diff --git a/src/compiler/commandLineParser.ts b/src/compiler/commandLineParser.ts
index cef72981323..9a958f68b73 100644
--- a/src/compiler/commandLineParser.ts
+++ b/src/compiler/commandLineParser.ts
@@ -858,14 +858,13 @@ namespace ts {
                 errors.push(createCompilerDiagnostic(Diagnostics.Unknown_option_excludes_Did_you_mean_exclude));
             }
             else {
-                // By default, exclude common package folders
+                // By default, exclude common package folders and the outDir
                 excludeSpecs = ["node_modules", "bower_components", "jspm_packages"];
-            }
 
-            // Always exclude the output directory unless explicitly included
-            const outDir = json["compilerOptions"] && json["compilerOptions"]["outDir"];
-            if (outDir) {
-                excludeSpecs.push(outDir);
+                const outDir = json["compilerOptions"] && json["compilerOptions"]["outDir"];
+                if (outDir) {
+                    excludeSpecs.push(outDir);
+                }
             }
 
             if (fileNames === undefined && includeSpecs === undefined) {
diff --git a/src/harness/unittests/tsconfigParsing.ts b/src/harness/unittests/tsconfigParsing.ts
index eccf3537643..447b69094b1 100644
--- a/src/harness/unittests/tsconfigParsing.ts
+++ b/src/harness/unittests/tsconfigParsing.ts
@@ -151,7 +151,7 @@ namespace ts {
             );
         });
 
-        it("always exclude outDir", () => {
+        it("exclude outDir unless overridden", () => {
             const tsconfigWithoutExclude =
             `{
                 "compilerOptions": {
@@ -169,7 +169,7 @@ namespace ts {
             const allFiles = ["/bin/a.ts", "/b.ts"];
             const expectedFiles = ["/b.ts"];
             assertParseFileList(tsconfigWithoutExclude, "tsconfig.json", rootDir, allFiles, expectedFiles);
-            assertParseFileList(tsconfigWithExclude, "tsconfig.json", rootDir, allFiles, expectedFiles);
+            assertParseFileList(tsconfigWithExclude, "tsconfig.json", rootDir, allFiles, allFiles);
         });
 
         it("implicitly exclude common package folders", () => {