diff --git a/Jakefile.js b/Jakefile.js
index 396f15e2730..1e989bc5a65 100644
--- a/Jakefile.js
+++ b/Jakefile.js
@@ -143,7 +143,8 @@ var harnessSources = harnessCoreSources.concat([
     "convertToBase64.ts",
     "transpile.ts",
     "reuseProgramStructure.ts",
-    "cachingInServerLSHost.ts"
+    "cachingInServerLSHost.ts",
+    "moduleResolution.ts"
 ].map(function (f) {
     return path.join(unittestsDirectory, f);
 })).concat([
diff --git a/src/compiler/program.ts b/src/compiler/program.ts
index 8ceccc0e880..57df3decf55 100644
--- a/src/compiler/program.ts
+++ b/src/compiler/program.ts
@@ -36,11 +36,165 @@ namespace ts {
     }
     
     export function resolveModuleName(moduleName: string, containingFile: string, compilerOptions: CompilerOptions, host: ModuleResolutionHost): ResolvedModule {
-        // TODO: use different resolution strategy based on compiler options
-        return legacyNameResolver(moduleName, containingFile, compilerOptions, host);
+        switch(compilerOptions.moduleResolution) {
+            case ModuleResolutionKind.NodeJs: return nodeModuleNameResolver(moduleName, containingFile, compilerOptions, host);
+            case ModuleResolutionKind.BaseUrl: return baseUrlModuleNameResolver(moduleName, containingFile, compilerOptions, host);
+            default: return legacyNameResolver(moduleName, containingFile, compilerOptions, host);
+        }
+    }
+    
+    export function nodeModuleNameResolver(moduleName: string, containingFile: string, compilerOptions: CompilerOptions, host: ModuleResolutionHost): ResolvedModule {
+        let containingDirectory = getDirectoryPath(containingFile);        
+
+        if (getRootLength(moduleName) !== 0 || nameStartsWithDotSlashOrDotDotSlash(moduleName)) {
+            let failedLookupLocations: string[] = [];
+            let candidate = normalizePath(combinePaths(containingDirectory, moduleName));
+            let result = loadNodeModuleFromFile(candidate, failedLookupLocations, host);
+            
+            if (result) {
+                return { resolvedFileName: result, failedLookupLocations };
+            }
+            
+            result = loadNodeModuleFromDirectory(candidate, failedLookupLocations, host);
+            return { resolvedFileName: result, failedLookupLocations };
+        }
+        else {
+            return loadModuleModuleFromNodeModules(moduleName, containingDirectory, host);
+        }
+    }
+    
+    function loadNodeModuleFromFile(candidate: string, failedLookupLocation: string[], host: ModuleResolutionHost): string {
+        // load only .d.ts files
+        let fileName = fileExtensionIs(candidate, ".d.ts") ? candidate : candidate + ".d.ts";
+        if (!host.fileExists(fileName)) {
+            failedLookupLocation.push(fileName);
+            return undefined;
+        }
+        
+        return fileName;
+    }
+    
+    function loadNodeModuleFromDirectory(candidate: string, failedLookupLocation: string[], host: ModuleResolutionHost): string {
+        let packageJsonPath = combinePaths(candidate, "package.json");
+        if (host.fileExists(packageJsonPath)) {
+            let jsonText = host.readFile(packageJsonPath);
+            let jsonContent = jsonText ? <{ typings?: string, main?: string }>JSON.parse(jsonText) : { typings: undefined, main:undefined };
+            if (jsonContent.typings) {
+                let result = loadNodeModuleFromFile(normalizePath(combinePaths(candidate, jsonContent.typings)), failedLookupLocation, host);
+                if (result) {
+                    return result;
+                }
+            }
+            
+            if (jsonContent.main) {
+                let mainFile = removeFileExtension(jsonContent.main);
+                let result = loadNodeModuleFromFile(normalizePath(combinePaths(candidate, mainFile)), failedLookupLocation, host);
+                if (result) {
+                    return result;
+                }
+            }
+        }
+        else {
+            // record package json as one of failed lookup locations - in the future if this file will appear it will invalidate resolution results
+            failedLookupLocation.push(packageJsonPath);
+        }
+        
+        return loadNodeModuleFromFile(combinePaths(candidate, "index"), failedLookupLocation, host);
+    }
+    
+    function loadModuleModuleFromNodeModules(moduleName: string, directory: string, host: ModuleResolutionHost): ResolvedModule {
+        let failedLookupLocations: string[] = []; 
+        directory = normalizeSlashes(directory);
+        while (true) {
+            let baseName = getBaseFileName(directory);
+            if (baseName !== "node_modules") {
+                let nodeModulesFolder = combinePaths(directory, "node_modules");
+                let candidate = normalizePath(combinePaths(nodeModulesFolder, moduleName));
+                let result = loadNodeModuleFromFile(candidate, failedLookupLocations, host);
+                if (result) {
+                    return { resolvedFileName: result, failedLookupLocations };
+                }
+                
+                result = loadNodeModuleFromDirectory(candidate, failedLookupLocations, host);
+                if (result) {
+                    return { resolvedFileName: result, failedLookupLocations };
+                }
+            }
+            
+            let parentPath = getDirectoryPath(directory);
+            if (parentPath === directory) {
+                break;
+            }
+            
+            directory = parentPath;
+        }
+        
+        return { resolvedFileName: undefined, failedLookupLocations };
+    }
+    
+    export function baseUrlModuleNameResolver(moduleName: string, containingFile: string, compilerOptions: CompilerOptions, host: ModuleResolutionHost): ResolvedModule {
+        Debug.assert(compilerOptions.baseUrl !== undefined, "baseUrl is mandatory when using this module resolution strategy");
+        
+        let normalizedModuleName = normalizeSlashes(moduleName); 
+        
+        // treat module name as url that is relative to containing file if 
+        let basePart = useBaseUrl(moduleName) ? compilerOptions.baseUrl : getDirectoryPath(containingFile);
+        let candidate = normalizePath(combinePaths(basePart, moduleName));
+        
+                
+        let failedLookupLocations: string[] = [];
+        // first - try to load file as is
+        let result = tryLoadFile(candidate);
+        if (result) {
+            return result;
+        }
+        // then try all supported extension
+        for(let ext of supportedExtensions) {
+            let result = tryLoadFile(candidate + ext);
+            if (result) {
+                return result;
+            }
+        }
+        
+        return { resolvedFileName: undefined, failedLookupLocations };
+        
+        function tryLoadFile(location: string): ResolvedModule {
+            if (host.fileExists(location)) {
+                return { resolvedFileName: location, failedLookupLocations }; 
+            }
+            else {
+                failedLookupLocations.push(location);
+                return undefined;
+            }
+        }
+    }
+    
+    function nameStartsWithDotSlashOrDotDotSlash(name: string) {
+        let i = name.lastIndexOf("./", 1);
+        return i === 0 || (i === 1 && name.charCodeAt(0) === CharacterCodes.dot);
+    }
+    
+    function useBaseUrl(moduleName: string): boolean {
+        // path is rooted
+        if (getRootLength(moduleName) !== 0) {
+            return false;
+        }
+
+        // module name starts with './' or '../'
+        if (nameStartsWithDotSlashOrDotDotSlash(moduleName)) {
+            return false;
+        }
+        
+        // module name has one of supported extesions
+        for(let ext of supportedExtensions ) {
+            if (fileExtensionIs(moduleName, ext)) {
+                return false;
+            }
+        }
+        return true;
     }
 
-    function legacyNameResolver(moduleName: string, containingFile: string, compilerOptions: CompilerOptions, host: ModuleResolutionHost): ResolvedModule {
+    export function legacyNameResolver(moduleName: string, containingFile: string, compilerOptions: CompilerOptions, host: ModuleResolutionHost): ResolvedModule {
         
         // module names that contain '!' are used to reference resources and are not resolved to actual files on disk
         if (moduleName.indexOf('!') != -1) {
diff --git a/src/compiler/types.ts b/src/compiler/types.ts
index 326cd2bacba..853a83aab31 100644
--- a/src/compiler/types.ts
+++ b/src/compiler/types.ts
@@ -2004,7 +2004,13 @@ namespace ts {
         Error,
         Message,
     }
-
+    
+    export const enum ModuleResolutionKind {
+        Legacy  = 1,
+        NodeJs  = 2,
+        BaseUrl = 3
+    }
+    
     export interface CompilerOptions {
         allowNonTsExtensions?: boolean;
         charset?: string;
@@ -2043,6 +2049,8 @@ namespace ts {
         experimentalDecorators?: boolean;
         experimentalAsyncFunctions?: boolean;
         emitDecoratorMetadata?: boolean;
+        moduleResolution?: ModuleResolutionKind
+        baseUrl?: string;
         /* @internal */ stripInternal?: boolean;
 
         // Skip checking lib.d.ts to help speed up tests.
diff --git a/tests/cases/unittests/moduleResolution.ts b/tests/cases/unittests/moduleResolution.ts
new file mode 100644
index 00000000000..7ae2cbe6ec5
--- /dev/null
+++ b/tests/cases/unittests/moduleResolution.ts
@@ -0,0 +1,254 @@
+/// <reference path="..\..\..\src\harness\external\mocha.d.ts" />
+/// <reference path='..\..\..\src\harness\harness.ts' />
+
+declare namespace chai.assert {
+    function deepEqual(actual: any, expected: any): void;
+}
+
+module ts {
+   
+    interface Directory {
+        name: string;
+        children: Map<File | Directory>;
+    }
+    
+    interface File {
+        name: string
+        content?: string 
+    }
+
+    function createModuleResolutionHost(...files: File[]): ModuleResolutionHost {
+        let root = makeFS(files);
+        
+        return { fileExists, readFile };
+        
+        function fileExists(path: string): boolean {
+            return findFile(path, root) !== undefined;
+        }
+        
+        function readFile(path: string): string {
+            let f = findFile(path, root);
+            return f && f.content;
+        }
+        
+        function findFile(path: string, fse: File | Directory): File {
+            if (!fse) {
+                return undefined;
+            }
+            
+            if (isDirectory(fse)) {
+                let {dir, rel} = splitPath(path);
+                return findFile(rel, (<Directory>fse).children[dir]);
+            }
+            else {
+                return !path && <File>fse;
+            }
+        }
+    }
+    
+    function isDirectory(fse: Directory | File): boolean {
+        return (<Directory>fse).children !== undefined;
+    }
+    
+    function createDirectory(name: string): Directory {
+        return { name, children: {} }
+    }
+    
+    function makeFS(files: File[]): Directory {
+        // create root
+        let {dir} = splitPath(files[0].name);
+        let root: Directory = createDirectory(dir);
+        
+        for(let f of files) {
+            addFile(f.name, f.content, root);
+        }
+        
+        function addFile(path: string, content: string, parent: Directory) {
+            Debug.assert(parent !== undefined);
+            
+            let {dir, rel} = splitPath(path);
+            if (rel) {
+                let d = parent.children[dir] || (parent.children[dir] = createDirectory(dir));
+                Debug.assert(isDirectory(d))
+                addFile(rel, content, <Directory>d);
+            }
+            else {
+                parent.children[dir] = <File>{ name: dir, content };
+            }
+        }
+        
+        return root;
+    }
+    
+    function splitPath(path: string): { dir: string; rel: string } {
+        let index = path.indexOf(directorySeparator);
+        return index === -1 
+            ? { dir: path, rel: undefined }
+            : { dir: path.substr(0, index), rel: path.substr(index + 1) };
+    }
+
+    let opts: CompilerOptions = { moduleResolution: ModuleResolutionKind.NodeJs };
+    
+    describe("Node module resolution - relative paths", () => {
+        
+        function testLoadAsFile(containingFileName: string, moduleFileNameNoExt: string, moduleName: string): void {
+            {
+                // loading only .d.ts files
+                
+                let containingFile = { name: containingFileName, content: ""}
+                let moduleFile = { name: moduleFileNameNoExt + ".d.ts", content: "var x;"}
+                let resolution = nodeModuleNameResolver(moduleName, containingFile.name, opts, createModuleResolutionHost(containingFile, moduleFile));
+                
+                assert.equal(resolution.resolvedFileName, moduleFile.name);
+                assert.isTrue(resolution.failedLookupLocations.length === 0);
+            }
+            {
+                // does not try to load .ts files
+                
+                let containingFile = { name: containingFileName, content: ""}
+                let moduleFile = { name: moduleFileNameNoExt + ".ts", content: "var x;"}
+                let resolution = nodeModuleNameResolver(moduleName, containingFile.name, opts, createModuleResolutionHost(containingFile, moduleFile));
+                
+                assert.equal(resolution.resolvedFileName, undefined);
+                assert.equal(resolution.failedLookupLocations.length, 3);
+                assert.deepEqual(resolution.failedLookupLocations, [
+                    moduleFileNameNoExt + ".d.ts",
+                    moduleFileNameNoExt + "/package.json",
+                    moduleFileNameNoExt + "/index.d.ts"
+                ])
+            }
+        }
+        
+        it("module name that starts with './' resolved as relative file name", () => {
+            testLoadAsFile("/foo/bar/baz.ts", "/foo/bar/foo", "./foo");
+        });
+
+        it("module name that starts with '../' resolved as relative file name", () => {
+            testLoadAsFile("/foo/bar/baz.ts", "/foo/foo", "../foo");
+        });
+
+        it("module name that starts with '/' script extension resolved as relative file name", () => {
+            testLoadAsFile("/foo/bar/baz.ts", "/foo", "/foo");
+        });
+        
+        function testLoadingFromPackageJson(containingFileName: string, packageJsonFileName: string, fieldName: string, fieldRef: string, moduleFileName: string, moduleName: string): void {
+            let containingFile = { name: containingFileName };
+            let packageJson = { name: packageJsonFileName, content: JSON.stringify({ [fieldName]: fieldRef }) };
+            let moduleFile = { name: moduleFileName };
+            let resolution = nodeModuleNameResolver(moduleName, containingFile.name, opts, createModuleResolutionHost(containingFile, packageJson, moduleFile));
+            assert.equal(resolution.resolvedFileName, moduleFile.name);
+            // expect one failed lookup location - attempt to load module as file
+            assert.equal(resolution.failedLookupLocations.length, 1);
+        }
+        
+        it("module name as directory - load from typings", () => {
+            testLoadingFromPackageJson("/a/b/c/d.ts", "/a/b/c/bar/package.json", "typings", "c/d/e.d.ts", "/a/b/c/bar/c/d/e.d.ts", "./bar");
+            testLoadingFromPackageJson("/a/b/c/d.ts", "/a/bar/package.json", "typings", "e.d.ts", "/a/bar/e.d.ts", "../../bar");
+            testLoadingFromPackageJson("/a/b/c/d.ts", "/bar/package.json", "typings", "e.d.ts", "/bar/e.d.ts", "/bar");
+        });
+        
+        it("module name as directory - load from main", () => {
+            testLoadingFromPackageJson("/a/b/c/d.ts", "/a/b/c/bar/package.json", "main", "c/d/e.d.ts", "/a/b/c/bar/c/d/e.d.ts", "./bar");
+            testLoadingFromPackageJson("/a/b/c/d.ts", "/a/bar/package.json", "main", "e.d.ts", "/a/bar/e.d.ts", "../../bar");
+            testLoadingFromPackageJson("/a/b/c/d.ts", "/bar/package.json", "main", "e.d.ts", "/bar/e.d.ts", "/bar");
+        });
+        
+        it ("module name as directory - load index.d.ts", () => {
+            let containingFile = {name: "/a/b/c.ts"};
+            let packageJson = {name: "/a/b/foo/package.json", content: JSON.stringify({main: "/c/d"})};
+            let indexFile = { name: "/a/b/foo/index.d.ts" };
+            let resolution = nodeModuleNameResolver("./foo", containingFile.name, opts, createModuleResolutionHost(containingFile, packageJson, indexFile));
+            assert.equal(resolution.resolvedFileName, indexFile.name);
+            // expect 2 failed lookup locations:
+            assert.deepEqual(resolution.failedLookupLocations, [
+                "/a/b/foo.d.ts", 
+                "/c/d.d.ts"
+            ]);
+        });
+    });
+    
+    describe("Node module resolution - non-relative paths", () => {
+        it("load module as file - ts files not loaded", () => {
+            let containingFile = { name: "/a/b/c/d/e.ts" };
+            let moduleFile = { name: "/a/b/node_modules/foo.ts" };
+            let resolution = nodeModuleNameResolver("foo", containingFile.name, opts, createModuleResolutionHost(containingFile, moduleFile));
+            assert.equal(resolution.resolvedFileName, undefined);
+            assert.deepEqual(resolution.failedLookupLocations, [
+                "/a/b/c/d/node_modules/foo.d.ts",
+                "/a/b/c/d/node_modules/foo/package.json",
+                "/a/b/c/d/node_modules/foo/index.d.ts",
+                "/a/b/c/node_modules/foo.d.ts",
+                "/a/b/c/node_modules/foo/package.json",
+                "/a/b/c/node_modules/foo/index.d.ts",
+                "/a/b/node_modules/foo.d.ts",
+                "/a/b/node_modules/foo/package.json",
+                "/a/b/node_modules/foo/index.d.ts",
+                "/a/node_modules/foo.d.ts",
+                "/a/node_modules/foo/package.json",
+                "/a/node_modules/foo/index.d.ts",
+                "/node_modules/foo.d.ts",
+                "/node_modules/foo/package.json",
+                "/node_modules/foo/index.d.ts"
+            ])
+        });
+
+        it("load module as file", () => {
+            let containingFile = { name: "/a/b/c/d/e.ts" };
+            let moduleFile = { name: "/a/b/node_modules/foo.d.ts" };
+            let resolution = nodeModuleNameResolver("foo", containingFile.name, opts, createModuleResolutionHost(containingFile, moduleFile));
+            assert.equal(resolution.resolvedFileName, moduleFile.name);
+        });
+        
+        it("load module as directory", () => {
+            let containingFile = { name: "/a/node_modules/b/c/node_modules/d/e.ts" };
+            let moduleFile = { name: "/a/node_modules/foo/index.d.ts" };
+            let resolution = nodeModuleNameResolver("foo", containingFile.name, opts, createModuleResolutionHost(containingFile, moduleFile));
+            assert.equal(resolution.resolvedFileName, moduleFile.name);
+            assert.deepEqual(resolution.failedLookupLocations, [
+                "/a/node_modules/b/c/node_modules/d/node_modules/foo.d.ts",
+                "/a/node_modules/b/c/node_modules/d/node_modules/foo/package.json",
+                "/a/node_modules/b/c/node_modules/d/node_modules/foo/index.d.ts",
+                "/a/node_modules/b/c/node_modules/foo.d.ts",
+                "/a/node_modules/b/c/node_modules/foo/package.json",
+                "/a/node_modules/b/c/node_modules/foo/index.d.ts",
+                "/a/node_modules/b/node_modules/foo.d.ts",
+                "/a/node_modules/b/node_modules/foo/package.json",
+                "/a/node_modules/b/node_modules/foo/index.d.ts",
+                "/a/node_modules/foo.d.ts",
+                "/a/node_modules/foo/package.json"
+            ]);
+        });
+    });
+    
+    describe("BaseUrl mode", () => {
+        function getCompilerOptions(baseUrl: string): CompilerOptions {
+            return { baseUrl, moduleResolution: ModuleResolutionKind.BaseUrl };
+        }
+        
+        it ("load module as relative url", () => {
+            function test(containingFileName: string, moduleFileName: string, moduleName: string): void {
+                let containingFile = {name: containingFileName };
+                let moduleFile = { name: moduleFileName };
+                let resolution = baseUrlModuleNameResolver(moduleName, containingFile.name, getCompilerOptions("<some-value>"), createModuleResolutionHost(containingFile, moduleFile));
+                assert.equal(resolution.resolvedFileName, moduleFile.name);
+            }
+            
+            test("/a/b/c/d.ts", "/foo.ts", "/foo.ts");
+            test("/a/b/c/d.ts", "/foo.ts", "/foo");
+            test("/a/b/c/d.ts", "/foo.d.ts", "/foo");
+            test("/a/b/c/d.ts", "/foo.tsx", "/foo");
+            
+            test("/a/b/c/d.ts", "/a/b/c/foo.ts", "./foo");
+            test("/a/b/c/d.ts", "/a/b/c/foo.d.ts", "./foo");
+            test("/a/b/c/d.ts", "/a/b/c/foo.tsx", "./foo");
+
+            test("/a/b/c/d.ts", "/a/b/foo.ts", "../foo");
+            test("/a/b/c/d.ts", "/a/b/foo.d.ts", "../foo");
+            test("/a/b/c/d.ts", "/a/b/foo.tsx", "../foo");
+
+            test("/a/b/c/d.ts", "/a/b/c/foo.ts", "foo.ts");
+            test("/a/b/c/d.ts", "/a/b/c/foo.tsx", "foo.tsx");
+            test("/a/b/c/d.ts", "/a/b/c/foo.d.ts", "foo.d.ts");
+        });
+    });
+}
\ No newline at end of file