diff --git a/src/compiler/commandLineParser.ts b/src/compiler/commandLineParser.ts
index e1175c42438..3596233ed14 100644
--- a/src/compiler/commandLineParser.ts
+++ b/src/compiler/commandLineParser.ts
@@ -852,14 +852,13 @@ 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/matchFiles.ts b/src/harness/unittests/matchFiles.ts
index 6b499e56989..018314c8a7c 100644
--- a/src/harness/unittests/matchFiles.ts
+++ b/src/harness/unittests/matchFiles.ts
@@ -1020,6 +1020,70 @@ namespace ts {
                 assert.deepEqual(actual.wildcardDirectories, expected.wildcardDirectories);
                 assert.deepEqual(actual.errors, expected.errors);
             });
+            it("exclude outDir by default", () => {
+                const json = {
+                    compilerOptions: {
+                        outDir: "./x"
+                    }
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {
+                        outDir: "./x"
+                    },
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts",
+                        "c:/dev/c.d.ts",
+                        "c:/dev/z/a.ts",
+                        "c:/dev/z/aba.ts",
+                        "c:/dev/z/abz.ts",
+                        "c:/dev/z/b.ts",
+                        "c:/dev/z/bba.ts",
+                        "c:/dev/z/bbz.ts",
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual.fileNames, expected.fileNames);
+                assert.deepEqual(actual.wildcardDirectories, expected.wildcardDirectories);
+                assert.deepEqual(actual.errors, expected.errors);
+            });
+            it("should not exclude outDir if exclude is given", () => {
+                const json = {
+                    compilerOptions: {
+                        outDir: "./x"
+                    },
+                    exclude: [
+                        "z"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {
+                        outDir: "./x"
+                    },
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts",
+                        "c:/dev/c.d.ts",
+                        "c:/dev/x/a.ts",
+                        "c:/dev/x/aa.ts",
+                        "c:/dev/x/b.ts",
+                        "c:/dev/x/y/a.ts",
+                        "c:/dev/x/y/b.ts",
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual.fileNames, expected.fileNames);
+                assert.deepEqual(actual.wildcardDirectories, expected.wildcardDirectories);
+                assert.deepEqual(actual.errors, expected.errors);
+            });
             describe("with trailing recursive directory", () => {
                 it("in includes", () => {
                     const json = {