diff --git a/packages/language-service/src/typescript_host.ts b/packages/language-service/src/typescript_host.ts
index dc5af0b247..8c7fcbd599 100644
--- a/packages/language-service/src/typescript_host.ts
+++ b/packages/language-service/src/typescript_host.ts
@@ -7,6 +7,7 @@
  */
 
 import {AotSummaryResolver, CompileDirectiveMetadata, CompileMetadataResolver, CompilerConfig, DEFAULT_INTERPOLATION_CONFIG, DirectiveNormalizer, DirectiveResolver, DomElementSchemaRegistry, HtmlParser, InterpolationConfig, NgAnalyzedModules, NgModuleResolver, ParseTreeResult, Parser, PipeResolver, ResourceLoader, StaticAndDynamicReflectionCapabilities, StaticReflector, StaticSymbol, StaticSymbolCache, StaticSymbolResolver, SummaryResolver, UrlResolver, analyzeNgModules, componentModuleUrl, createOfflineCompileUrlResolver, extractProgramSymbols} from '@angular/compiler';
+import {AngularCompilerOptions} from '@angular/compiler-cli';
 import {Type, ViewEncapsulation, ɵConsole as Console} from '@angular/core';
 import * as fs from 'fs';
 import * as path from 'path';
@@ -17,6 +18,7 @@ import {ReflectorHost} from './reflector_host';
 import {BuiltinType, CompletionKind, Declaration, DeclarationError, Declarations, Definition, LanguageService, LanguageServiceHost, PipeInfo, Pipes, Signature, Span, Symbol, SymbolDeclaration, SymbolQuery, SymbolTable, TemplateSource, TemplateSources} from './types';
 
 
+
 // In TypeScript 2.1 these flags moved
 // These helpers work for both 2.0 and 2.1.
 const isPrivate = (ts as any).ModifierFlags ?
@@ -386,9 +388,13 @@ export class TypeScriptServiceHost implements LanguageServiceHost {
 
       const tsConfigPath = findTsConfig(source.fileName);
       const basePath = path.dirname(tsConfigPath || this.context);
-
-      result = this._reflectorHost = new ReflectorHost(
-          () => this.tsService.getProgram(), this.host, {basePath, genDir: basePath});
+      const options: AngularCompilerOptions = {basePath, genDir: basePath};
+      const compilerOptions = this.host.getCompilationSettings();
+      if (compilerOptions && compilerOptions.baseUrl) {
+        options.baseUrl = compilerOptions.baseUrl;
+      }
+      result = this._reflectorHost =
+          new ReflectorHost(() => this.tsService.getProgram(), this.host, options);
     }
     return result;
   }
diff --git a/packages/language-service/test/diagnostics_spec.ts b/packages/language-service/test/diagnostics_spec.ts
index abb5d6c10b..0fc6629a56 100644
--- a/packages/language-service/test/diagnostics_spec.ts
+++ b/packages/language-service/test/diagnostics_spec.ts
@@ -281,6 +281,35 @@ describe('diagnostics', () => {
           fileName => expectOnlyModuleDiagnostics(ngService.getDiagnostics(fileName)));
     });
 
+    it('should be able to resolve modules using baseUrl', () => {
+      const app_component = `
+        import { Component } from '@angular/core';
+        import { NgForm } from '@angular/common';
+        import { Server } from 'app/server';
+
+        @Component({
+          selector: 'example-app',
+          template: '...',
+          providers: [Server]
+        })
+        export class AppComponent {
+          onSubmit(form: NgForm) {}
+        }
+      `;
+      const app_server = `
+        export class Server {}
+      `;
+      const fileName = '/app/app.component.ts';
+      mockHost.override(fileName, app_component);
+      mockHost.addScript('/other/files/app/server.ts', app_server);
+      mockHost.overrideOptions(options => {
+        options.baseUrl = '/other/files';
+        return options;
+      });
+      const diagnostic = ngService.getDiagnostics(fileName);
+      expect(diagnostic).toEqual([]);
+    });
+
     function addCode(code: string, cb: (fileName: string, content?: string) => void) {
       const fileName = '/app/app.component.ts';
       const originalContent = mockHost.getFileContent(fileName);
diff --git a/packages/language-service/test/test_utils.ts b/packages/language-service/test/test_utils.ts
index 0cd46fcd0e..399dc3aa53 100644
--- a/packages/language-service/test/test_utils.ts
+++ b/packages/language-service/test/test_utils.ts
@@ -69,6 +69,7 @@ export class MockTypescriptHost implements ts.LanguageServiceHost {
   private overrides = new Map<string, string>();
   private projectVersion = 0;
   private options: ts.CompilerOptions;
+  private overrideDirectory = new Set<string>();
 
   constructor(private scriptNames: string[], private data: MockData) {
     const moduleFilename = module.filename.replace(/\\/g, '/');
@@ -97,6 +98,7 @@ export class MockTypescriptHost implements ts.LanguageServiceHost {
     }
     if (content) {
       this.overrides.set(fileName, content);
+      this.overrideDirectory.add(path.dirname(fileName));
     } else {
       this.overrides.delete(fileName);
     }
@@ -105,13 +107,14 @@ export class MockTypescriptHost implements ts.LanguageServiceHost {
   addScript(fileName: string, content: string) {
     this.projectVersion++;
     this.overrides.set(fileName, content);
+    this.overrideDirectory.add(path.dirname(fileName));
     this.scriptNames.push(fileName);
   }
 
   forgetAngular() { this.angularPath = undefined; }
 
   overrideOptions(cb: (options: ts.CompilerOptions) => ts.CompilerOptions) {
-    this.options = cb(this.options);
+    this.options = cb((Object as any).assign({}, this.options));
     this.projectVersion++;
   }
 
@@ -136,6 +139,7 @@ export class MockTypescriptHost implements ts.LanguageServiceHost {
   getDefaultLibFileName(options: ts.CompilerOptions): string { return 'lib.d.ts'; }
 
   directoryExists(directoryName: string): boolean {
+    if (this.overrideDirectory.has(directoryName)) return true;
     let effectiveName = this.getEffectiveName(directoryName);
     if (effectiveName === directoryName)
       return directoryExists(directoryName, this.data);