Problem

Diffs do not render correctly in SourceTree due to an old style Mac line Endings (CR).

Cause

Prior to Mac OS X, the Mac used the CR character to end lines. However, both Git and Mercurial do not recognise CR as a line ending and will display diffs entirely on one line if you use them.

Resolution

Use Unix LF line endings for your text files in OS X. It's been the standard for quite a while now and both git and hg understand them and SourceTree will display the diffs correctly. You can still version files with CR line endings, but the diffs will never be very readable so it's advisable to avoid it.