diff --git a/src/services/formatting/formatting.ts b/src/services/formatting/formatting.ts
index 787c6fe3f46..cab7547557c 100644
--- a/src/services/formatting/formatting.ts
+++ b/src/services/formatting/formatting.ts
@@ -243,8 +243,18 @@ module ts.formatting {
         }
 
         var precedingToken = findPrecedingToken(originalRange.pos, sourceFile);
-        // no preceding token found - start from the beginning of enclosing node
-        return precedingToken ? precedingToken.end : enclosingNode.pos;
+        if (!precedingToken) {
+            // no preceding token found - start from the beginning of enclosing node
+            return enclosingNode.pos;
+        }
+
+        // preceding token ends after the start of original range (i.e when originaRange.pos falls in the middle of literal)
+        // start from the beginning of enclosingNode to handle the entire 'originalRange'
+        if (precedingToken.end >= originalRange.pos) {
+            return enclosingNode.pos;
+        }
+
+        return precedingToken.end;
     }
 
     /*
diff --git a/src/services/formatting/formattingScanner.ts b/src/services/formatting/formattingScanner.ts
index 7ddfecc17f2..e9485158aba 100644
--- a/src/services/formatting/formattingScanner.ts
+++ b/src/services/formatting/formattingScanner.ts
@@ -187,6 +187,9 @@ module ts.formatting {
             }
 
             // consume trailing trivia
+            if (trailingTrivia) {
+                trailingTrivia = undefined;
+            }
             while(scanner.getStartPos() < endPos) {
                 currentToken = scanner.scan();
                 if (!isTrivia(currentToken)) {
diff --git a/src/services/formatting/smartIndenter.ts b/src/services/formatting/smartIndenter.ts
index ce240a95168..3aa97fe6ae6 100644
--- a/src/services/formatting/smartIndenter.ts
+++ b/src/services/formatting/smartIndenter.ts
@@ -12,10 +12,15 @@ module ts.formatting {
                 return 0;
             }
 
-            // no indentation in string \regex literals
-            if ((precedingToken.kind === SyntaxKind.StringLiteral || precedingToken.kind === SyntaxKind.RegularExpressionLiteral) &&
-                precedingToken.getStart(sourceFile) <= position &&
-                precedingToken.end > position) {
+            // no indentation in string \regex\template literals
+            var precedingTokenIsLiteral =
+                precedingToken.kind === SyntaxKind.StringLiteral ||
+                precedingToken.kind === SyntaxKind.RegularExpressionLiteral ||
+                precedingToken.kind === SyntaxKind.NoSubstitutionTemplateLiteral ||
+                precedingToken.kind === SyntaxKind.TemplateHead ||
+                precedingToken.kind === SyntaxKind.TemplateMiddle ||
+                precedingToken.kind === SyntaxKind.TemplateTail;
+            if (precedingTokenIsLiteral && precedingToken.getStart(sourceFile) <= position &&  precedingToken.end > position) {
                 return 0;
             }
 
diff --git a/tests/cases/fourslash/formatTemplateLiteral.ts b/tests/cases/fourslash/formatTemplateLiteral.ts
new file mode 100644
index 00000000000..a1f5ef963da
--- /dev/null
+++ b/tests/cases/fourslash/formatTemplateLiteral.ts
@@ -0,0 +1,13 @@
+/// <reference path="fourslash.ts"/>
+////var x = `sadasdasdasdasfegsfd
+/////*1*/rasdesgeryt35t35y35 e4 ergt er 35t 3535 `;
+////var y = `1${2}/*2*/3`;
+
+
+goTo.marker("1");
+edit.insert("\r\n"); // edit will trigger formatting - should succeeed
+
+goTo.marker("2");
+edit.insert("\r\n");
+verify.indentationIs(0);
+verify.currentLineContentIs("3`;")
\ No newline at end of file
diff --git a/tests/cases/fourslash/smartIndentTemplateLiterals.ts b/tests/cases/fourslash/smartIndentTemplateLiterals.ts
new file mode 100644
index 00000000000..679978a515c
--- /dev/null
+++ b/tests/cases/fourslash/smartIndentTemplateLiterals.ts
@@ -0,0 +1,17 @@
+/// <reference path="fourslash.ts"/>
+////var x0 = `sadasdasdasdas/*1*/fegsfdrasdesgeryt35t35y35 e4 ergt er 35t 3535 `;
+////var x1 = `sadasdasdasdas/*2*/fegsfdr${0}asdesgeryt35t35y35 e4 ergt er 35t 3535 `;
+////var x2 = `sadasdasdasdasfegsfdra${0}sdesge/*3*/ryt35t35y35 e4 ergt er 35t 3535 `;
+////var x3 = `sadasdasdasdasfegsfdra${0}sdesge/*4*/ryt35${1}t35y35 e4 ergt er 35t 3535 `;
+////var x2 = `sadasdasdasdasfegsfdra${0}sdesge${1}sf/*5*/ryt35t35y35 e4 ergt er 35t 3535 `;
+
+function verifyIndentation(marker: string): void {
+	goTo.marker(marker);
+	edit.insert("\r\n");
+	verify.indentationIs(0);
+}
+verifyIndentation("1");
+verifyIndentation("2");
+verifyIndentation("3");
+verifyIndentation("4");
+verifyIndentation("5");