
             case 0: return "1.3"; // NOI18N
             case 1: return "1.4"; // NOI18N
             case 2: return "1.5"; // NOI18N
+            case 3: return "1.6"; // NOI18N
+            case 4: return "1.7"; // NOI18N
             default: return null;
         }
     }
diff --git a/java.freeform/test/unit/src/org/netbeans/modules/java/freeform/JavaProjectNatureTest.java b/java.freeform/test/unit/src/org/netbeans/modules/java/freeform/JavaProjectNatureTest.java
--- a/java.freeform/test/unit/src/org/netbeans/modules/java/freeform/JavaProjectNatureTest.java
+++ b/java.freeform/test/unit/src/org/netbeans/modules/java/freeform/JavaProjectNatureTest.java
@@ -59,19 +59,31 @@
         super(name);
     }
 
-    public void testUpgradeSchema() throws Exception {
+    public void testUpgradeSchema1to2() throws Exception {
+        upgradeSchemaTestImpl(JavaProjectNature.NS_JAVA_1, JavaProjectNature.NS_JAVA_2);
+    }
+
+    public void testUpgradeSchema2to3() throws Exception {
+        upgradeSchemaTestImpl(JavaProjectNature.NS_JAVA_2, JavaProjectNature.NS_JAVA_3);
+    }
+
+    public void testUpgradeSchema1to3() throws Exception {
+        upgradeSchemaTestImpl(JavaProjectNature.NS_JAVA_1, JavaProjectNature.NS_JAVA_3);
+    }
+
+    private void upgradeSchemaTestImpl(String from, String to) throws Exception {
         // Formatting has to be the same as Xerces' formatter produces for this test to pass:
         String xml1 = "<?xml version=\"1.0\" encoding=\"UTF-8\"?>\n" +
-                      "<java-data xmlns=\"http://www.netbeans.org/ns/freeform-project-java/1\">\n" +
+                      "<java-data xmlns=\""+from+"\">\n" +
                       "    <!-- Hello there. -->\n" +
                       "    <foo bar=\"baz\" quux=\"whatever\">hello</foo>\n" +
                       "    <x>OK</x>\n" +
                       "</java-data>\n";
-        String xml2expected = xml1.replaceAll("/1", "/2");
+        String xml2expected = xml1.replaceAll(from, to);
         Document doc1 = XMLUtil.parse(new InputSource(new StringReader(xml1)), false, true, null, null);
         Element el1 = doc1.getDocumentElement();
-        Element el2 = LookupProviderImpl.upgradeSchema(el1);
-        Document doc2 = XMLUtil.createDocument(JavaProjectNature.EL_JAVA, JavaProjectNature.NS_JAVA_2, null, null);
+        Element el2 = LookupProviderImpl.upgradeSchema(el1,to);
+        Document doc2 = XMLUtil.createDocument(JavaProjectNature.EL_JAVA, to, null, null);
         doc2.removeChild(doc2.getDocumentElement());
         doc2.appendChild(doc2.importNode(el2, true));
         ByteArrayOutputStream baos = new ByteArrayOutputStream();
@@ -79,5 +91,4 @@
         String xml2actual = baos.toString("UTF-8").replaceAll(System.getProperty("line.separator"), "\n");
         assertEquals("Correct upgrade result", xml2expected, xml2actual);
     }
-    
 }