diff --git a/res_handler_transform.go b/res_handler_transform.go
index 6a18fba8a68..4ffb47073bd 100644
--- a/res_handler_transform.go
+++ b/res_handler_transform.go
@@ -2,7 +2,10 @@ package main
 
 import (
 	"bytes"
+	"compress/flate"
+	"compress/gzip"
 	"encoding/json"
+	"io"
 	"io/ioutil"
 	"net/http"
 	"strconv"
@@ -23,6 +26,43 @@ func (h *ResponseTransformMiddleware) Init(c interface{}, spec *APISpec) error {
 	return nil
 }
 
+func respBodyReader(req *http.Request, resp *http.Response) io.ReadCloser {
+	if req.Header.Get("Accept-Encoding") == "" {
+		return resp.Body
+	}
+
+	switch resp.Header.Get("Content-Encoding") {
+	case "gzip":
+		reader, err := gzip.NewReader(resp.Body)
+		if err != nil {
+			log.Error("Body decompression error:", err)
+			return ioutil.NopCloser(bytes.NewReader(nil))
+		}
+		return reader
+	case "deflate":
+		return flate.NewReader(resp.Body)
+	}
+
+	return resp.Body
+}
+
+func compressBuffer(in bytes.Buffer, encoding string) (out bytes.Buffer) {
+	switch encoding {
+	case "gzip":
+		zw := gzip.NewWriter(&out)
+		zw.Write(in.Bytes())
+		zw.Close()
+	case "deflate":
+		zw, _ := flate.NewWriter(&out, 1)
+		zw.Write(in.Bytes())
+		zw.Close()
+	default:
+		out = in
+	}
+
+	return out
+}
+
 func (h *ResponseTransformMiddleware) HandleResponse(rw http.ResponseWriter, res *http.Response, req *http.Request, ses *user.SessionState) error {
 	_, versionPaths, _, _ := h.Spec.Version(req)
 	found, meta := h.Spec.CheckSpecMatchesStatus(req, versionPaths, TransformedResponse)
@@ -32,8 +72,8 @@ func (h *ResponseTransformMiddleware) HandleResponse(rw http.ResponseWriter, res
 	}
 	tmeta := meta.(*TransformSpec)
 
-	// Read the body:
-	defer res.Body.Close()
+	respBody := respBodyReader(req, res)
+	defer respBody.Close()
 
 	// Put into an interface:
 	var bodyData map[string]interface{}
@@ -41,7 +81,11 @@ func (h *ResponseTransformMiddleware) HandleResponse(rw http.ResponseWriter, res
 	case apidef.RequestXML:
 		mxj.XmlCharsetReader = WrappedCharsetReader
 		var err error
-		bodyData, err = mxj.NewMapXmlReader(res.Body) // unmarshal
+
+		bodyBuf, _ := ioutil.ReadAll(respBody)
+		log.Warning("BODY:", string(bodyBuf))
+
+		bodyData, err = mxj.NewMapXml(bodyBuf) // unmarshal
 		if err != nil {
 			log.WithFields(logrus.Fields{
 				"prefix":      "outbound-transform",
@@ -51,7 +95,7 @@ func (h *ResponseTransformMiddleware) HandleResponse(rw http.ResponseWriter, res
 			}).Error("Error unmarshalling XML: ", err)
 		}
 	default: // apidef.RequestJSON
-		if err := json.NewDecoder(res.Body).Decode(&bodyData); err != nil {
+		if err := json.NewDecoder(respBody).Decode(&bodyData); err != nil {
 			log.WithFields(logrus.Fields{
 				"prefix":      "outbound-transform",
 				"server_name": h.Spec.Proxy.TargetURL,
@@ -72,6 +116,10 @@ func (h *ResponseTransformMiddleware) HandleResponse(rw http.ResponseWriter, res
 		}).Error("Failed to apply template to request: ", err)
 	}
 
+	// Re-compress if original upstream response was compressed
+	encoding := res.Header.Get("Content-Encoding")
+	bodyBuffer = compressBuffer(bodyBuffer, encoding)
+
 	res.ContentLength = int64(bodyBuffer.Len())
 	res.Header.Set("Content-Length", strconv.Itoa(bodyBuffer.Len()))
 	res.Body = ioutil.NopCloser(&bodyBuffer)